Next Monday, Morgan Stanley will stop selling Vanguard products to customers, with the only exception of selling more shares of the same fund to current fund shareholders. Jack Bogle's Vanguard is more or less the face of low-cost index/passive investing. Morgan Stanley announced that in addition to Vanguard funds, they will be dropping 25% of their total mutual fund offerings.
The move may be motivated, in part, by the fact that Vanguard does not pay brokerage firms for the ability to have their funds sold on their platforms, says Paul Ellenbogen, head of global regulatory solutions at Morningstar, a fund research firm.With more investors turning to inexpensive robo-advisers over traditional money managers, some brokerage firms may be struggling to add more revenue, Ellenbogen said. By cutting Vanguard funds, the firm can clear more room for firms that are willing to pay for the shelf space. “Morgan Stanley has said in this new world, we need to somehow make money,” Ellenbogen says.
I doubt that this will hurt Vanguard to any noticeable extent; they currently have $4 trillion AUM and plenty of reps at call centers as well as their website for selling shares. At the same time, this seems like a move by brokers to put up a wall between active and passive management. What do you guys think? Especially looking at the investment professionals on WSO, what are the implications of this?
BTW, I quoted and linked from a Washington Post article, but here are links to the CNBC and Barrons articles (there's also one from WSJ if you have a subscription).
