Scandal Did Not Erode Investor Trust: Brennan

The wave of scandals that has plagued the mutual fund industry in recent times has not eroded investors' trust, says Jack Brennan, chairman and chief executive of The Vanguard Group. Brennan, who was in Charlotte, N.C., this week meeting with Vanguard's 1,300 employees who operate a call center there, spoke to The Charlotte Observer..

With assets that grew by $56 billion to $815 billion last year, Vanguard, the second-largest fund company after Fidelity, has managed to steer clear of allegations such as late trading. These allegations, which began in September 2003, were part of New York Attorney General Eliot Spitzer's wider probe of the industry.

Brennan attributes his company's clean reputation to its focus on long-term performance, rather than its chase of fads. He also acknowledges the positive role that the markets have played in accelerating the company's growth. The stock market, for instance, which was up 12.5% last year, helped increase Vanguard's asset base and client retention substantially, Brennan says.

While investor trust hasn't been seriously eroded by the fund scandal, Brennan said, he nonetheless believes one of the primary reasons for its strong inflows recently is its low fees. Vanguard is able to charge low fees, Brennan said, mainly because it spares clients the extra burden of paying for marketing. In addition, the company strives to be prudent with administrative costs. Employees, for instance, fly coach and economize on hotel and transportation fares.

While Brennan agrees that self-regulation should help the industry, he said he doesn't want "to see regulation go overboard and hurt the client's ability to make decisions." One regulation he is in favor of, though, is disclosure of sales compensation.

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