That giant sucking sound is Vanguard

[harley]

Someone has noticed that Vanguard is impacting the pocketbooks of the financial services companies on Wall Street. It's an entertaining article, if a little light on facts (it is Gawker, after all). The Company That's a Bigger Threat to Wall Street Than Occupy

Vanguard’s assets now stand at $3.1 trillion, which effectively means that this year alone it will have removed more than $16 billion from the financial industry just through fees. That figure is based on the average asset-weighted fee of a Vanguard fund of 0.13 percent, compared with the 0.66 percent average asset-weighted fee of an active mutual fund...

Until now, the asset numbers probably weren’t big enough to trouble Wall Street, but 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.

 

[ExFlyBoy5]

Someone has noticed that Vanguard is impacting the pocketbooks of the financial services companies on Wall Street. It's an entertaining article, if a little light on facts (it is Gawker, after all). The Company That's a Bigger Threat to Wall Street Than Occupy

It shouldn't surprise the fat cats of Wall Street. People are getting smarter about their $$$ and are figuring out that paying exorbitant "management fees" is pretty damn stupid.

Here's something interesting. I shared this article with a "friend" on Facebook who is an "advisor" for Edward Jones. Not 30 seconds later, he apparently un-friended me. I didn't really care for the guy, anyway.

 

[RunningBum]

The money is going into individual investors' accounts, and most of it is being invested back into the corporations. If I've got $10K to invest, I'm going to invest $10K, but through lower fees I've got another ~$50 invested rather than being skimmed off. Good for every, except the Wall Street firms.

 

[travelover]

Bogle's revenge. heh, heh, heh

 

[MRG]

I w*rked around the fund industry, it's still a good old boy club. Small and everybody knows each other. I'm sure Jack was not a popular person among his peers.

 

[pb4uski]

You would think that with all the butt kicking that they are doing that they could give us guys that made them successful a free copy of Turbo Tax.

 

[rdy2go]

I also saw that article this morning and can just imagine all the fat cats complaining about what vanguard is doing to them.

 

[ERD50]

If you add in the effect that Vanguard has had on other places like Fidelity, who have had to lower fees to compete, then it is more than just the assets at Vanguard that are sucking fees out of the system.

-ERD50

 

[Mo Money]

Right as I retired, I rolled over my 401K to Vanguard. I knew it was stupid to continue to pay the fees to the FA who handled the 401K. While I was w*rking, I had to use the FA because it was my management's choice. The 401K had a limited selection of (managed) investment options.

Right before I rolled it over, I ran a performance comparison of my similarly allocated non-401K portfolio vs. the 401K: My index funds had outperformed the FA by >2% for 1, 3 and 5 years. (10 year data was not available.)

The amount of money I will save (in fees alone) should pay for my health insurance for the rest of my life, with enough money left over to fund a short additional vacation each year.

Yet my former FA still manages billions, blithely collecting its fees from other [-]chumps[/-] customers. Thank heavens for Bogle and Vanguard. I hope the "sucking" sound continues....

 

[harley]

They got one thing wrong, though.

Vanguard, simply by offering less greedy prices for its services, is in effect accomplishing the same thing that a tax on Wall Street that was then refunded to investors as a tax credit would accomplish.

Actually, it's more like they taxed Wall Street and then gave the proceeds to Vanguard investors. Even better (for me).

 

[youbet]

If you add in the effect that Vanguard has had on other places like Fidelity, who have had to lower fees to compete, then it is more than just the assets at Vanguard that are sucking fees out of the system.

-ERD50

+1

I'm not sure I want to invest the time in researching it, but I'll bet that in addition to the 3.1T at Vanguard, there's also a huge amount in low cost, no load funds at Fidelity, Schwab, etc. Then add in low cost ETF's offered by other companies. A chunk-o-change I'm sure.

I give a lot of credit to Bogle for pushing the whole philosophy. It spread rapidly. I first heard of investing in no load, low cost funds from Bob Brinker many years ago on his weekly show.

 

[mathjak107]

i still remember the days most fidelity funds had loads .

 

[donheff]

A lot of 401Ks are catching up. DW's firm now has a bunch of Vanguard funds in their offerings plus some popular managed funds. It is a law firm so I assume the managing partner listened to other partners in choosing the fund administrator.

 

[MRG]

According to ICI the average fee for an equity fund was .99 in 2000 and .70 in 2014. Not a bad decrease for the consumer.

In the same time period, index fund assets have gone from 384 billion to 2.1 trillion in AUM. This is across all fund families.

 

[Lsbcal]

We've had a VG account since the 1970's. I hope they don't get too successful. Competition is a good thing for the consumer.

Also I think the VG web site could improve. Bigger isn't better after the first few hundred billion.

 

[Markola]

Vanguard, Amazon and Walmart are all low cost disrupters, and more power to them. I wish one of them would get into healthcare and higher education.


Sent from my iPad using Early Retirement Forum

 

[harley]

I think Walmart is getting into healthcare. Health Care For $4: Are You Ready For Walmart To Be Your Doctor?

 

[youbet]

A lot of 401Ks are catching up. DW's firm now has a bunch of Vanguard funds in their offerings plus some popular managed funds. It is a law firm so I assume the managing partner listened to other partners in choosing the fund administrator.

Yep. My MegaCorp 401k offers only 9 fund choices, all index based, and with ER's actually lower than Vanguard's Admiral Shares. Despite being away from MegaCorp for almost a decade now, I still haven't moved the funds to a rollover IRA.

Money Market
Short Bond
Intermediate Bond
Large Cap Equity
Medium Cap Equity
Small Cap Equity
International Equity
Conservative Blend
Moderately Aggressive Blend

My wife's 403b was horrible. She was offered a selection of 403b providers, mostly insurance company based, and all featured high cost managed funds. It was a struggle for me to help her find a decent path to follow, although in the end I estimated she did a bit better than if she had invested the money post tax over the 30+ yrs she contributed. As with all the 403b plans I've heard of, there was zero match. High fees and no match, ugh! When she retired, she moved the money to a rollover IRA pronto!

 

[mpeirce]

My wife's 403b was horrible. She was offered a selection of 403b providers, mostly insurance company based, and all featured high cost managed funds.

403(b)s offered by school districts are notoriously bad. Very high fees with often shady operators. Many in my family (and DW's family) are teachers and they all seem to have awful options. I've helped a few of them roll into Vanguard after they retire. Many of the funds they owned had 5% front end loads! Criminal!

One family member in administration is convinced that their district treasurer is getting some sort of kickbacks, because he just won't change the plan they have from a high fee company.

My observation (around here at least) is that the financial folks most districts can attract are fairly clueless. If they were better, they get a much better paying job elsewhere. (Sadly, also true for school tech people - I was helping our local district with some stuff and any one who was competent was quickly snapped up by local business that paid much better).

 

[youbet]

I think Walmart is getting into healthcare. Health Care For $4: Are You Ready For Walmart To Be Your Doctor?

Although a standard visit will be $40, not $4.

Walmart’s stressed that their clinics will be a low-cost alternative to traditional options: Walk-in visits will cost just $40.

Sounds a bit similar to the mini-clinics CVS offers. Nurse practitioner, takes insurance and Medicare, good for getting vaccinations, school physicals, etc. I've used 'em and it was OK.

 

[mickeyd]

She was offered a selection of 403b providers, mostly insurance company
based, and all featured high cost managed funds.

She needs to complain to the benefits manager or HR chief that the selection sucks. It is HER retirement fund not the school district's. She has a right to demand a Plan that suits her low cost demands.

 

[youbet]

403(b)s offered by school districts are notoriously bad.

That would be the understatement of the day!

I understand the trouble started with legislation (quite a few years ago now and heavily supported by the "high cost providers") that called for 403b providers to be able to provide face-to-face access to "advisers." The idea was to provide beneficial advise to employees in understanding retirement goals, selecting funds, etc. and keep them from making financial mistakes.

In reality the legislation did two things:

(1) It kept low cost providers that don't have lots of local offices and bag draggers from qualifying.

(2) The "face-to-face" contact didn't, in most cases, provide any worthwhile advise or education to the employees. Rather, it just exposed them to commission compensated sales people.

I recall from many years ago, DW's school district had an "information day" where bag draggers from insurance companies and similar came in and gave presentations on their oh-so-fine companies and themselves and asking the teachers to sign up with them. I went with DW. It was like sitting there trying to make a choice between the Edward Jones bag dragger and the Ameriprise bag dragger. Sooooo painful!

She went with ING. The bag dragger came to our home to[-] steal every penny we had [/-] get her started with deductions and chosing funds one evening. It turned out, he wasn't too bad a guy in that when I explained she would not ever, not once, not ever, never pay a penny of load, he did dig through things with us and DW wound up with some no load equity funds and some interest bearing accounts that were C+ performers in the long run.

Still, when I compared her 403b situation to my 401k situation with MegaCorp, it was night and day. I got a decent match + profit sharing + ESOP added to my 401k by my employer and a satisfactory selection of very low cost index funds. She got no match and the opportunity to arm wrestle with a bag dragger over buying loaded funds, etc.

She's been retired a long time. Things might have changed. I don't think so. Maybe a current teacher can comment?

 

[youbet]

She needs to complain to the benefits manager or HR chief that the selection sucks. It is HER retirement fund not the school district's. She has a right to demand a Plan that suits her low cost demands.

The rules and regs make it tough. It's been a long time since I went through all this, but providers were mandated to have to provide a level of face-to-face presence that many low cost providers did want to do.

The district finance guy claimed all providers that met the requirements were allowed in. But the requirements gave an advantage to insurance companies and commission salespeople based companies like Ameriprise and Jones. The same folks who backed the legislation.

I hope this has changed. DW has been retired 14 yrs and we moved her into a rollover IRA immediately. Since then, I have been relieved to not have to worry about it and haven't. Just a past nightmare.

 

[Midpack]

That would be the understatement of the day!

I understand the trouble started with legislation (quite a few years ago now and heavily supported by the "high cost providers") that called for 403b providers to be able to provide face-to-face access to "advisers." The idea was to provide beneficial advise to employees in understanding retirement goals, selecting funds, etc. and keep them from making financial mistakes.

In reality the legislation did two things:

(1) It kept low cost providers that don't have lots of local offices and bag draggers from qualifying.

(2) The "face-to-face" contact didn't, in most cases, provide any worthwhile advise or education to the employees. Rather, it just exposed them to commission compensated sales people.

If it makes you feel any better, many government employers and private companies (including my former employer) offered a limited choice of chronically horrible high ER funds.

The once a year 'face to face' meetings with advisors were completely useless - undoubtedly designed to confuse employees to make them think they needed to pay them for more advice. I overheard many of them directed at my employees.

Our in-company 401k committee (all people I knew very well) was made up of two very senior execs (who undoubtedly used big name full retail brokers all their lives) and four HR employees who knew absolutely nothing whatsoever about investing. They changed 401k administrators 4 times in 15 years. Of course the HR department fielded all 401k questions and when I'd ask them a relatively simply question (like 'why don't we have any index funds?' - almost all of our choices were actively mangled), they always had to 'get back to me.' I could almost see the initial German Shepard look from 500 miles away...

IOW, the horror stories still cut across all.

 

[Chuckanut]

I think Walmart is getting into healthcare. Health Care For $4: Are You Ready For Walmart To Be Your Doctor?

IIRC, one of the Rx by mail outfits is going to offer their own version of that generic drug that has been in the news because the only supplier was bought out and the price raised to some astronomical level. Aha! Here it is:

Express Scripts offers low-cost alternative to Turing drug | Fox News

To get back on topic, the entire investment scene has been over complicated as far as most people are concerned. I've been running a SS for my simple, lazy guy portfolio - 35% Total US stocks, 15% Total Int. Stocks, 25% Total US Bonds, and 25% Vanguard Wellesly. You can do worse.