iShares vs. Vanguard

To any other hacksawed retail salesmen out there…

You might recall that I just pulled the trigger, and now I’m an advisor for HD Vest. I’m planning on charging an AUM fee, and filling the client portfolios with ETFs.

One thing I wonder–what’s the difference between Vanguard ETFs and the equivalent iShares ETFs? I know Vanguard has a cheaper ER, but is there any other difference?

(FYI - I have a deep hatred of Vanguard, simply because its followers are nothing more than loudmouth brainwashed idiots, much like Texas A&M Aggies. I respect the company, though.)

Difference will be marginal. Pick the one that gives you the best soft dollaz.

Maybe you can become our residential advisor. I know I could use a copilot on my portfolio as I just don’t care to watch it as vigilantly as I used to.

The only difference, other than expense ratio (which should be almost the same anyway) is liquidity. However, for retail investor size, this might not always matter.

Should we look for you on American Greed in a few years?

Buy index funds, not ETFs. ETFs are going to cause major problems one day.

I would suggest meeting with the wholesalers in your area and ask them to come and review the differences with you. (Its too much to cover in one thread here). The wholesalers are going to be an important contact in helping you on the AM of your practice.

Our office recently had them in to meet and there was a pretty big difference in the quality of the wholesalers. The iShares rep (female) was not up to speed. (and no - not very hot either). The Vanguard wholesaler (male) was really good and provided some very useful information.

The overall product shelf is similar, with cost being one of the factors. We are lending toward Vanguard.

Are you Fee-Based? Are you charging to prep tax returns seperately? Are you planning on getting insurance licensed?

^Good luck getting a wholesaler from BlackRock (iShares) or Vanguard to sit down with an advisor with no AUM. (Unless your partner has significant assets already, Greenie.)

Most wholesalers make 10 bps or more on purchases. Vanguard and iShares can’t pay that to their salespeople considering their expense ratio isn’t much higher than that to begin with. So, those wholesalers whale hunt. They’re looking for the $2B RIA that’s looking to move to all passive.

That being said, Greenie can always call in to either firm and talk to an internal wholesaler. That’d be my first move.

If you enjoy getting telemarketer phone calls you’ll really love wholesalers. The key is to ask them difficult questions so they forward you to someone that actually knows about the product and then you can deal with that person directly. Calling them used car salesman is accurate for 95% of these people. The other 5% are great, usually come from the industry and used to be a trader/analyst/etc.

Vanguard trumps iShares for all the generic stuff since it essentially just comes down to cost.

*I agree with the index commment. Use VFINX, not VOO…for example.

BlackRock has a risk analytics department that is designed to analyze advisor model portfolios and make suggestions/recommendations. If you get a hold of an iShares wholesaler, send them your ‘model’ portfolio that is loaded with vanguard funds. Let their analytics department do the deep dive into the data and see if they can’t beat the vanguard portfolio.

They’ll do the basic return analysis but they’ll also show you various exposures within credit markets, performance during past rising rate environments, etc. I think they’ll even ask you what issues you’re most concerned with and try to direct the analysis to those points. I want to say the report is about 25 pages.

We use both.

We use mostly vanilla ETFs, and I haven’t noticed a huge difference in liquidity, tracking error, etc. Both pretty good. From my experience, ishares likes to party. They throw down some serious cash down on dinners on a regular basis and sometimes send BBQ to the office on random days. Vanguard not so much.

One recent concern is that Vanguard has created their own indexes, so there’s a learning curve there. ishares seems to stick to the majors.

Support staff from both has been good. I’ve often requested some random historical data from both and they’ve come through quickly. WIth that said, we have around $4 billion in ETF assets, so maybe that’s why.

That’s not at all accurate. Sure, there are plenty of wholesalers that still prefer to wine and dine (and/or golf) instead of talking about product, but their numbers are dwindling.

Put another way, if you believe people make what they’re worth, being a wholesaler makes you much more valuable than any analyst, just about every advisor, and many portfolio managers. That’s a lot of resources dedicated to glorified telemarketers, no?

Edit: ^Yes, iShares does like to party. They even let guys like me (competitors) in every now and then. Probably just to show off. Still, free booze is free booze.

STL,

I’m not sure how it works in the U.S. but both wholesalers came into our office with absolutely no idea how much AUM we have with either firm; they could only break it down by actual dealer/ firm.

I would suggest that Greenman due his homework on which firm he wants to use as part of his investment strategy and use it for all clients and then customize based on risk tolerance, liquidity etc. So its all Vangaurd, or all iShares.

Huskie made some good points above.

Could you elaborate on this some more? Not questioning you, but am genuinely curious.

@Mike79 - It’s pretty hard to get good wholesaler representation from the huge asset managers (PIMCO and American Funds are notoriously bad at seeing their clients) and even harder to get seen by the guys that get paid lower bps. Most of the time (here in the States anyways) the Internals prospect and use various resources to identify the top advisors in their territory. If you’re an RIA in the US, your business is pretty transparent since you put it all down on your Form ADV. Companies like Discovery Database collect all this info and make it easy to search and filter for RIAs that meet your profile. For non-RIAs (say a regular Merrill advisor) it’s a bit trickier but there’s still Albridge and Market Metrics (among others) that can help you paint a picture of the advisor’s business before you ever pick up the phone (or meet with him/her). (We also get information on advisors from their own home office. It depends on what level of partner we are, but generally at the highest level of partnership {i.e. we pay them a ton of money every year} they give us some great profiling data.)

I have no idea how it works in Canada, if wholesalers have the same or similar resources available to them. If not, then I suppose it makes sense you’d see a lot more of them as they’d need to qualify you in person (or through a good phone conversation).

@BValGuy - It would take a very detailed post to describe my thoughts on the ETF market and I just don’t have it in me today. It basically boils down to the impact ETFs have had (and continue to have) on the markets from a trading perspective. There are more than a few ways they could cause some serious damage. I’ll revisit this when my brain is willing to do more than make penis jokes.

cmon STL edumacate us, also interested

Timely article about the PIMCO Total Return Bond ETF:

http://www.marketwatch.com/story/pimco-warned-sec-may-sue-over-total-return-etf-2015-08-04?dist=countdown

That’s not exactly my gripe with ETFs, but it’s related.

Google ETF bond liquidity for a few reasons why ETFs are criticized.

FYI - I live about 300 miles from civilzation. Unless I’m doing an eight-figure sale, no wholesaler is coming out here.

That means it’s probably going to be up to me to decide what to put clients in. And right now, iShares is in the lead. If it weren’t for my dire hatred of all things Vanguard, they would be second.

@Mike 79 - I have zero investment clients right now, but I would like to steer them toward the fee-based platform. Yes, I plan to get insurance licensed. (I have a seven year-old fine that I have to pay first, since I never did my CE when I left the industry.) Yes, I plan to charge separately for tax prep. Why do you ask?

Depending on the asset class they could use different indexes, which can sometimes make a pretty big difference.

I like checking ETF.com and looking at their write-ups and E, T, and F ratings.

I’m an Advisor using Fee-Based charging a percentage of AUM as the business model comp. We offer tax prep as well and I’m also insurance licensed (so were full service). I would suggest that you call Vanguard or go on their website and get a copy of the Advisor Alpha toolkit - its a resource you may find helpful in defining your service offering and value to clients (this is important).