Vanguard Delivers Its Biggest Fee Cut Ever. CEO Salim Ramji Explains Why.

Vanguard, the nation's second-largest financial advisory firm, has announced its largest-ever set of expense ratio reductions, impacting 168 share classes across 87 funds. This move, effective February 1, 2025, is expected to save investors more than $350 million in 2025 alone. Vanguard CEO Salim Ramji explains the strategic significance of these fee cuts and their impact on the competitive landscape among investment firms.



Vanguard's fee-cutting strategy has been a cornerstone of its success, with the firm lowering costs more than 2,000 times since its founding in 1975. The latest round of cuts, which include reductions for both passive and actively managed funds, puts further pressure on smaller active managers that charge higher fees. Vanguard's average asset-weighted expense ratio has dropped to 0.07%, compared to an industry average of 0.44%, according to Bloomberg.

The fee cuts are particularly attractive for investors looking to increase exposure to fixed income. Vanguard's average weighted fee on its actively managed bond funds is now down to 0.1%, versus an industry average of about 0.52%. The firm recently released a 10-year outlook showing that it expects U.S. bonds to outperform U.S. equities over the next decade, encouraging investors to rebalance their portfolios and allocate more to bond funds.

"Even if we're wrong, people's portfolios are out of balance and they need more bonds in there, even just as a ballast to diversify back to 60/40. But as they do that, they don't need to pay 50 basis points," Ramji told Bloomberg.

Vanguard's aggressive fee-cutting strategy has made it the world's second-largest money manager, despite offering fewer products than larger rivals like BlackRock. The firm garnered nearly $335 billion in net inflows in 2024 and led the industry in ETF flows. By continuing to lower fees, Vanguard maintains its competitive edge and solidifies its market position.

In summary, Vanguard's biggest fee cut ever puts pressure on smaller active managers, attracts investors seeking lower-cost options, and strengthens the firm's market position. As Vanguard CEO Salim Ramji explains, lower fees enable investors to keep more of their returns, ultimately benefiting their portfolios.