Record inflows of $236bn into Vanguard funds in 2015

Sam_J12 wrote: »

I think it is a really positive trend. Financial professionals pocket a huge proportion of the profits that investors make, and tracker funds help reduce this. I think there is also an interesting trend for actively managed funds to become cheaper in response to increasing awareness surrounding fees, which further reduces the money trousered by the professionals.

I think the recent industry efforts towards transparency have helped trim down fees quite a bit, with active management typically costing something like 0.5% above passive. There are of course some more hidden costs such as broker fees resulting from portfolio turnover which are capitalised into the cost of investment rather than being visible on an expense line, but there is no hiding them when it comes to the net total return so not too much of a worry.

I think the trend of active funds getting cheaper may still have some way to go but will not keep going and going. There is fee pressure on managers right across the spectrum and the smart ones are doing what they can to react to the customer demand for both lower fees and for transparency (.e.g Woodford's vehicles launched in last couple of years were competitive vs rivals in this regard).

There are still areas where fixed fees will always be higher and performance fees more prevalent, in less liquid assets like private equity, venture, non-listed infrastructure etc - because those deals take inherently more effort to set up than just buying or selling a tiny slice of a listed company. So 'money trousered by the professionals' will still happen.

Of course, 'trousered' is quite an emotive statement and implies the people getting paid are bad guys or crooks. If I pay money to a guy who built me an extension on my house, or maintained my car, or produced a hollywood movie for me to watch, or who arranged for fresh milk to appear in my local supermarket and ultimately in my fridge, I don't begrudge paying out cash that ultimately ends up as wages and business profits. They have done something for me that I couldn't do myself as effectively or efficiently. Of course, I could have tried to do it myself and keep the cash in my own trousers, but it may not end up so well.

Likewise, if I want access to investment returns but don't want to simply accept the result of specific indexes because they don't accord with my goals, I may pay active management fees (within reason) and not resent the fact that I am paying someone for that. Though of course, if someone can do as good a job for less money I would prefer that, as I do in other walks of life.