Vanguard’s Gain Is Wall Street’s Pain as Billions Leave the Financial Industry

[ImCheap]

Nice write up of why Wall Street is not very fond of Vanguard.

http://www.bloomberg.com/news/articles/2015-12-01/vanguard-s-gain-is-wall-street-s-pain-as-billions-leave-the-financial-industry

While Washington has long been debating how to reform big Wall Street banks, Vanguard Group is quietly doing just that as the company and its army of index funds remove about $20 billion a year in revenue from the financial industry.

[Izus]

Haha, I logged on to post this very article... beat me to it! :)

[mizzourah2006]

Yeah, this is great news because in order to stay relevant these active mutual funds will need to drastically lower their ERs. This is good news for everyone, even the less educated that feel they need "expert" advice.

[TheAnonOne]

The article implies that eventually the market will be almost entirely within Vanguard and then active managers can beat it.

However, I doubt it will ever get to that point. More likely, the market will settle at some value of passive/active and there will be many new investors that will be sold to.

This is a good thing, as it will keep more money in the market (via lower fees world-wide).

Vanguard and Vanguard-Like funds will help keep the market growing a bit longer...

[pdxbator]

Many many people still have financial advisers who manage their money for them. They aren't a dying breed exactly.

[Clean Shaven]

Bloomberg article was picked up on Gawker too:
http://gawker.com/the-company-thats-a-bigger-threat-to-wall-street-than-o-1745703875

[ImCheap]

Many many people still have financial advisers who manage their money for them. They aren't a dying breed exactly.

My crystal ball tells me many Financial Advisors will be using Index funds like Rick Ferri (he is one of the good guys). Some of the fancy named funds are really closet index funds when you look under the hood, I always find that funny.

Not this is a bad thing, to me this is where having a Financial Advisor makes sense. The Financial Advisor uses a basket of index funds and keeps the client from doing something stupid based on emotions. I don't think 1% AUM is a working model however, more so at todays rates. If one thinks a 3% SWR is sane its going to be a tough nut to swallow to give up 1/3 of your income away in fees, that's were the rub is in my eyes.

[El Marinero]

... as Vanguard is now on pace to add a cool $1 trillion in assets every few years, it is effectively becoming a massive wealth transfer machine funneling money out of the financial industry and into individual investors’ accounts.

Sounds good to me...

That line stood out for me too.  It does summarize how disruptive Vanguard has been - and I mean that in a good way.

[Frugancial Advisor]

Vanguard recently mass-marketed a campaign stating quote "Financial Advisors add an average of 3% in net returns through seven dimensions of financial advice".

I find this a little misleading. What role exactly does Vanguard play? I respect them as an investment company like no other, but this new marketing ploy has me wondering if they aren't recommending fee-based Financial Planners who use Vanguard ETFs exclusively.

My question is, with Vanguard being 'owned' by its shareholders, what exactly do they stand to gain in mass-marketing this message? Hopefully it's simply the importance of working with a qualified financial planner - but I can't help but wonder how that benefits them, and rather, how they justify paying the massive advertising bill...

[FireLane]

Great article! I especially liked the chart showing how much higher fees are for fund types that don't have a Vanguard equivalent than for those that do. It really drives home how much money fund managers were extracting from their clients just because they could.

[Vilgan]

Most people I know on Wall Street, including those making 7 figures, use and recommend index funds. They are happy to recommend various tactics that generate fees to clients but are not going to pay a management fee themselves when they have an above average understanding of finance.