Morgan Stanley drops Vanguard funds

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Whakamole
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Morgan Stanley drops Vanguard funds

Post by Whakamole » Wed May 03, 2017 7:30 pm

For those using Morgan Stanley accounts and who own Vanguard mutual funds there: http://www.reuters.com/article/us-morga ... SKBN18001I

Looks like it only impacts mutual funds (not ETFs); existing shareholders will still be able to reinvest/add money until early next year.

Sidney
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Re: Morgan Stanley drops Vanguard funds

Post by Sidney » Wed May 03, 2017 8:05 pm

This says it all
Morgan Stanley, the largest U.S. brokerage by salesforce
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canbonbon
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Re: Morgan Stanley drops Vanguard funds

Post by canbonbon » Thu May 04, 2017 6:41 am

That is because they feel Vanguard funds are *under performing*. Nice try.

Here is more info from that email:

Morgan Stanley will not force clients to liquidate any holdings they currently have in Vanguard mutual funds. But starting on Monday, advisers cannot sell any new mutual funds from Vanguard, Morgan Stanley spokeswoman Christy Jockle said in an email.

Jockle said Morgan Stanley's goal was to close out under-performing and less popular funds. The client assets held in Vanguard mutual funds represents a small percentage of all client assets in mutual fund investments, she said.

Clients can add money to their existing Vanguard investments through the first quarter of 2018.

RadAudit
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Re: Morgan Stanley drops Vanguard funds

Post by RadAudit » Thu May 04, 2017 6:58 am

Morgan Stanley's goal was to close out under-performing and less popular funds.
Performing for whom? The client or Morgan Stanley?
The firm attributes its (Vanguard's) low costs partly to not paying wealth management firms for the distribution of its funds, something its rivals do.
Ah! There it is.
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Dieharder
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Re: Morgan Stanley drops Vanguard funds

Post by Dieharder » Thu May 04, 2017 7:01 am

They are indeed underperforming, for MS's profits by way of kickbacks and commissions, they never said it was underperforming for the clients.

BV3273
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Re: Morgan Stanley drops Vanguard funds

Post by BV3273 » Thu May 04, 2017 7:03 am

I actually chuckled to myself when I read that article. Sales guys won't sell it because they make little to no commissions on any customers that they place in those funds.

Da5id
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Re: Morgan Stanley drops Vanguard funds

Post by Da5id » Thu May 04, 2017 7:09 am

I also have to assume Morgan Stanley customers aren't particularly interested in Vanguard funds (likely due to lack of investigation/awareness). If they were, they'd presumably go there directly and not via a MS broker anyway.

But yes, presumably brokers push what makes them the highest bonus, so no big surprises here. People respond to incentives, film at 11.

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jazman12
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Re: Morgan Stanley drops Vanguard funds

Post by jazman12 » Thu May 04, 2017 8:01 am

Whakamole wrote:For those using Morgan Stanley accounts and who own Vanguard mutual funds there: http://www.reuters.com/article/us-morga ... SKBN18001I

Looks like it only impacts mutual funds (not ETFs); existing shareholders will still be able to reinvest/add money until early next year.
what a joke. VG will have the last laugh!

Jeff Albertson
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Re: Morgan Stanley drops Vanguard funds

Post by Jeff Albertson » Thu May 04, 2017 8:40 am

Brokers and consultants said that Morgan Stanley is almost certainly retaliating against Vanguard because of the Valley Forge, Pennsylvania-based firm’s longstanding refusal to pay for brokerage firm “shelf space” as part of its crusade to keep expenses for investors low. The New York-based brokerage continues to offer customers more than 2,300 fund products.

Most of Vanguard’s competitors pay Morgan Stanley $250,000 to $850,000 annually in order to give their salespeople access to brokers at their offices, sales conferences and other company-sponsored venues.
...
Morgan Stanley’s decision follows a similar one instituted last May by Merrill Lynch to forbid new sales of Vanguard mutual funds. A Merrill spokesman declined to comment on the effect on its overall sales.
https://advisorhub.com/exclusive-morgan ... ual-funds/

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Strayshot
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Re: Morgan Stanley drops Vanguard funds

Post by Strayshot » Thu May 04, 2017 8:48 am

I dropped Morgan Stanley very early in my investing career. Got conned into starting an IRA there when I was 16 by a door-to-door broker drumming up clients. 16! My income was from nights and weekends bussing at a local restaurant. 4 years later I realized that fees on the account had effectively given me a badly negative return on the small (1000's) balance. Went to Fidelity and started doing things myself, never looked back.

Amazing that these companies manage to stay in business.

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nisiprius
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Re: Morgan Stanley drops Vanguard funds

Post by nisiprius » Thu May 04, 2017 8:57 am

Seriously, I'd like to have a better understanding of what actually happens when a brokerage offers a mutual fund.

In Ye Olde Days, mutual funds were not offered through brokerages at all--you opened an account directly at the fund company, and it was a plus if the fund company had a range of six or twelve funds because you could buy/sell/exchange funds within that family in your account easily and with no fee--whereas there was no way to directly exchange across families. And in fact one of the problems with no-load funds was learning about them. Your advisor or broker would not tell you about them, you had to read about them, perhaps in an ad, and then call the fund company directly. That all changed in the 1990s when Schwab developed its "OneSource fund supermarket," and everyone else followed suit.

But what's really happening? When you buy stocks, you generally have access to all the stocks that are traded on the big exchanges that your broker is a member of (nowadays I don't really understand that either, but never mind!) The broker doesn't say "well, these stocks are commission-free but these stocks cost you a commission and these other stocks we won't sell you at all."

But with mutual funds it is all very weird. There must be business deals being cut behind the scenes. In this forum we've seen perpetual mystery about which share classes of Vanguard funds are actually available at other brokerages.

Years ago, I experienced some annoyance when (never mind why) I bought shares of an MFS fund at Vanguard; transferred them to Schwab for several years, got annoyed at Schwab (never mind why) and tried to transfer them back, and Vanguard would not accept them into its brokerage account even though they'd sold them to me in the first place. They once offered MFS funds, and then they didn't.

There have also been stories in the forum in which people have tried to buy AQR funds that supposedly had a $5 million minimum purchase, through a brokerage, and succeeded. The order went through even though according to the website it shouldn't have, with no ill effects. And then some other forum members were able to repeat the feat--and then others were not.

Apparently brokerages have the technical and accounting mechanisms to put shares of (almost any?) mutual funds "into" your account, and it is a separate layer of policy that decides whether they will allow you to do it, and how much they will charge you.
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afan
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Re: Morgan Stanley drops Vanguard funds

Post by afan » Thu May 04, 2017 9:03 am

It is hard to understand why someone who wanted a rational investment approach, and using Vanguard funds, would want to do it through a rapacious broker like MS.

Also hard.to imagine why someone who wanted MS-type active management, bets on sectors and factors, churning, etc would.want Vanguard funds.

Sounds like neither firm would have much to do with the other.
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sid hartha
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Re: Morgan Stanley drops Vanguard funds

Post by sid hartha » Fri May 05, 2017 9:02 am

I think there is an opportunity for Vanguard here. They should have a big press release and say they are dropping their funds from all firms and advisors that don't have a fiduciary responsibility to the client because they don't want to be associated with any firm that does not put the customers best interests first.

Bendee
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Re: Morgan Stanley drops Vanguard funds

Post by Bendee » Fri May 05, 2017 9:27 am

sid hartha wrote:I think there is an opportunity for Vanguard here. They should have a big press release and say they are dropping their funds from all firms and advisors that don't have a fiduciary responsibility to the client because they don't want to be associated with any firm that does not put the customers best interests first.
Sounds good in theory, bit not necessarily practice. For example, many Fidelity 401ks offer Vanguard funds, I believe the one at my relatively small company has tens of millions invested in Vanguard funds alone.

Is Vanguard itself even a Fiduciary company?

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rustymutt
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Re: Morgan Stanley drops Vanguard funds

Post by rustymutt » Fri May 05, 2017 9:32 am

Glad not to be part of Morgan Stanley's investment porn. Makes me feel sorry for those clients with them. It's proof that fiduciary standards aren't welcome, when it comes to profit for brokerage houses. Shame them.
Knowledge is knowing that the Tomato is a fruit. Wisdom is knowing better than to put the tomato in a fruit salad.

socaldude
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Re: Morgan Stanley drops Vanguard funds

Post by socaldude » Fri May 05, 2017 9:34 am

Best thing I've read all week! Bravo

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David Jay
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Re: Morgan Stanley drops Vanguard funds

Post by David Jay » Fri May 05, 2017 10:03 am

Goodbye MS, don't let the door hit you on the way out...
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triceratop
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Re: Morgan Stanley drops Vanguard funds

Post by triceratop » Fri May 05, 2017 10:58 am

It keeps getting better and better: Morgan Stanley Weighs Changing Broker Compensation on Vanguard Funds
In calculating adviser compensation for customer accounts that are charged an annual fee, Morgan Stanley may no longer count client assets in mutual funds that don’t pay the bank for distribution, the people said. No decision has been made, and the firm is considering alternatives that may still pay advisers for those funds, they added.

....


Brokerages including Morgan Stanley rely on their compensation plans to nudge advisers to focus on selling certain products and services. Morgan Stanley in recent years has started offering its advisers incentives to push banking products like mortgages, for example. By excluding Vanguard funds from its compensation structure, Morgan would effectively be giving advisers a disincentive to keep clients in those funds.
:shock:
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sid hartha
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Re: Morgan Stanley drops Vanguard funds

Post by sid hartha » Fri May 05, 2017 12:16 pm

triceratop wrote:It keeps getting better and better: Morgan Stanley Weighs Changing Broker Compensation on Vanguard Funds
In calculating adviser compensation for customer accounts that are charged an annual fee, Morgan Stanley may no longer count client assets in mutual funds that don’t pay the bank for distribution, the people said. No decision has been made, and the firm is considering alternatives that may still pay advisers for those funds, they added.

....


Brokerages including Morgan Stanley rely on their compensation plans to nudge advisers to focus on selling certain products and services. Morgan Stanley in recent years has started offering its advisers incentives to push banking products like mortgages, for example. By excluding Vanguard funds from its compensation structure, Morgan would effectively be giving advisers a disincentive to keep clients in those funds.
:shock:
Ugh, it's setting things up for Wells Fargo Part Two!

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davidkw
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Re: Morgan Stanley drops Vanguard funds

Post by davidkw » Fri May 05, 2017 3:42 pm

Will not miss them. Vanguard will just dominate even more
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alex_686
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Re: Morgan Stanley drops Vanguard funds

Post by alex_686 » Fri May 05, 2017 4:20 pm

nisiprius wrote:Seriously, I'd like to have a better understanding of what actually happens when a brokerage offers a mutual fund.
Try researching "Network Level" and that should give you the answers you are looking for. Brokers have to pay fees to network to a fund family, so a broker is only going to offer fund families that generate enough profit to justify them.

This ties into your AQR story. If a fund is "Network Level 3" then all the fund sees at Broker X is 1 large account. They don't know if there is 1 client or 100,000. They can't directly know if the new clients are opening up new positions. They probably shouldn't - most contracts would prevent this. That being said allowing this is a common back office error. If such a error is made most brokers will let it slide - fixing issues like this tends to be emotional and costs money.

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nisiprius
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Re: Morgan Stanley drops Vanguard funds

Post by nisiprius » Sat May 06, 2017 11:14 am

alex_686 wrote:
nisiprius wrote:Seriously, I'd like to have a better understanding of what actually happens when a brokerage offers a mutual fund.
Try researching "Network Level" and that should give you the answers you are looking for. Brokers have to pay fees to network to a fund family, so a broker is only going to offer fund families that generate enough profit to justify them.

This ties into your AQR story. If a fund is "Network Level 3" then all the fund sees at Broker X is 1 large account. They don't know if there is 1 client or 100,000. They can't directly know if the new clients are opening up new positions. They probably shouldn't - most contracts would prevent this. That being said allowing this is a common back office error. If such a error is made most brokers will let it slide - fixing issues like this tends to be emotional and costs money.
THANK YOU. Food for thought.
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jalbert
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Re: Morgan Stanley drops Vanguard funds

Post by jalbert » Sat May 06, 2017 11:52 am

Vanguard funds don't collect 12b-1 fees, so Morgan Stanley would be forced to disclose their revenue streams transparently in order to profit from Vanguard funds.
Risk is not a guarantor of return.

TIAX
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Re: Morgan Stanley drops Vanguard funds

Post by TIAX » Sat May 06, 2017 1:16 pm

Considering the amount of press Vanguard is getting lately, this move will cause Morgan Stanley to lose clients. Imagine walking into a supermarket and not being able to buy any Kellogg's products. I almost feel bad for Morgan Stanley's clients.

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davidkw
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Re: Morgan Stanley drops Vanguard funds

Post by davidkw » Sat May 06, 2017 1:21 pm

Vanguard will not lose a beat with inflows. Vanguard will trounce them this year!
David | | From Jack Brennan's "Straight Talk on Investing", page 23 "Living below your means is the ultimate financial strategy"

SGM
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Re: Morgan Stanley drops Vanguard funds

Post by SGM » Sun May 07, 2017 8:59 am

I talked to a friend a few years ago who had all his investments in Morgan Stanley. He had no idea what his costs were. He is now all in Vanguard funds. You get a lot of friendly advice from these kinds of companies while someone has a hand in your pocket and you may not know it. Caveat emptor.

Unfortunately, I have been told, good deeds cannot get you into heaven. :|

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Ketawa
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Re: Morgan Stanley drops Vanguard funds

Post by Ketawa » Sun May 07, 2017 10:22 am

FWIW, I'm not sure the story about people being able to buy AQR funds with a $5M minimum has the full picture. The funds are often listed as $5M or whatever minimum at most brokerages, but they also are transparently available for low minimums at Fidelity in an IRA. That also used to be true at Scottrade, I think. For example, minimum investment is listed here for QSMLX: https://fundresearch.fidelity.com/mutua ... /00203H487. Maybe sometimes people are buying them when the minimum isn't listed as low, but my suspicion is that would be some kind of error in the information on the web site.

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