Morgan Stanley Dumps Vanguard Mutual Funds
May 04 2017 - 11:49AM
Dow Jones News
By Michael Wursthorn and Sarah Krouse
Morgan Stanley will soon prevent its clients from buying
Vanguard Group's mutual funds, pitting one of Wall Street's largest
sellers of mutual funds against the index-fund giant.
Starting next week, Morgan Stanley brokers will no longer be
able to sell their clients Vanguard mutual-funds, including its
popular index offerings, the bank confirmed. Morgan Stanley clients
currently invested in Vanguard funds won't be forced to sell, and
the brokerage will continue to offer the index-fund giant's
exchange-traded funds, said Morgan Stanley spokesman Bruce
Dunbar.
A spokeswoman for Vanguard, the fastest-growing asset manager in
the U.S. with $4.2 trillion of assets, said, "We share in the
disappointment of advisors who are not able to access conventional
shares of our mutual funds," adding that it doesn't pay any
brokerage firm or its advisers for the distribution of its
funds.
Morgan Stanley, which has more than 15,000 brokers who oversee
about $2.2 trillion in client assets, said it is removing the
Vanguard funds as part of a broader overhaul of its mutual-fund
offerings. Over the last several months, the firm has been cutting
25% of funds it deems less popular or underperforming, a process it
kicked off to help it comply with the Labor Department's fiduciary
rule requiring brokers to act in the best interest of retirement
savers.
Even though Vanguard has been collecting more assets than its
competitors in the last year, the fund giant's mutual funds
represented less than 5% of Morgan Stanley's total mutual fund
assets, Mr. Dunbar said.
"This reduction will allow us to increase our research coverage
and due diligence on the funds remaining open," said Morgan
Stanley's spokesman said, adding that it now offers more than 2,300
funds to its clients.
AdvisorHub earlier reported Morgan Stanley's removal of Vanguard
funds.
Morgan Stanley's move shows that the economics of fund
distribution -- what fund firms must pay large financial firms to
sell their products to investors -- are in flux. Gatekeepers like
Morgan Stanley are using their muscle to protect their own revenue
even as disrupters like Vanguard gather assets at a fast clip.
Vanguard is unusual among fund firms because it has a policy of
not paying other firms to sell its funds. Many fund firms have long
paid for shelf space on platforms or had revenue-sharing agreements
with advisers.
At the same time, the money-management industry is contending
with changing investor preferences as lower-cost index-tracking
funds become more popular. Cost-sensitive investors have poured
hundreds of billions of dollars into lower-cost index-tracking
funds in recent years.
Managers of many index actively managed mutual funds have
trimmed their fund fees to better compete. Still, paying platforms
and advisers for distribution at a time when fees are falling
squeezes the revenue fund firms collect.
Potential regulatory changes add further complexity. The
fiduciary rule has led some platforms and networks of advisers to
trim their lineup of products. Merrill Lynch, a key rival of Morgan
Stanley, slimmed down its own mutual-fund offerings last year.
Write to Michael Wursthorn at Michael.Wursthorn@wsj.com and
Sarah Krouse at sarah.krouse@wsj.com
(END) Dow Jones Newswires
May 04, 2017 11:34 ET (15:34 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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