New York Discovers Wall Street Charges Fees • Hacker News Board

Re: New York Discovers Wall Street Charges Fees

#11

Post by nattaggart » Fri, Apr 10, 2015, 4:21 AM UTC

rodgerd wrote: post #2

> In a competitive market for investment performance, managers should charge fees equal to their outperformance. Then what's the value in a fund manager instead of a simple algorithm that follows the market? Would you hire an employee and pay them the entirety of the value they generate for your business? What a preposterous argument.

Even an algorithm has some (although very small) management fee. The cheapest ETFs have an expense ratio of .05%.

So from this perspective, it'd make sense to go with the human fund manager who was beating the market and charging exactly his outperformance.

Re: New York Discovers Wall Street Charges Fees

#12

Post by mturmon » Fri, Apr 10, 2015, 4:27 AM UTC

There has been a series of recent lawsuits that have required pension funds to perform proper due diligence when selecting management for retirement funds. (E.g., http://www.bloomberg.com/news/articles/2015-02-20/lockheed-a... and http://www.retirementtownhall.com/?p=6763)

The possibility for kickbacks (or just complacency) when the ones selecting the fund managers do not necessarily have significant funds under management is evident.

One side effect has been the inclusion of a greater buffet of options for retirement funds offerings from employers.

This news story seems to be another side-effect, in which people start to realize how large these fees had been in some cases.

Re: New York Discovers Wall Street Charges Fees

#13

Post by ForHackernews » Fri, Apr 10, 2015, 4:29 AM UTC

Alternative title: Financial press publishes financial industry apologia.

Re: New York Discovers Wall Street Charges Fees

#14

Post by hurin » Fri, Apr 10, 2015, 4:36 AM UTC

So what Mr. Levine is saying here, is that the expense for fund management is expected to scale nearly linearly with fund-size and New Yorkers have nothing to complaint about.

Re: New York Discovers Wall Street Charges Fees

#15

Post by toomuchtodo » Fri, Apr 10, 2015, 4:36 AM UTC

guelo wrote: post #7

The whole article is premised on the idea that Vanguard's fee is low at 0.17%. But is it really? In a free competitive market fees for algorithmic or mechanical money management would probably be a small flat fee. Vanguard's costs are not proportional to the amount of money under management.

Not sure why you were downvoted, it's true. A market competitor hasn't come out yet with a flat fee structure, but with the FinTech battle heating up between algorithmic advisors I believe its an inevitable product/price offering.

A billion dollars buys a lot of developer and data scientist time.

Re: New York Discovers Wall Street Charges Fees

#16

Post by infinii » Fri, Apr 10, 2015, 4:39 AM UTC

toomuchtodo wrote: post #15

guelo wrote: post #7

The whole article is premised on the idea that Vanguard's fee is low at 0.17%. But is it really? In a free competitive market fees for algorithmic or mechanical money management would probably be a small flat fee. Vanguard's costs are not proportional to the amount of money under management.

Not sure why you were downvoted, it's true. A market competitor hasn't come out yet with a flat fee structure, but with the FinTech battle heating up between algorithmic advisors I believe its an inevitable product/price offering. A billion dollars buys a lot of developer and data scientist time.

Not only that but does it really take double the effort for an invement manager to manage $100B compared to $50B?

Re: New York Discovers Wall Street Charges Fees

#17

Post by maxk42 » Fri, Apr 10, 2015, 4:40 AM UTC

> those managers gobbled up more than 95 percent of the value added

So they added value above and beyond the benchmark and you're complaining that they expected compensation for this service?

Re: New York Discovers Wall Street Charges Fees

#18

Post by anigbrowl » Fri, Apr 10, 2015, 4:43 AM UTC

One easy trick: Express it as a 10-year cost, rather than an annual cost, and it sounds 10 times as big!

This is an increasing and pernicious trend in political discourse.

Re: New York Discovers Wall Street Charges Fees

#19

Post by oh_sigh » Fri, Apr 10, 2015, 4:45 AM UTC

Why aren't fees capped at some limit? Like...maybe 100 million per year? I'm just curious how much harder it is to manage a $100bn fund vs a $200bn fund. Is it twice as difficult?

Re: New York Discovers Wall Street Charges Fees

#20

Post by toomuchtodo » Fri, Apr 10, 2015, 4:46 AM UTC

infinii wrote: post #16

toomuchtodo wrote: post #15

Earlier quoted context omitted.

Not sure why you were downvoted, it's true. A market competitor hasn't come out yet with a flat fee structure, but with the FinTech battle heating up between algorithmic advisors I believe its an inevitable product/price offering. A billion dollars buys a lot of developer and data scientist time.

Not only that but does it really take double the effort for an invement manager to manage $100B compared to $50B?

Investment managers almost never beat an index:

http://www.marketwatch.com/story/index-funds-beat-active-90-...

http://www.marketwatch.com/story/almost-no-one-can-beat-the-...

http://www.theglobeandmail.com/globe-investor/investment-ide...