Vanguard founder Jack Bogle has some advice for active managers: “Do nothing, just stand there.”

Addressing the 2017 Morningstar Investment Conference in Chicago on Thursday, Bogle took the mutual fund industry to task for short-sightedness and rampant conflicts of interest, but he also said that most of the traditional large fund complexes will survive the continuous shift to passive, index-following strategies.

“These large firms also have the resources to pursue other lines of business beyond investment management, although I don’t see how that strategy could create value for their mutual fund shareholders,” said Bogle.

Doing nothing, said Bogle, is more likely to benefit active managers than attempting to follow index funds toward lower fees, marketing more aggressively or launching their own index-fund lineups.

Bogle was also pessimistic that active managers could find success through offering their strategies within ETFs and “dubious” of the long-term staying power of smart beta products -- instead, major mutual fund conglomerates should keep their hands off the mutual fund business, says Bogle, and expand into other business lines to ensure their sustainability as going concerns.

“Maintain your fund business as the ‘cash cow’ that it is today, delivering high margins and generous profits, albeit likely at a declining rate,” said Bogle. “Don’t invest more capital. Don’t cut management fees. Nominal cuts won’t help, and severe cuts would eliminate those cash flows. While fund cash outflows are highly likely to continue, a sharply rising stock market, however unlikely, would help offset the outflows, slowing the declines in assets under management, fee revenues and profits.”

Although a “do nothing” strategy may serve mutual fund companies and their public ownership well, Bogle noted, it literally does nothing for the investors who hold assets within their funds.

“I understand that all enterprises face conflicts of one kind or another, and balancing business values with fiduciary values is no easy task,” said Bogle. “Even at the only firm in which the fund shareholders own the management company [Vanguard], conflicts exist, but it is my deeply-held opinion that the flawed structure of this industry has created deep fissures that will, ultimately have to be closed.”

Bogle noted that between 1982 and 2017, the S&P 500 enjoyed a 50-fold cumulative gain, but very few mutual funds offered comparable returns to their shareholders. At the same time, asset managers have enjoyed higher margins through harnessing economies of scale, but little if any of those economies were passed on to mutual fund shareholders.

According to Bogle, between 1951 and 2016, the total mutual fund fees and expenses collected by asset managers increased from $20 million to $110 billion, a 5,600-fold increase, while total AUM increased by 5,400 fold -- thus as asset managers have successfully scaled up their businesses, investors have gradually paid more for access to active mutual funds and all of the benefits of scale have been enjoyed by the owners of the asset managers, not their mutual fund shareholders.

Bogle proposed that this conflict of interest be resolved through “fiduciary asset management” that puts the interest of the mutual fund investors ahead of the public ownership of the conglomerate.

“The necessary resolution of this issue would be to roll back conglomerate ownership, came to grips with the public shareholder issue, and at last make it clear that the interests of mutual fund investors must come first -- it will not be an easy battle,” said Bogle.

His appearance at the Morningstar Investment Conference, which occurred by video, may never have happened if another industry group had not snubbed Bogle. The Vanguard founder originally appealed to the Investment Company Institute (ICI), requesting to speak at the group’s upcoming General Membership Meeting.

Bogle, who previously served as chairman of the ICI board of directors, said that he has not been invited to speak at an ICI conference in more than 30 years, despite the fact that Vanguard is the group’s largest member and dues payer. Bogle’s request to speak this year was rejected by ICI’s leadership, citing a desire to keep the peace between competing asset managers and investment philosophies.

“The things that I had to say were, I thought, worth hearing by those who care, and who care deeply, about the future of this industry -- the industry that I have loved for two-thirds of a century,” said Bogle. “Rejected by ICI, I asked Morningstar for an opportunity to speak at their annual Investment Conference. They immediately opened a slot for me.”