LOW-COST PROVIDER: VANGUARD

AM | @MackinlayEuruni

Sources. Evelyn Ehrlich & Duke Fanelli. The financial services marketing handbook. Tactics and techniques that produce results. Bloomberg, 2012, introduction (pp. 11
-12):

In some areas of financial services —notably, investments— consumers may focus on return and ignore costs, even though costs will affect return. In mutual funds, for example, management fees for the same type of fund can vary by more than a percentage point, as personal finance experts have been telling the public for years. But very few investors pay attention to management fees, or even sales loads that can deduct 5 percent or more from the investment before the money is ever put to work. Even on the institutionl side, returns trump fees.

John Bogle, former chairman of Vanguard Funds, has been a voice in the wilderness calling for a reduction in management fees for mutual funds. He has pointed out, quite sensibly, that the fee structures should have some connections to assets under management: a fund with few assets may need to charge higher fees to cover its costs and generate a profit. But even as assets double and triple in some funds, the percentages charged for management fees stay the same, thus doubling or tripling profits to the fund manager.

For the Vanguard Group, the failure of many consumers to pay attention to management fees has provided the money manager with a potent product differentiation as an extremely low-cost provider. There are seemingly enough consumers who are fee-conscious to have made Vanguard the No. 1 mutual fund investment company in the United States.
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