WEBVTT - Vanguard CEO Salim Ramji Talks ETF Fee Cuts

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news. Let's keep this conversation

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<v Speaker 1>going now with Selim Ramji. He is the CEO of Vanguard. Selim,

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<v Speaker 1>it's great to have you with us on our relaunch day.

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<v Speaker 1>Let's start with some news out of you this morning

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<v Speaker 1>that Vanguard unleashing another round of fee cuts. It'll take

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<v Speaker 1>your average asset weighted fee down to six basis points

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<v Speaker 1>from seven basis choints. I'm going to ask you the

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<v Speaker 1>question that I always do, and that is what the

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<v Speaker 1>decision tree looks like between continuing to lower fees versus

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<v Speaker 1>investing some of that money back into the business.

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<v Speaker 2>Well, first of all, it's great to be here, and

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<v Speaker 2>so thank you all for having me. Yeah, it was.

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<v Speaker 2>It was a very unoriginal act from Vanguard because it's

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<v Speaker 2>the by our account, it was the two two hundredth

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<v Speaker 2>time in which we've announced fee cuts since our founding,

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<v Speaker 2>and because of our client ownership structure, Katie, as you know,

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<v Speaker 2>we don't have many outside stockholders or any internal owners,

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<v Speaker 2>and so whenever we generate a surplus like we did

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<v Speaker 2>last year, we're able to do a couple of things. First,

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<v Speaker 2>we're able to invest back into important technologies and important

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<v Speaker 2>things for the long term health of the company. And

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<v Speaker 2>I could talk a little bit more about how we

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<v Speaker 2>did that as well as we're able to give clients

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<v Speaker 2>back a better deal through reduced fees, and that's exactly

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<v Speaker 2>what we announced this morning. But last year's extraordinary growth

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<v Speaker 2>in the markets allowed us to do both, Selim.

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<v Speaker 3>So obviously a lot of the fee cuts were on

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<v Speaker 3>the passive funds and they are, as we say, dirt cheap.

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<v Speaker 3>You guys have been launching nothing but active funds though

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<v Speaker 3>for the past couple of years, and I got to ask,

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<v Speaker 3>you know you are pushing active. You know you're the founder.

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<v Speaker 3>Jack Bogel was pretty savage towards active. How are you

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<v Speaker 3>trying to sell active being known as the passive etfshore.

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<v Speaker 4>Well, there are a couple of things in there. Eric.

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<v Speaker 2>First of all, you know, Bogel's cost matter hypothesis really

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<v Speaker 2>put into the central kind of focus for us that

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<v Speaker 2>it's costs that matter. We run active funds, we run

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<v Speaker 2>index funds, and Bogel launched more active funds during his

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<v Speaker 2>tenure than all of his successors combined. But what we

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<v Speaker 2>really see opportunity in is to be able to help

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<v Speaker 2>investors keep more of what they earn. So we certainly

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<v Speaker 2>see opportunities of that in index and you saw that

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<v Speaker 2>in a large portion of the cost reductions we announced

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<v Speaker 2>today but also last year. But if I can just underscore,

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<v Speaker 2>costs matter in active management as well, and so if

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<v Speaker 2>you just take an example of our fixed income or

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<v Speaker 2>our active fixed income, you know we charge eleven basis

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<v Speaker 2>points for our active fixed income. Eighty eight percent of

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<v Speaker 2>our active fixed income outperforms its peers over a ten

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<v Speaker 2>year period.

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<v Speaker 4>And that's not a coincidence.

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<v Speaker 2>What it means is that because we have a lower

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<v Speaker 2>fee hurdle to overcome, it allows our investors to be

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<v Speaker 2>much more disciplined about the investments that they're making, the

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<v Speaker 2>risks that they're taking, whether it's around credit, whether it's

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<v Speaker 2>around rates.

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<v Speaker 4>And that's how our teams are.

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<v Speaker 2>Able to put up kind of numbers like eighty eight

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<v Speaker 2>percent of performing over a ten year period. And so

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<v Speaker 2>we think the underlying piece is really that costs matter.

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<v Speaker 2>There are a lot of people that come on this

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<v Speaker 2>show that talk about performance, but if you look at

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<v Speaker 2>one of the biggest predictors of long term performance in

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<v Speaker 2>active management as well as an index management, it really

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<v Speaker 2>is about the cost you charge, and bo Will had

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<v Speaker 2>a great line which I'll repeat, which is that in investing,

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<v Speaker 2>you know, you get what you don't pay for. And

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<v Speaker 2>that's been true and active, and that's been true an Index,

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<v Speaker 2>and it's something that we believe really quite firmly or

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<v Speaker 2>at Vanguard.

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<v Speaker 5>So cost matter, but service matters as well. And Jeff Tomasso,

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<v Speaker 5>who is editor of the independent Vanguard Advisor, has written

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<v Speaker 5>that sure, and many Vanguard investors would happily take the

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<v Speaker 5>fee reduction that you have just announced today, but they'd

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<v Speaker 5>also happily let Vanguard keep that extra basis point if

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<v Speaker 5>it meant better technology and better service, specifically technology and

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<v Speaker 5>the ability to transact easily, smoothly, flawlessly on the brokerage platform.

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<v Speaker 5>How do you respond to that?

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<v Speaker 2>Yeah, I think the good thing about last year's positive

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<v Speaker 2>resultant for clients is that we've been able to invest

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<v Speaker 2>behind both. So alongside the fee reductions, we're also increasing

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<v Speaker 2>our investments back in our client and our client service

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<v Speaker 2>by more than half. Last year, JD Powers rated as

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<v Speaker 2>number one iny client satisfaction this year. We have a

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<v Speaker 2>new website and digital design plan that we're going to

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<v Speaker 2>be launching later this year, and we have a whole

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<v Speaker 2>series of initiatives underway in terms of the applications of

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<v Speaker 2>artificial intelligence to help make our client experience even better,

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<v Speaker 2>even more personalized. So, Scarlett, and answer to your question,

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<v Speaker 2>we're able to do both. We're able to make significant

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<v Speaker 2>investments back in our client experience, back in our technology,

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<v Speaker 2>and we're able to make sure that from a fee perspective,

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<v Speaker 2>clients are also getting a really fair deal, whether it's

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<v Speaker 2>an active management or an index management.

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<v Speaker 1>And on the point about technology, I mean, it's a

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<v Speaker 1>good reminder that you don't just put out funds, you

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<v Speaker 1>also have a brokerage platform as well. And with that

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<v Speaker 1>in Mindselm, I do want to ask you about a

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<v Speaker 1>Bloomberg News scoop from last week that the US federal

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<v Speaker 1>government is considering handing Robinhood a key role in overseeing

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<v Speaker 1>the new Trump accounts that it's creating for children. According

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<v Speaker 1>to Bloomberg's reporting, some of the country's largest brokerages, including

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<v Speaker 1>Fidelity and including yourself, you haven't so far been on

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<v Speaker 1>the lists of candidates considered, So I'd like to ask

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<v Speaker 1>you have you been in contact with the Trump administration

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<v Speaker 1>about potentially the brokerage handling some of those Trump accounts.

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<v Speaker 2>Well, I'm not going to get into the details of

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<v Speaker 2>our discussions with the federal government. I will say the

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<v Speaker 2>concept behind the Trump accounts, I think is a fabulous

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<v Speaker 2>concept because what it does is that it helps people

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<v Speaker 2>invest early, in this case, right from when they're born.

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<v Speaker 2>It does it in a low cost way because the

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<v Speaker 2>fees are capped to a low cost level, and the

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<v Speaker 2>underlying ethos is a diversified, broad based set of indices.

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<v Speaker 2>And as we look at the best ways in which

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<v Speaker 2>to create long term wealth for Americans, this has really

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<v Speaker 2>been something that Vanguard's been talking about for a very

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<v Speaker 2>long time. Keep cost low, stay diversified, and invest for

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<v Speaker 2>the long term. And so I think this is another

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<v Speaker 2>innovation in being able to help with that, and we're

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<v Speaker 2>supporting that in any way that we can. But I

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<v Speaker 2>think that the underlying ethos is a very positive one.

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<v Speaker 3>Selim, I want to talk about international So Vanguard dominates

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<v Speaker 3>in the US. You're twenty eight percent of all fund

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<v Speaker 3>assets here, double the old high water mark. You want

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<v Speaker 3>to expand internationally. You said you want to go from

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<v Speaker 3>seventeen million clients to forty million in five years. I

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<v Speaker 3>have found internationals way harder because people generally don't worry

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<v Speaker 3>about retirement as much as they do here, so they're

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<v Speaker 3>not as good as shopping for funds. And you don't

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<v Speaker 3>have fee based advisors. It's more brokers and distribution. How

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<v Speaker 3>do you overcome those two issues.

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<v Speaker 2>Well, you know, international is, in the scheme of it,

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<v Speaker 2>a relatively small part of Vanguard, but it's an incredibly

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<v Speaker 2>fast growing part. And we're principally based in markets like

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<v Speaker 2>the UK, like Canada, like Australia, And what we found

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<v Speaker 2>there is that most investors just find investing too complicated,

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<v Speaker 2>they find it too costly, and there aren't kind of

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<v Speaker 2>platforms like there are here in the United States to

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<v Speaker 2>enable them to access it. So in many cases, what

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<v Speaker 2>we're helping investors in those markets do is be able

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<v Speaker 2>to move from being savers, often in bank deposits, to

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<v Speaker 2>be able to be investors for the first time. And

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<v Speaker 2>that mantra of keeping costs slow, of keeping it simple,

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<v Speaker 2>and of making it easy for people to access seems

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<v Speaker 2>like it's working. And there's a growing population in many

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<v Speaker 2>of those markets of fee based advisors independent fee based advisors,

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<v Speaker 2>where Vanguard investors are doing quite well in terms of

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<v Speaker 2>teaming up with them to be able to help them

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<v Speaker 2>build kind of even better, even more diversified long term portfolios.

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<v Speaker 5>Selim, I want to end with getting your thoughts on

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<v Speaker 5>the new FED chair nominee Kevin Walsh. With Vanguard the

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<v Speaker 5>single biggest shareholder and so many US listed companies, what

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<v Speaker 5>is your reaction to mister Walsh as to the potential

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<v Speaker 5>new FED chair.

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<v Speaker 2>Yeah, Look, I think the most important thing is the

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<v Speaker 2>FED continues to stay focused on its dual mission. I know, Kevin,

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<v Speaker 2>I think is a great choice, But the broader piece

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<v Speaker 2>is really about making sure kind of the Federal Reserve

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<v Speaker 2>has done what it's done, I think, so effectively for generations.

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<v Speaker 4>Of people.

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<v Speaker 2>So I think that's going to continue, and I think

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<v Speaker 2>it's going to serve investor as well for the long term.

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<v Speaker 1>All right, Selim, that's a good place to leave it.

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<v Speaker 1>Really appreciate your time today. Big day for you with

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<v Speaker 1>the fee cuts, big day for us with the relaunch,

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<v Speaker 1>So really appreciate it. That is Vanguard's CEO strategy. Thank you.