Speaker 1: Bloomberg Audio Studios, podcasts, radio news. Let's keep this conversation
Speaker 1: going now with Selim Ramji. He is the CEO of Vanguard. Selim,
Speaker 1: it's great to have you with us on our relaunch day.
Speaker 1: Let's start with some news out of you this morning
Speaker 1: that Vanguard unleashing another round of fee cuts. It'll take
Speaker 1: your average asset weighted fee down to six basis points
Speaker 1: from seven basis choints. I'm going to ask you the
Speaker 1: question that I always do, and that is what the
Speaker 1: decision tree looks like between continuing to lower fees versus
Speaker 1: investing some of that money back into the business.
Speaker 2: Well, first of all, it's great to be here, and
Speaker 2: so thank you all for having me. Yeah, it was.
Speaker 2: It was a very unoriginal act from Vanguard because it's
Speaker 2: the by our account, it was the two two hundredth
Speaker 2: time in which we've announced fee cuts since our founding,
Speaker 2: and because of our client ownership structure, Katie, as you know,
Speaker 2: we don't have many outside stockholders or any internal owners,
Speaker 2: and so whenever we generate a surplus like we did
Speaker 2: last year, we're able to do a couple of things. First,
Speaker 2: we're able to invest back into important technologies and important
Speaker 2: things for the long term health of the company. And
Speaker 2: I could talk a little bit more about how we
Speaker 2: did that as well as we're able to give clients
Speaker 2: back a better deal through reduced fees, and that's exactly
Speaker 2: what we announced this morning. But last year's extraordinary growth
Speaker 2: in the markets allowed us to do both, Selim.
Speaker 3: So obviously a lot of the fee cuts were on
Speaker 3: the passive funds and they are, as we say, dirt cheap.
Speaker 3: You guys have been launching nothing but active funds though
Speaker 3: for the past couple of years, and I got to ask,
Speaker 3: you know you are pushing active. You know you're the founder.
Speaker 3: Jack Bogel was pretty savage towards active. How are you
Speaker 3: trying to sell active being known as the passive etfshore.
Speaker 4: Well, there are a couple of things in there. Eric.
Speaker 2: First of all, you know, Bogel's cost matter hypothesis really
Speaker 2: put into the central kind of focus for us that
Speaker 2: it's costs that matter. We run active funds, we run
Speaker 2: index funds, and Bogel launched more active funds during his
Speaker 2: tenure than all of his successors combined. But what we
Speaker 2: really see opportunity in is to be able to help
Speaker 2: investors keep more of what they earn. So we certainly
Speaker 2: see opportunities of that in index and you saw that
Speaker 2: in a large portion of the cost reductions we announced
Speaker 2: today but also last year. But if I can just underscore,
Speaker 2: costs matter in active management as well, and so if
Speaker 2: you just take an example of our fixed income or
Speaker 2: our active fixed income, you know we charge eleven basis
Speaker 2: points for our active fixed income. Eighty eight percent of
Speaker 2: our active fixed income outperforms its peers over a ten
Speaker 2: year period.
Speaker 4: And that's not a coincidence.
Speaker 2: What it means is that because we have a lower
Speaker 2: fee hurdle to overcome, it allows our investors to be
Speaker 2: much more disciplined about the investments that they're making, the
Speaker 2: risks that they're taking, whether it's around credit, whether it's
Speaker 2: around rates.
Speaker 4: And that's how our teams are.
Speaker 2: Able to put up kind of numbers like eighty eight
Speaker 2: percent of performing over a ten year period. And so
Speaker 2: we think the underlying piece is really that costs matter.
Speaker 2: There are a lot of people that come on this
Speaker 2: show that talk about performance, but if you look at
Speaker 2: one of the biggest predictors of long term performance in
Speaker 2: active management as well as an index management, it really
Speaker 2: is about the cost you charge, and bo Will had
Speaker 2: a great line which I'll repeat, which is that in investing,
Speaker 2: you know, you get what you don't pay for. And
Speaker 2: that's been true and active, and that's been true an Index,
Speaker 2: and it's something that we believe really quite firmly or
Speaker 2: at Vanguard.
Speaker 5: So cost matter, but service matters as well. And Jeff Tomasso,
Speaker 5: who is editor of the independent Vanguard Advisor, has written
Speaker 5: that sure, and many Vanguard investors would happily take the
Speaker 5: fee reduction that you have just announced today, but they'd
Speaker 5: also happily let Vanguard keep that extra basis point if
Speaker 5: it meant better technology and better service, specifically technology and
Speaker 5: the ability to transact easily, smoothly, flawlessly on the brokerage platform.
Speaker 5: How do you respond to that?
Speaker 2: Yeah, I think the good thing about last year's positive
Speaker 2: resultant for clients is that we've been able to invest
Speaker 2: behind both. So alongside the fee reductions, we're also increasing
Speaker 2: our investments back in our client and our client service
Speaker 2: by more than half. Last year, JD Powers rated as
Speaker 2: number one iny client satisfaction this year. We have a
Speaker 2: new website and digital design plan that we're going to
Speaker 2: be launching later this year, and we have a whole
Speaker 2: series of initiatives underway in terms of the applications of
Speaker 2: artificial intelligence to help make our client experience even better,
Speaker 2: even more personalized. So, Scarlett, and answer to your question,
Speaker 2: we're able to do both. We're able to make significant
Speaker 2: investments back in our client experience, back in our technology,
Speaker 2: and we're able to make sure that from a fee perspective,
Speaker 2: clients are also getting a really fair deal, whether it's
Speaker 2: an active management or an index management.
Speaker 1: And on the point about technology, I mean, it's a
Speaker 1: good reminder that you don't just put out funds, you
Speaker 1: also have a brokerage platform as well. And with that
Speaker 1: in Mindselm, I do want to ask you about a
Speaker 1: Bloomberg News scoop from last week that the US federal
Speaker 1: government is considering handing Robinhood a key role in overseeing
Speaker 1: the new Trump accounts that it's creating for children. According
Speaker 1: to Bloomberg's reporting, some of the country's largest brokerages, including
Speaker 1: Fidelity and including yourself, you haven't so far been on
Speaker 1: the lists of candidates considered, So I'd like to ask
Speaker 1: you have you been in contact with the Trump administration
Speaker 1: about potentially the brokerage handling some of those Trump accounts.
Speaker 2: Well, I'm not going to get into the details of
Speaker 2: our discussions with the federal government. I will say the
Speaker 2: concept behind the Trump accounts, I think is a fabulous
Speaker 2: concept because what it does is that it helps people
Speaker 2: invest early, in this case, right from when they're born.
Speaker 2: It does it in a low cost way because the
Speaker 2: fees are capped to a low cost level, and the
Speaker 2: underlying ethos is a diversified, broad based set of indices.
Speaker 2: And as we look at the best ways in which
Speaker 2: to create long term wealth for Americans, this has really
Speaker 2: been something that Vanguard's been talking about for a very
Speaker 2: long time. Keep cost low, stay diversified, and invest for
Speaker 2: the long term. And so I think this is another
Speaker 2: innovation in being able to help with that, and we're
Speaker 2: supporting that in any way that we can. But I
Speaker 2: think that the underlying ethos is a very positive one.
Speaker 3: Selim, I want to talk about international So Vanguard dominates
Speaker 3: in the US. You're twenty eight percent of all fund
Speaker 3: assets here, double the old high water mark. You want
Speaker 3: to expand internationally. You said you want to go from
Speaker 3: seventeen million clients to forty million in five years. I
Speaker 3: have found internationals way harder because people generally don't worry
Speaker 3: about retirement as much as they do here, so they're
Speaker 3: not as good as shopping for funds. And you don't
Speaker 3: have fee based advisors. It's more brokers and distribution. How
Speaker 3: do you overcome those two issues.
Speaker 2: Well, you know, international is, in the scheme of it,
Speaker 2: a relatively small part of Vanguard, but it's an incredibly
Speaker 2: fast growing part. And we're principally based in markets like
Speaker 2: the UK, like Canada, like Australia, And what we found
Speaker 2: there is that most investors just find investing too complicated,
Speaker 2: they find it too costly, and there aren't kind of
Speaker 2: platforms like there are here in the United States to
Speaker 2: enable them to access it. So in many cases, what
Speaker 2: we're helping investors in those markets do is be able
Speaker 2: to move from being savers, often in bank deposits, to
Speaker 2: be able to be investors for the first time. And
Speaker 2: that mantra of keeping costs slow, of keeping it simple,
Speaker 2: and of making it easy for people to access seems
Speaker 2: like it's working. And there's a growing population in many
Speaker 2: of those markets of fee based advisors independent fee based advisors,
Speaker 2: where Vanguard investors are doing quite well in terms of
Speaker 2: teaming up with them to be able to help them
Speaker 2: build kind of even better, even more diversified long term portfolios.
Speaker 5: Selim, I want to end with getting your thoughts on
Speaker 5: the new FED chair nominee Kevin Walsh. With Vanguard the
Speaker 5: single biggest shareholder and so many US listed companies, what
Speaker 5: is your reaction to mister Walsh as to the potential
Speaker 5: new FED chair.
Speaker 2: Yeah, Look, I think the most important thing is the
Speaker 2: FED continues to stay focused on its dual mission. I know, Kevin,
Speaker 2: I think is a great choice, But the broader piece
Speaker 2: is really about making sure kind of the Federal Reserve
Speaker 2: has done what it's done, I think, so effectively for generations.
Speaker 4: Of people.
Speaker 2: So I think that's going to continue, and I think
Speaker 2: it's going to serve investor as well for the long term.
Speaker 1: All right, Selim, that's a good place to leave it.
Speaker 1: Really appreciate your time today. Big day for you with
Speaker 1: the fee cuts, big day for us with the relaunch,
Speaker 1: So really appreciate it. That is Vanguard's CEO strategy. Thank you.