In the last seven years, Vanguard Group has received more money from investors than any of its competitors, giving the world’s largest mutual fund company control of 5 percent of every U.S. Company that is stock exchange-listed, writes Joseph N. DiStefano for philly.com.
However, despite its clear dominance of the field, Malvern based Vanguard has continued to cut its’ already extremely low fees even further as Vanguard is not following the example of some other giant corporations in spending billions on a flashy new headquarters. Instead, it has discarded its plans for the second campus it was planning to build in Chester County, and has instead decided to update buildings in its Malvern compound.
The company has not stopped there, as it is finding ways to cut costs by transferring thousands of its salaried workers to hourly compensation, outsourcing IT and customer service jobs, as well as rearranging bonuses for the second time in just five years, to make it harder for lower-grade workers to qualify.
The process has generated complaints that it is pushing out older workers who get passed over for promotion, workers taking family leave, or those who raise discrimination complaints, allegations that Vanguard has denied.
It might be puzzling why such successful company would take such extreme measures, but Vanguard spokesman John Woerth explains that as a low-cost provider, Vanguard has to cut fees to keep growing.
“There is more fee competition,” says Woerth. “You saw that recently with BlackRock lowering some expenses on exchange-traded funds, and Schwab then matched it.”
Vanguard has also announced plans to reduce annual fees to just one basis point for its biggest customers on two planned Institutional Select mutual funds which track the big U.S. stock market indexes. At the same time, Vanguard is also cutting fees for over 20 million of its non-billionaire customers to fewer than 14 basis points on every client dollar invested in U.S. mutual funds, which is under one-quarter of the industry average.
Those numbers could go even lower if the company’s partly automated Personal Advisory Service catches on as it would allow Vanguard to shift costs and further lower fund management fees. The outlook is certainly positive, as the service attracted nearly $31 billion in its first year, although some of those accounts came from earlier advisory programs.
