DOL Fiduciary Failure #721: Capitalism is Conflict (And That's Good)

In response to Morgan Stanley saying that it will no longer sell Vanguard funds to its clients, we heard a loud response from the self-righteous.

Ron Rhoades, a fiduciary 'expert' (who receives too much of my dues to advocate things not in my interest as a fiduciary), denounced Morgan Stanley’s ‘culture’ as double ‘insidious’ though, from his article, I can not tell why. Morgan Stanley determined for whatever reason that the cost of supplying Vanguard funds is not worthwhile. No more ‘insidious’ than McDonald’s choosing Coke over Pepsi; FutureAdvisor choosing BlackRock iShares over Vanguard; any of the dozens of Robo-advisors who choose one product over another; any of the thousands of advisors who choose one firm's funds over anothers; or any of the millions of other businesses in the world that choose the products of one business over any other.

Vanguard made news claiming that Morgan Stanley had ‘internal conflicts’ with Vanguard.

Well… duh. They both package and market mutual funds, every thing they do is in conflict. It’s called business, competition, and capitalism.

Capitalism is the reason consumers can choose Morgan Stanley or Vanguard, or many other firms if they fit their need better. It causes competition, which leads to more options at a lower cost.

Only, they can't choose anyone to help with their TSP plan. And, they can't choose to pay an advisor on their 401(k) plan. In both of those cases the result is poor for the consumer.

I’m still waiting for Mr. Rhoades or Vanguard to address Vanguard’s own conflicts. They are one of the only firms that I am aware of that charges customers for advise on which of it’s products they should buy.

All of those products – by the way – are Vanguard funds. Apparently their external analysis determined that they were both the best at everything and need to charge clients to tell them that.

I wonder if Vanguard ever recommends Morgan Stanley funds… though, I’m fairly certain I’ve never seen a proposal from Vanguard like that.

While I can understand why Vanguard would ignore their conflicts and take a hypocritical position to maintain whatever small sliver of business is with Morgan Stanley, a ‘fiduciary expert’ like Mr. Rhoades should probably have something to say about Vanguard’s ‘insidious’ culture of charging individuals to buy their own funds when they have free funds like Target-Date funds that may be better. Do we know how Vanguard manages these conflicts, as well as conflicts in rolling over funds from lower-cost index 401(k) plans, as Mr. Rhoades is so passionate about stopping (everyone but Vanguard)?

I think I’ll be waiting for that article for some time.

Once again… it would be nice if those supporting a fiduciary standard were independent, promoted true independence and financial advice…

Instead of whining about the conflicts in capitalism and seeking state-power to crush competitors. And piling costs onto small advisors trying to promote true fiduciary advice.

Because Vanguard is going to be just fine. I’d prefer if my dues went to people who promoted my needs, not Vanguards. I know my clients would benefit from clear guidelines on retirement plan advice that Mr. Rhoades and other fiduciaries seem to want to avoid, preferring to pick on companies that actually help thousands of clients who voluntarily choose them, and can voluntarily move on.

I’m sure FPA’s Morgan Stanley advisor members feel the same.


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