Vanguard manages $3 trillion in assets for institutional and retail investors around the world; when they speak the world listens. Last week it wrote two letters to regulators taking issue with the U.S. Department of Labor’s proposed fiduciary rule.
The company is a big proponent of doing what’s in the best interests of clients but argues the current proposal would limit investor access to education and advisory services.
“Vanguard appreciates that the department is concerned about participants, IRA investors and smaller plans possibly being unable to distinguish between education and investment advice,” reads one letter to the department. “An outright prohibition on discussion of specific investment alternatives, however, would be harmful to all retirement investors.”
Vanguard takes issue with three specific aspects of the proposed rule.
First, under the DOL proposal, educational and marketing materials would be considered fiduciary in nature. In the fund company’s opinion the definition is far too broad putting regular investors at risk or forcing them to pay more for their financial advice.
Second, Vanguard maintains that only investment advice that is individualized to a specific client should be considered fiduciary in nature meaning target date funds and other products that provide rebalancing, etc., but are focused on an entire cohort and not one specific person shouldn’t be considered fiduciary in nature.
Ostensibly, under the DOL’s rule an advisor couldn’t deliver marketing materials to the client even though the generic solution could be in their best interests.
Vanguard’s last objection is more fundamental, arguing that no every communication with a client constitutes actual investment advice. Vanguard’s concern is that under the DOL’s definition of a fiduciary, financial institutions would have to cut back on the education they provide retirement investors or put them into fee-based services.
“The department’s current proposal would require considerable modifications to reflect investor expectations and to preserve investors’ access to important investment information and educational services,” writes Vanguard’s Martha King, managing director of institutional investment group, in a statement. “Without these modifications, the department’s proposal will likely increase the cost of investment services for many, and completely eliminate these services for others.”