Vanguard scores quick non-aggression pact with FDIC by surrendering proxy powers but analyst asks: 'Why die on that bridge?'

Typical RIABiz lefty take on a completely logical and appropriate development by the regulators and regulated. It's only the beginning, a precursor of things to come under the new administration. The narrow focus on U.S. bank stocks in this instances is a function of the regulator in this case (FDIC). I anticipate that this framework (requiring passive investors to act in a strictly passive manner), and rejecting the increasingly political stewardship activities that have been encouraged by social/political activists and embraced by left-leaning executive leadership in the asset management industry will become a primary objective under new SEC leadership. The influence of left-leaning social/political activists and orgs such as NZAM on passive investments are coming to an end. And unlike the spin in this and other left-leaning industry media, we should view this as a good thing. Passive investors do no share the agendas of social/political activists, and their investments should never be burdened with shareholder value destroying political activism. It was always a gross violation of asset managers' fiduciary obligations, it just took some political and regulatory backbone to finally get the politics out of investments and out of our regulators. I look forward to the day when passive investment managers collectively return to their roots, and quit trying to play politics with other peoples' money.

Randy, Thank you for your fair and constructive take, even if I'm sure how much of it I agree with. I'm personally not sure whether ESG [done in the right spirit] is the highest form of fiduciary, or, as you say, a 'gross violation.' I doubt there is much evidence either way. The lefty-ism of my introductory note was to get at political irony and point out that regulation itself isn't right or wrong. How it's used is right or wrong in the eye of the beholder. Is it right to hog tie Vanguard in a new layer of red tape when it has no history of throwing its weight around with banks, or making ESG calls with its index funds? That preemptive move by the FDIC -- albeit with Vanguard quick to sign on -- sure sounds like 'playing politics' in your vernacular and something China might do to one of its companies. Then again, it may just be a practical good solution, given thjat Vanguard is not a board-shaking company, as Jeff DeMaso points out rightly. What I think I know is that the world is going the wrong way on climate change and we have been instructed by conservatives that the government has little or no place in trying to address that glaring issue. Then we see private industry i.e. fund managers and investors in this case, step into that void, and try to address climate issues with ESG . Conservatives -- in this case -- use the 'socialist' government to stop free enterprise from using its influence. The ostrich playbook still says we can destroy the earth so long as it doesn't 'destroy value'. I think in the RIA business we are trying to think holistically, which means seeking optimal outcomes [like our grandchildren surviving on Earth] over financial absolutes. Even a new Trump administration hasn't changed that basic necessity.

Thanks Brooke. I really appreciate the exchange. We all know the action organized by Engine No 1 that changed the board membership at ExxonMobil. It was a naked political effort that leading index managers supported using investor dollars. Thankfully in the last year, asset managers and public corporations have seen the writing on the wall. They've come to understand the growing financial and regulatory liability they're creating by playing politics with other peoples' money. Increasing legal and regulatory risk are already creating a return to apolitical asset management and corporate policy, and the remaining political baggage will be shed starting in January under a different regulatory regime and enforcement focus. I don't know what the best policy is for climate change, or racism, or other social causes. It's not my job, and it's certainly not Vanguard's. The redefinition of "fiduciary" to include solving societal problems isn't okay. If an investor cares, there are plenty of funds for that. Unsurprisingly, ESG fund performance is proof enough that it's not in any investor's interests. The fever dream that's gripped our industry the last 15+ years; this idea that NGOs could contort investor portfolios across the globe through coordinated asset manager activity to literally change the planet... it's over. Investor portfolios are not tools in the hands of asset managers and NGOs to solve social or political problems. Vanguard gave in, because it cost them nothing. They can easily agree to the FDIC's requests because they're an inherently apolitical passive asset manager. It will be more interesting to see how the other biggies respond, and how quickly this expands into an SEC mandate spanning all public securities rather than just the banking sector.