It’s the second largest asset manager in the world with over $4.5 trillion under management and it collected the most inflows among all U.S. asset managers in 2017, but Vanguard is not universally loved.
Morgan Stanley dropped new sales of Vanguard mutual funds from its platform last May, and TD Ameritrade removed Vanguard ETFs when it expanded its no-fee ETF platform in October. And recently Fidelity, the largest recordkeeper for defined contribution retirement funds, started charging new 401(k) plan clients with less than $20 million in assets an additional 5 basis points on Vanguard assets. The fee is levied on plan sponsors, not plan participants.
“We’re seeing competitive pushback against Vanguard,” said Morningstar fund analyst Kevin McDevitt. He doesn’t see a big impact on Vanguard currently but notes there could be one down the road. “It will be interesting to see if other firms join in.”
The issue behind the pushback is Vanguard’s refusal to pay revenue-sharing and other back-end fees that other funds are willing to pay, says Michael Kitces, director of wealth management for the Pinnacle Advisory Group and a co-founder of the XY Planning Network.
And this is happening against a backdrop of fee compression among asset managers and retirement fund recordkeepers, which puts more competitive pressure on firms in both industries.
Indeed, a Fidelity spokeswoman told ThinkAdvisor that the additional 5 basis-point fee levied on certain retirement plan accounts “is for administrative services that we are not compensated for. This fee is about being compensated for services rendered.” Vanguard is the only fund family that doesn’t compensate Fidelity for administrative services provided for retirement plans.