The Greed Of Wall Street Is About To Come Tumbling Down And Not Because Of Reform

There has been talk for decades about how to rein in the excessive greed of Wall Street. Should there be more taxes? Should there be more regulations? Should there be better watchdogs?

And while the answer to those three questions, undoubtedly, is yes, yes, and yes, one company is showing how you take out greed in a way that is happening as we speak. Hopefully other companies will soon take notice.

How do you take down greedy capitalism? No, not by protesting outside the big banks down on Wall Street. Sure, that raises awareness to the issue, but at the end of the day doesn’t make changes from within the system. The answer that can be used right now to start attacking the greed of Wall Street is none other than the use of ethical capitalism.

Vanguard is booming right now with business and they are doing so by simply offering better prices for their services. See, in a perfect world, that’s how capitalism can be a very good thing. As Wall Street traditionally charges fees for investments exchanging hands, Vanguard has decided to charge less and they are taking away billions.

According to Bloomberg Business:

“While Washington has long been debating how to reform big Wall Street banks, Vanguard Group is quietly doing just that as the company and its army of index funds remove about $20 billion a year in revenue from the financial industry.

So far in 2015, Vanguard is leading a record $365 billion in net flows into low-cost and passively managed index funds and exchange-traded funds (ETFs), according to Bloomberg data. Meanwhile, the active mutual funds that constitute some of Wall Street’s best customers have lost $147 billion, according to the Investment Company Institute. That adds up to about a half-a-trillion-dollar swing so far in 2015, which will be the most ever in a year.”

Also stating:

“Vanguard’s assets now stand at $3.1 trillion, which effectively means that this year alone it will have removed more than $16 billion from the financial industry just through fees. That figure is based on the average asset-weighted fee of a Vanguard fund of 0.13 percent, compared with the 0.66 percent average asset-weighted fee of an active mutual fund.”

How is Vanguard able to make such substantial profits with this model? Well, Vanguard’s founder set up a mutual ownership structure. In other words, the shareholders are the investors.

“So while Vanguard does make profits, those profits don’t go to shareholders, they go back to investors by lowering fees.”

What does this mean for overall change? Well, if the rest of Wall Street wants to keep their money and a further inflow of business, they’re going to have to start lowering their fees to keep up. And while Vanguard is only taking small chunks of Wall Street greed away, the model clearly works, and may be a good indicator of what’s to come.

You want to take down Wall Street? Take them down from the inside out by actually being ethical. Of course, this doesn’t mean we shouldn’t also have better regulations on Wall Street actions, but this is likely one of the most lasting ways to rein in greed.

Featured image via Sjoerd van Oosten (flickr)