An essay by Vanguard founder John Bogle, published in a recent issue of the CFA Institute’s Financial Analysts Journal, offers insights and guidance concerning the need for balance between professional values and business values in the world of investing and finance. This is the second installment of a five-part series outlining highlights of the essay.

These are some of the pressures that Bogle argues impedes the balance between profession and business:

• New technologies: The lower costs associated with today’s computer-driven securities trading as well as robo-advisor products “which use technology to make inroads into traditional methods of providing advice to individual investors—at far lower fees.”
• The growing importance of making money: “Greed unbound,” writes Bogle, “is inconsistent with professional conduct.”
• The rise of institutional ownership: With the dramatic increase in financial institutions’ ownership of U.S. stocks (which, Bogle says, has grown from 8% in 1960 to 70% in 2017), a challenge arises in the form of a conflict of interest between a firm’s pleasing its mutual fund shareholders (who seek lower costs) and it’s management company shareholders (who seek higher advisory fees).
• The growing power of indexing: The focus of investment advice, Bogle argues, “is beginning to turn away from selection of particular stocks and mutual funds and toward asset allocation, financial planning and retirement goals.”
• The fiduciary standard: The standard proposed by the US Department of Labor, which requires stockbrokers, investment advisers and insurance salespersons to act in the best interests of their clients ahead of their own comes with “heavy record-keeping burdens,” Bogle says, “but its underlying principle would seem self-evident and unarguable.”