Wall Street Drags Main Street Into a Fee Dispute

A battle is brewing between Wall Street and stock exchanges. Wall Street says it’s fighting for ordinary investors, but don’t be fooled. Like everything else on Wall Street, this dispute is about the bottom line.  

At issue is the cost of market data. Financial firms need price data to trade. They say the exchanges charge too much for that data and that ordinary investors get stuck with the bill. Consequently, they argue, exchanges should give investors a break by lowering fees.   

It’s a clever but misguided argument. To see why, a bit of background is needed. Stock exchanges report the trades they execute and their best bid and offer prices to securities information processors, or SIPs, which consolidate the information into a real-time price feed. A group of exchanges and trading firms operates the SIPs, with oversight from the Securities and Exchange Commission, and financial firms pay a subscription fee to obtain access to the feed.  

But the exchanges have a trove of other proprietary data that isn’t reported to the SIPs, such as volume and types of orders (market, limit, stop, etc.), and they can deliver it faster than the SIPs. That’s crucial for high-frequency traders and for banks eager to impress well-heeled institutional investors.

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Wall Street Can’t Hold Back Vanguard’s Low-Fee Ocean

The Vanguard Group is bringing down the cost of investing and there’s nothing Wall Street can do about it despite its best efforts.

The Wall Street Journal reported on Sunday that some financial firms are making it more expensive — and in some cases impossible — for their clients to buy Vanguard mutual funds and ETFs.

Fidelity Investments, for example, will charge “some new corporate customers that hire the firm to run their 401(k) plans a fee of 0.05 percent on assets invested in Vanguard funds.” TD Ameritrade dropped 32 Vanguard funds from its commission-free lineup of ETFs, and Morgan Stanley banned “its financial advisers from selling clients new positions in Vanguard mutual funds.” (Disclosure: My asset-management firm uses TD for custody and Vanguard funds in some accounts, including my own.)

It’s a naked ploy to prop up their fees and it won’t work. This isn’t the first time that Wall Street is on the wrong side of history. When Vanguard founder Jack Bogle introduced the first index fund in 1976 — the iconic Vanguard 500 Index Fund — Wall Street famously dubbed it “Bogle’s Folly.”

Four decades later, Bogle has the last laugh. Vanguard took in a record $236 billion in net assets in 2015 and an additional $305 billion in 2016. In November, outgoing CEO Bill McNabb said that the firm was on pace to collect an additional $350 billion in 2017. Vanguard is now the second-largest money manager in the world with roughly $5 trillion in assets — multiples bigger than Wall Street firms such as Goldman Sachs and Morgan Stanley.

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