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TBH, I trust vanguard more, even if their website is absolutely worse. There's a saying, 'if you're not the customer, you're the product'. I expect trades on
by wing-_-nuts 2y ago
TBH, I trust vanguard more, even if their website is absolutely worse. There's a saying, 'if you're not the customer, you're the product'. I expect trades on those index funds are getting 'front run' much like robinhood is getting front run. You might have a lower ER but your nav might effectively be higher when buying and lower when selling.
Of course, I'm a 'buy and hold' investor so this doesn't really effect me much, but it's the principle of the matter.
- kasey_junk 2y agoFront running is illegal.
- op00to 2y agoOnly if you get caught. And the fine needs to be higher than the profit.
- xadhominemx 2y agoIt’s pretty easy to learn how fidelity and others make money on fee-free index funds. Perhaps something to look into before accusing them of committing a crime.
- zelon88 2y agoConsidering someone or some activity to be criminal, and accusing them of being a criminal, are two completely different things. I consider most financial institutions to be criminal because it is always their clear intention to circumvent the spirit of the law as closely as possible. The intention is to reap the benefits of breaking the law, without the risk of consequence. When the pitchforks come, these are going to be the criminals being chased down the street. By the same token, I do not consider a parent who writes a bad check for groceries to be a criminal.
- xadhominemx 2y agoPFOF does not violate the spirit of the law
- Dylan16807 2y agoThe client generally saves money in the PFOF situation. They benefit, their broker benefits, and the market maker they deal with benefits. The only loser is the abstract rest of the market being able to get fewer penny shavings. What in particular do you see as against the spirit of the law?
- edmundsauto 2y agoI think the fine needs to be higher than the profit difference between the (illegal) and not illegal option. If you have a legal route to $1M and an illegal route to $1.5M, the rational calculation for fines is against the $0.5M delta, not the full amount.
- recursive 2y agoOnly if they're mutually exclusive.
- nothercastle 2y agoThe illegal 1.5 is always the optimal game theory choice because the chance of getting caught is not 100%
- BobaFloutist 2y agoTo use an absurd example just to make it incredibly obvious why what you said doesn't make sense, would that hold up if the fine if caught was $10 trillion dollars?
- nothercastle 2y agoThen shareholders would demand executives have skin in the game and suffer if a company got the death penalty like you describe. Would likely lead to a much better world. Golden parachutes would not be a thing if shareholders got liquidated like that.
- NickC25 2y agoIn finance, nothing is illegal if the profits outweigh the fines. Citaldel paid handsomely for order-flow information from Robinhood. They made a lot of money off retail traders. They paid a fine IIRC equivalent to a few day's profits.
- kasey_junk 2y agoPFOF is neither front running nor illegal. If you are curious about a brokers position on PFOF you can look up their disclosures. SEC Rule 605, 606 and 615 are the search terms you want when looking these up. Fidelity has a similar disclosure on this as Vsnguard, which is that they don’t engage in PFOF except for some options markets. Robinhood got in trouble for false advertising about PFOF not because they engaged in it, because again, PFOF is not front running and not illegal.
- benreesman 2y agoPFOF isn't (typically) illegal, a better word might be "controversial". There's nothing free in this life: the zero commission brokers are making it up somehow. While the studies on how PFOF effects execution quality are varied, this summary [1] from Wharton seems fairly balanced. It's not as simple as citing NBBO and moving on. Personally I'm suspicious of the practice mostly because of the pretty clear conflicts of interest that it creates. Again, this is controversial, but the people arguing it's ok are for the most part making money from it. [1] https://wifpr.wharton.upenn.edu/uncategorized/research-spotlight-payment-for-order-flow-and-price-improvement/ https://wifpr.wharton.upenn.edu/uncategorized/research-spotl...
- xadhominemx 2y agoRobinhood makes the majority of their revenue on options and crypto. Vanilla equities is becoming less important.
- loeg 2y agoThe zero commission brokers typically make most of their revenue on net interest margin. PFOF is a smaller portion.
- SteveNuts 2y agoIsn't it just PFOF? Is that actually illegal? Edit: No, it's not in the US at least. It mostly just allows the broker to internalize orders if they prefer.
- NegativeLatency 2y agoThe riskier the road, the greater the profit.
- yellowstuff 2y agoThere's a lot of confused comments on this thread. "Front running" in the strictest sense means illegal trading that involves taking advantage of trades that you know will happen and you have a responsibility not to exploit. "Front running" is also used informally to mean legally trading prior to trades that you anticipate happening. Studying the rules of an index and buy a stock just before its added to the index and index funds are required to buy it is "front running" in the second sense.
- 2OEH8eoCRo0 2y agoHow do you front run a mutual fund? The price is the price.
- manojlds 2y agoYou mean an index fund?
- 2OEH8eoCRo0 2y agoAn index fund is a type of mutual fund
- manojlds 2y agoYeah but you can front run a (active) mutual fund
- lotsofpulp 2y agoWouldn’t index ETFs be index funds that are not mutual funds?
- 2OEH8eoCRo0 2y agoYes and they trade during market hours the same as stocks so I understand front running those trades.
- toast0 2y agoPredict or react to index changes faster than the funds that are compelled to follow the index. But you can't front run shares of mutual funds; they always trade at close of business at NAV. You could potentially front run ETFs, but if you're worried about that, you can use limit orders and get the price you want or not transact. As long as you use a competent broker that offers limit orders.
- kasey_junk 2y agoThat’s not front running! Front running requires a fiduciary obligation to who you are trading on behalf of.
- bombcar 2y agoFidelity uses those funds as marketing, and they make up for it with all the other services and funds they offer. It's intentional, and it's working. Vanguard is more and more becoming a group that just wants to run ETFs and if you want to use them, they're making it harder and harder. They recently dumped all their 401(k) and similar plans from being in-house to some other provider. Saves costs, makes support annoying. Of course, you can use a Fidelity account to own Vanguard ETFs if you wanted.
- matthewaveryusa 2y ago>Of course, you can use a Fidelity account to own Vanguard ETFs if you wanted. Which I would highly recommend if you ever want to change brokers. the fidelity ZERO products are great but can only be held at fidelity while VOO shares can be transfered to any broker.
- robocat 2y agoI presume the main advantage of transferring shares is to avoid taxation on realised gains. Secondary is to avoid transaction fees? I sold and bought recently (because transfer looked like paperwork hassle to me): had a small transaction cost, and the main disbenefit was losing transaction history e.g. buy date was now reset; it was tax neutral for me either way.
- skeuomorphism 2y ago> Fidelity uses those funds as marketing, and they make up for it with all the other services and funds they offer. It's intentional, and it's working. > Vanguard is more and more becoming a group that just wants to run ETFs and if you want to use them, they're making it harder and harder. They recently dumped all their 401(k) and similar plans from being in-house to some other provider. If this is true, then it must for individuals.. My company moved a little over a year ago TO vanguard for 401ks
- sgerenser 2y agoIt was only for solo 401ks and small business with less than $20M in assets.
- fallingknife 2y agoThe pennies that they scalp off you on the trade by "front running" the order is much less cost than the annual fee if you are a long term investor.
- jliptzin 2y agoThere’s not really much money to be made front running someone’s deposit into an index fund that’s gonna sit there for the next 40 years. It works on RH because generally those users are transacting much more frequently and in much less liquid things like options.
- pembrook 2y agoFront running customer purchases is not the concern. In the running of an index fund there’s many levers you can pull to create revenue streams that don’t show up on expense ratios. Funny business can absolutely be pulled during rebalancing. Another big one is securities lending income. Vanguard pays that out to investors which effectively creates negative expense ratios in certain funds. Index funds from other issuers don’t necessarily share that securities lending income with customers.
- jliptzin 2y agoI’m not disputing other funny business, I just don’t think they are making money front running passive index investors.
- ilya_m 2y agoIt's not about front-running investments _in_ passive index funds, it's about front-running investments _by_ passive index funds, which, of course, ultimately comes out of the investors' wallets. As a practical matter, since dealing in mutual funds' shares is settled after market, "front running" these transactions would be problematic. (Impossible, I'd say?)
- ardit33 2y agoI trust Fidelity. I used to work there years ago. It is a conservatively run place, careful with changes, which is a good thing when managing large amount of money. The tech and web interface might not be the shiniest, but I'd rather have my money there than vanguard/schwab, etc...
- Animats 2y agoI trusted Vanguard more until they became a broker and forced all their fund customers to have a brokerage account with them.
- losvedir 2y agoYou expect wrong. I think you're talking about Payment for Order Flow (PFOF) which Fidelity does not use.[0] [0] https://www.fidelity.com/trading/execution-quality/overview https://www.fidelity.com/trading/execution-quality/overview