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Performance Fees Don't Hurt, but Don't Help, Bogle Says

Vanguard founder Jack Bogle says he hasn't seen any evidence that adjusting pay for active managers based on performance works.

Christine Benz: Abigail Johnson from Fidelity had an interesting piece within the past week about performance fees, whether active managers should be paid more when they outperform and be paid potentially less when they underperform. What do you think of performance fees? I know Vanguard has had performance fees on some of its subadvised funds for years.

Jack Bogle: We've really basically been doing that since the beginning of Vanguard and even earlier. I'd say, charitably, there is absolutely no evidence that it works. Do funds with performance fees up and down do better than those without? There's no evidence of that. There's a lot of evidence that funds with performance fees, let me say a performance fee with 1%, another quarter of a percent, if you beat the index by a couple of percentage points a year, down a quarter if you don't, and the manager says, "Why have we never beat the index? So, we don't we just change the fee to 1%?" And they did and they do.