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