A vanguard for mutual fund reform

John C. Bogle, founder of the Vanguard Group, thinks the mutual-fund industry may have become too greedy and merits extra scrutiny from federal regulators.

He wants them to "follow the money trail."

"We did it with Watergate, and we need to do it with the mutual-fund industry," he says.

"I've asked the [US Securities and Exchange Commission] to take a thorough look" at mutual funds and find out how much of the industry revenues are flowing back to fund shareholders, and how much are being pocketed by the industry or used for costly marketing programs, Mr. Bogle says.

He reckons the industry spends $10 billion to $15 billion a year for advertising and marketing - money that comes out of the pockets of fund shareholders.

"Sooner or later," Bogle hopes, fund companies will start disclosing how they direct their revenue flows, information that he says will help increase competition within the industry.

Currently, says Bogle, there is "no price competition within the industry."

Bogle is considered one of the most knowledgeable and influential voices within the mutual-fund industry. His experience dates back to the late 1940s, when he wrote his senior-year thesis at Princeton University on investment companies.

He founded the Vanguard Group and pioneered the concept of index funds.

In recent years he has stepped up his calls for mutual-fund reform - including his argument that the industry needs to alter its management structure to better serve shareholders.

Unlike most US mutual-fund companies, Vanguard is a "mutual" mutual-fund company. Its shareholders own both the funds and the management structure administering the funds.

Thus, it administers its own affairs on a cost-only basis, which means its expenses are much lower than all other US mutual-fund firms, where layers of corporate owners and management teams withdraw a substantial chunk of "profits."