PART II: Concerns: Interview with New Vanguard CEO

August 15, 2024 By E.J. Smith - Your Survival Guy

By Funtap @ Adobe Stock

As I wrote to you here, now that Vanguard and other money managers are charging next to nothing for ETFs and index funds, there is a push for higher fee offerings, such as ESG funds.

In an interview with ETF.com‘s Allan Roth (comments in italics), new Vanguard CEO Salim Ramji (comments in bold), discusses the company’s revenue needs:

Are systems and customer service related and how will you be addressing these issues?

They are related. Modernization started three years ago though perhaps could have started earlier. We are making behind the scenes investments. When completed, this will give us the ability to innovate and apply new interfaces and visuals faster. I’m determined to make sure the job gets done. We will have the most modern technology infrastructure in the industry. We will continue to make investments. It’s a journey and we will match and then exceed competitors’ capabilities.

How can Vanguard make these investments given it has 27% of the fund industry assets but only about 5% of revenue, according to Eric Balchunas of Bloomberg? Competitors have expensive products that can cross-subsidize to allow them to offer loss leaders such as index funds with even lower expense ratios so how will Vanguard compete?

We can compete. Our competitors have some hidden and not so hidden subsidies. Our model gives us a natural advantage in that we don’t have shareholders with different priorities than our clients. Thus, when we have a surplus, we return it to our clients with lower costs. This advantage, along with our large scale, allows us to compete and continue to make investments.

There is a theory (that I may have started) that Vanguard would like to see smaller clients move to Vanguard’s Personal Advisory Services or, if they don’t, Vanguard is happy if the client moves their Vanguard funds to Fidelity or Schwab and let them do the record keeping and reporting. What do you think of that theory?

The theory could make sense for a publicly held or any for-profit company but not us. The beauty of the model is that we only work for one constituency—the client. We don’t want clients to leave.

Action Line: Vanguard is planning a number of ways to generate more revenues from customers, including demanding $25 payments for telephone transactions. When you want to talk about your portfolio, I’m here. Learn more about the problems at Vanguard by downloading my free SPECIAL REPORT: The Trouble with BlackRo… er… ummm, Vanguard.

Investment Concerns? Save Money. Get My Friday Email. It’s Free

Read Part I and Part III .

P.S. Read the entire interview here.

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West (RIP JB) and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.

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