Vanguard Puts Rivals on Notice: Fee Wars Will Only Heat Up

(Bloomberg) -- Vanguard Group has a message for competitors trying to undercut its prices: Game on.

In recent years, rival asset managers such as Fidelity Investments and BlackRock Inc. have cut their fund fees to match or beat Vanguard, the low-cost investing pioneer with $4.4 trillion in assets. Tim Buckley, Vanguard's new president and incoming chief executive officer, said the company will keep lowering fund expenses as it grows.

"As we continue to get scale, as we continue to grow and we get more efficient, we pass a large part of that back to our clients in the form of lower expenses. That's not going to stop,” Buckley said Thursday on a company webcast. "If other people want to offer index funds, great. But you better be ready to keep lowering price, and we're going to do it across every product."

Fee wars have broken out across the U.S. asset management industry. This week Fidelity announced fee cuts on 14 passive products and said some of its funds now have net expenses below comparable ones at Vanguard. BlackRock, the world's largest money manager, last year reduced expense fees on 15 exchange-traded funds and Charles Schwab Corp. has also attracted money to its ETFs by trying to undercut Vanguard on similar products.

Last year alone 226 Vanguard funds and ETFs reported expense ratio declines, saving customers an estimated $337 million cumulatively, the company said.

Beyond Fees

Fidelity said it's beating Vanguard in the fee arena when it comes to index funds.

“One hundred percent of Fidelity's stock and bond index mutual funds and sector ETFs have total net expenses lower than their comparable Vanguard fund," Fidelity spokesman Charlie Keller said in a statement Friday. “Fidelity is firmly committed to providing high-quality index funds that are among the lowest cost in the industry.”

Cost shouldn't be the only factor when choosing a fund, Keller said. “Investors should consider the overall value, service and customer experience they are getting,” he added.

On Thursday's Vanguard webcast, billed as a chance to introduce customers to the company's new leadership, Buckley also discussed the firm's efforts to expand outside the U.S. The company now has more than $300 billion in assets abroad, including direct businesses in the U.K. and Australia.

“You can expect to see Vanguard continue to grow globally and that growth will help investors back here [in the U.S.],” Buckley said. “It gives us that added scale we talked about, that we can keep pushing prices down and continue benefiting from having a global investment team.”

Buckley, who previously was Vanguard's chief investment officer, succeeds current CEO Bill McNabb on Jan. 1.

To contact the reporter on this story: Ivan Levingston in Boston at ilevingston@bloomberg.net.

To contact the editors responsible for this story: Margaret Collins at mcollins45@bloomberg.net, Alan Mirabella, Vincent Bielski