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Vanguard’s take of this is a phenomenal $185 billion, or about 55 per cent of the total inflow, which puts it on pace to bring in more money in one year than any asset manager in history, according to Barron’s. The rise of Vanguard and other passive managers comes at a time when Wall Streeet is under intense pressure to boost its collective profits.

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 per cent, compared with the 0.66 per cent average asset-weighted fee of an active mutual fund.

Of course, $16 billion is merely a dent for a financial service industry that generates approximately $200 billion a year in global trading and asset management revenue, per figures from Bloomberg Intelligence. But the dent gets bigger once it includes the “hidden fees” that active managers rack up from continuously tweaking their portfolios.

Active mutual fund managers are some of Wall Street’s best customers because they spend money through trading commissions and research as they attempt to outwit the market and turn over the securities in their portfolios.

On average, an active manager has turnover that is 10 times more than a Vanguard index fund, where average annual turnover is about 3 per cent to 4 per cent.* One extra percent of turnover translates to about an extra basis point in cost, equating to another $3 billion or so a year in lost trading revenue.