Concerns: Does Vanguard Have Your Back or Theirs?

By wei @ Adobe Stock

You read, here, here, and here, how Vanguard is not the Vanguard of yesteryear. That’s not necessarily a bad development if you’re at Vanguard, but it is if you’re, like me, an expert on Vanguard and see how much it has changed.

There was a time when, without hesitation, we recommended Vanguard products, most often the Wellington fund (note: It’s not managed by Vanguard but rather by subadvisor Wellington Management Co, up the road in Boston, MA). It’s so big today.

The problem with getting big is that the universe shrinks. Not to pick on Warren Buffett, but he’s a good example. The list of companies he can buy today is short because Berkshire Hathaway has gotten so big he needs to buy huge companies to even move the needle.

When I look at the Wellington fund’s holdings today, it’s in the same boat. Large chunks of money concentrated in a handful of huge companies. But that’s what it takes to move the needle. It doesn’t have much choice.

But here’s what I want to get into today. The big three fund managers, Vanguard, BlackRock, and State Street, run the mutual fund/ETF universe. And they run a chunk of Washington, D.C. Their army of lobbyists have the ear of legislators. When you see the constant changes being made by the IRS to their rules on IRAs, don’t think they’re doing it without someone whispering in their ear.

Let’s consider the ever-changing rules for IRA withdrawals, specifically the time for the first RMD (required minimum distribution), now scheduled for 73 years of age, was 70.5, and will soon be 75. This change is not being made for your benefit. You see, the low-hanging fruit at the big three is “money in motion.” In other words, when distributions are taken, assets under management fall.

How to stop the outflow? Keep moving the age out.

Hey, you gotta eat. That’s why you have the money—to fund one’s living expenses with the proceeds. It ain’t cheap to fly private to Paris.

Just follow the money.

Action Line: When you understand the motivation behind the rule changes, it helps clear your mind as to who’s got your back. Who’s your fiduciary working for? When you’re ready to talk about your financial situation, let’s talk. But only if you’re serious.