Vanguard under attack

[docnews]

Wall Street to Vanguard: We’re Not Your Doormat https://www.wsj.com/articles/wall-street-to-vanguard-were-not-your-doormat-anymore-1517157915

If you can't get beyond the paywall, the summary is that Fidelty is going to charge employers (somewhat hidden from employees) 0.05% for Vanguard funds in a 401k. This is on top of TD Ameritrade dropping Vanguard from the no commission list (affecting those investing via HSA Bank). Morgan Stanley and Merrill Lynch bans their financial advisors from using Vanguard funds.

I don't blame these companies but I think those who think investing through other companies other than Vanguard is safe are eventually going to get hosed. The only reason they have low cost index funds is to compete with Vanguard.

"One reason Vanguard has been able to offer such low fees for so long is the structure of its business: It is owned by its fund shareholders." This structure is key and is why I'm glad my 401k and Roths are with Vanguard. I just wish they'd offer a stripped down HSA meant for investing (who needs that costly HSA debit card really?).

[djohnflatfeecfp]

Thanks for sharing a summary.  I would love to see the article, but dropped my WSJ subscription some time ago.

 

In case you have never listened to it, here is a great Freakonomics podcast which gives some insight into Bogle and Vanguard's history and philosophy.  Definitely worth the listen, in my opinion.

[ajm184]

I get though disagree with the idea that 'Vanguard' is under attack because other brokerages are a. not allowing use of Vanguard or b. charging for 'admin' expenses associated with Vanguard.

If this is the 'response'; it is far too little and too late.  For the Fidelity, I sorta get it, a number of their index fund offerings compete directly with 'Vanguard' offerings and their response will hopefully buy them additional time to provide additional offerings and gather sufficient assets compete more broadly.  Merrill and Morgan have in my opinion are rightly closing off Vanguard because it is a threat to their entire business model on the retail financial advisory side.

A small example, 25 odd years ago the vast majority of the folks on this sites NW would have been held at one of Merrill, Morgan, etc. because between the choice and cost, the options were 'limited'.  Each 1% aggregate change of folks using low cost index funds as core retirement investments is both a hit to the bottom line now, and a change in approach/mindset that is significantly more difficult to overcome with the commission/AUM model used by Merrill/Morgan later.

[Hank]

Kind of hard for Merrill Lynch and Morgan Stanley to claim they’re acting as fiduciaries if they bar their financial advisors from using Vanguard.

[VagabondMD]

I read the article yesterday. I think it over sensationalizes Vanguard’s competitors make wise business decisions to effectively compete. I mean if Fidelity is “attacking” Vanguard by competing to bring down prices, I am all in favor of the “attacks”, even if it means adding fees and surcharges to buying Vanguard products within the Fidelity ecosystem. You would not go to McDonald’s and order a Whopper, would you?

[spiritrider]

I have a different take on this. Vanguard is not under attack, they have been the parasitic attackers and it is about time fairness is applied.

• A record keeper/administrator has significant expense to operate a 401k/403b/457b. They recoup those expenses first thru revenue sharing from the fund companies and then administrative fees (fixed and/or AUM) paid by the employer and/or participants.


• The result of Vanguard getting a free ride is that lost revenue sharing must be made up in higher fees for the employer and/or employees. So essentially all participant are subsidizing Vanguard funds. Do you really think someone who does not invest in Vanguard funds should be subsidizing you. I own Vanguard funds in a 401k and I do not.


• Vanguard is well aware of how revenue sharing works in the plans they manage. They do not refuse this money from other fund companies and for further proof they know exactly what they are doing. They issue significant plan expense credits on Vanguard assets held in Vanguard plans.


• I submit that plan sponsors (employers), administrators and record keepers have been remiss in their responsibilities to their participants. I'm not saying Fidelity should be congratulated, quite the opposite. They are assessing this fee to the plan sponsors. Essentially making participants not investing in Vanguard funds subsidize even more. These fees should be assessed to the participants holding the assets. Even though the result would be highers fees for myself.

I repeat it is about time, but the fee should be assessed to the participants. Maybe it would be contrary to regulations, but to me it would actually remedy disparity.

Then again, I'm the guy who doesn't mind being disadvantaged by tax reform if it seems fair and benefits most people.

[Kamban]

I like Vanguard, but.....

Maybe if the employees want Vanguard funds to choose with no additional cost then they should ask their plan administrators to have it set up at Vanguard. Why go to Fidelity and demand that they carry Vanguard at low rates with no surcharges.

Or let them reciprocate. Fidelity should carry Vanguard funds with no extra fees and Vanguard carries Fidelity funds. Will Vanguard agree to it.

[Rose Boy]

spiritrider wrote:

I have a different take on this. Vanguard is not under attack, they have been the parasitic attackers and it is about time fairness is applied.

• A record keeper/administrator has significant expense to operate a 401k/403b/457b. They recoup those expenses first thru revenue sharing from the fund companies and then administrative fees (fixed and/or AUM) paid by the employer and/or participants.


• The result of Vanguard getting a free ride is that lost revenue sharing must be made up in higher fees for the employer and/or employees. So essentially all participant are subsidizing Vanguard funds. Do you really think someone who does not invest in Vanguard funds should be subsidizing you. I own Vanguard funds in a 401k and I do not.


• Vanguard is well aware of how revenue sharing works in the plans they manage. They do not refuse this money from other fund companies and for further proof they know exactly what they are doing. They issue significant plan expense credits on Vanguard assets held in Vanguard plans.


• I submit that plan sponsors (employers), administrators and record keepers have been remiss in their responsibilities to their participants. I’m not saying Fidelity should be congratulated, quite the opposite. They are assessing this fee to the plan sponsors. Essentially making participants not investing in Vanguard funds subsidize even more. These fees should be assessed to the participants holding the assets. Even though the result would be highers fees for myself.

I repeat it is about time, but the fee should be assessed to the participants. Maybe it would be contrary to regulations, but to me it would actually remedy disparity.

Click to expand...

This is exactly what's happening at my University right now. We used to have the option to invest with either TIAA or Vanguard, but they are in the process of changing to having only TIAA as the record keeper. They still offer Vanguard funds (and at really low, institutional-level share classes), but will begin to assess yearly fees on the plan holders for the record keeping. It has led to lots of confusion here, but I think it will be better in the long term.

[Zaphod]

There was a lot of liberty in the headline, not really whats happening.

[WallStreetPhysician]

docnews wrote:

Wall Street to Vanguard: We’re Not Your Doormat https://www.wsj.com/articles/wall-street-to-vanguard-were-not-your-doormat-anymore-1517157915

If you can’t get beyond the paywall, the summary is that Fidelty is going to charge employers (somewhat hidden from employees) 0.05% for Vanguard funds in a 401k. This is on top of TD Ameritrade dropping Vanguard from the no commission list (affecting those investing via HSA Bank). Morgan Stanley and Merrill Lynch bans their financial advisors from using Vanguard funds.

I don’t blame these companies but I think those who think investing through other companies other than Vanguard is safe are eventually going to get hosed. The only reason they have low cost index funds is to compete with Vanguard.

“One reason Vanguard has been able to offer such low fees for so long is the structure of its business: It is owned by its fund shareholders.” This structure is key and is why I’m glad my 401k and Roths are with Vanguard. I just wish they’d offer a stripped down HSA meant for investing (who needs that costly HSA debit card really?).

Click to expand...

Fidelity offers their Total Stock Market index fund to big institutions at an expense ratio of 0.015% (https://fundresearch.fidelity.com/mutual-funds/summary/315911693). If I were a large employer, I'm not sure why I wouldn't offer Fidelity index funds instead of Vanguard to my employees.

-WSP

[ENT Doc]

spiritrider wrote:

I have a different take on this. Vanguard is not under attack, they have been the parasitic attackers and it is about time fairness is applied.

• A record keeper/administrator has significant expense to operate a 401k/403b/457b. They recoup those expenses first thru revenue sharing from the fund companies and then administrative fees (fixed and/or AUM) paid by the employer and/or participants.


• The result of Vanguard getting a free ride is that lost revenue sharing must be made up in higher fees for the employer and/or employees. So essentially all participant are subsidizing Vanguard funds. Do you really think someone who does not invest in Vanguard funds should be subsidizing you. I own Vanguard funds in a 401k and I do not.


• Vanguard is well aware of how revenue sharing works in the plans they manage. They do not refuse this money from other fund companies and for further proof they know exactly what they are doing. They issue significant plan expense credits on Vanguard assets held in Vanguard plans.


• I submit that plan sponsors (employers), administrators and record keepers have been remiss in their responsibilities to their participants. I’m not saying Fidelity should be congratulated, quite the opposite. They are assessing this fee to the plan sponsors. Essentially making participants not investing in Vanguard funds subsidize even more. These fees should be assessed to the participants holding the assets. Even though the result would be highers fees for myself.

I repeat it is about time, but the fee should be assessed to the participants. Maybe it would be contrary to regulations, but to me it would actually remedy disparity.

Then again, I’m the guy who doesn’t mind being disadvantaged by tax reform if it seems fair and benefits most people.

Click to expand...

I disagree with this.  How exactly is Vanguard "leeching" off anyone or being "parasitic attackers" here?  They offer a service cheaper than nearly everyone and are good at it.  This is the nature of competition - price and/or quality.  If the plan administrator doesn't see that they can recoup funds they don't have to offer Vanguard funds.  Further, those people who made the independent choice to not buy Vanguard funds and purchased funds at higher rates had all the power in the world to buy Vanguard funds, did they not?  The subsidization you describe is not a result of Vanguard's choices or actions but that of the administrator and how they have chosen to apply fees and funds they have elected to allow.  Vanguard's awareness or lack thereof has no bearing on that decision.

[Hatton]

I used merrill for a number of years.  It always irritated me that I did not have the option to buy Vanguard funds.  Once Vanguard starting offering ETFs I could buy Vanguard products.  I had an epiphany and moved all my money to Vanguard and have loved it.  My view is that Schwab and Fidelity are offering loss leading products to stop everyone from going to Vanguard.  I have no idea how long they will do it.  At some point they may increase the ERs.  But what do I know I am not a financial professional.

[bean1970]

hatton1 wrote:

I used merrill for a number of years.  It always irritated me that I did not have the option to buy Vanguard funds.  Once Vanguard starting offering ETFs I could buy Vanguard products.  I had an epiphany and moved all my money to Vanguard and have loved it.  My view is that Schwab and Fidelity are offering loss leading products to stop everyone from going to Vanguard.  I have no idea how long they will do it.  At some point they may increase the ERs.  But what do I know I am not a financial professional.

Click to expand...

must be only Merrill Lynch because my kid's brokerage account is at Merrill Edge and I did a lazy vanguard portfolio for him with vanguard funds. Ever since BoA spun off Merrill Edge i have no idea why anyone would use Merrill Lynch anymore..........

[Rose Boy]

bean1970 wrote:

hatton1 wrote:

I used merrill for a number of years.  It always irritated me that I did not have the option to buy Vanguard funds.  Once Vanguard starting offering ETFs I could buy Vanguard products.  I had an epiphany and moved all my money to Vanguard and have loved it.  My view is that Schwab and Fidelity are offering loss leading products to stop everyone from going to Vanguard.  I have no idea how long they will do it.  At some point they may increase the ERs.  But what do I know I am not a financial professional.

Click to expand…

must be only Merrill Lynch because my kid’s brokerage account is at Merrill Edge and I did a lazy vanguard portfolio for him with vanguard funds. Ever since BoA spun off Merrill Edge i have no idea why anyone would use Merrill Lynch anymore……….

Click to expand...

Merrill Edge charges a $19.95 fee for Vanguard fund purchases, sales, exchanges. The fee for buying ETFs is $6.95. You can for sure do Vanguard funds through Merrill Edge, but it's far cheaper to do ETFs.

[bean1970]

Rose Boy wrote:

bean1970 wrote:

hatton1 wrote:

I used merrill for a number of years.  It always irritated me that I did not have the option to buy Vanguard funds.  Once Vanguard starting offering ETFs I could buy Vanguard products.  I had an epiphany and moved all my money to Vanguard and have loved it.  My view is that Schwab and Fidelity are offering loss leading products to stop everyone from going to Vanguard.  I have no idea how long they will do it.  At some point they may increase the ERs.  But what do I know I am not a financial professional.

Click to expand…

must be only Merrill Lynch because my kid’s brokerage account is at Merrill Edge and I did a lazy vanguard portfolio for him with vanguard funds. Ever since BoA spun off Merrill Edge i have no idea why anyone would use Merrill Lynch anymore……….

Click to expand…

Merrill Edge charges a $19.95 fee for Vanguard fund purchases, sales, exchanges. The fee for buying ETFs is $6.95. You can for sure do Vanguard funds through Merrill Edge, but it’s far cheaper to do ETFs.

Click to expand...

I did pay $19.95 but then I set up automatic investment which is free.   I went with the funds because they are set up on automatic monthly investing.. Still can't do that with ETFs at Edge (or really anywhere for that matter).  For almost 15 years we bought stocks on automatic investing, but that institution is no longer in business.....that is a bummer.