Vanguard's average fee drops to 0.07% after biggest-ever cut

Vanguard Group has slashed the fees for dozens of its mutual funds and ETFs in a record move that’s likely to send a shock wave through the asset management industry.

The Jack Bogle-founded investing giant is lowering expense ratios for 168 share classes across 87 mutual funds and exchange-traded funds effective immediately, it said in a press release on Monday. The cuts mean Vanguard’s average asset-weighted fee is now just 0.07% for its $10 trillion under management, compared with 0.44% for the rest of the industry.

The reduction is the largest Vanguard has ever undertaken, and amounts to a dramatic challenge to rivals in a business where the Valley Forge, Pennsylvania-based firm is already one of the cheapest operators. For many it will conjure memories of the heights of the fee war that found its limits about five years ago with zero-fee products and even one fund that offered to pay people to invest.

While such gimmicks have largely flamed out, the cut-throat competition has rumbled on and the cheapest, simplest index funds continue to soak up the bulk of new assets. Vanguard ETFs lured a near-record $305 billion of inflows in 2024, which is part of what has spurred Monday’s fee cuts — the firm’s structure means almost every economy or gain is put toward lowering costs.

“After paying for technology and investments that we need to make in the company, the way we effectively give the value back to our clients — who are also our owners — is through fee cuts,” Chief Executive Officer Salim Ramji, who joined Vanguard in July from rival BlackRock Inc., said in a phone interview. “The larger we become, the lower it goes.”

All told, Vanguard expects the move to save its investors $350 million this year alone.

Debt Discount

While the fee cuts apply across asset classes, Vanguard has placed particular emphasis on fixed income.

Monday’s changes have brought down the average weighted fee on its actively managed bond funds to 0.1%, while its index-following debt funds now charge 0.05%, according to the statement. That compares to an industry average of 0.52% for active bond funds and 0.11% for passively managed vehicles.

Vanguard’s recently released 10-year outlook projects that US bonds will outperform American equities over the next decade, with fixed income expected to return between 4.3% to 5.3% on an annualized basis, compared to 2.8% to 4.8% for stocks.

“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,” Ramji said. “But as they do that, they don’t need to pay 50 basis points.”

The reductions come as more than 30 firms wait to hear if they will be permitted to create ETF share classes within their mutual funds. That’s an arrangement that brings significant tax advantages, and one Vanguard alone has benefitted from for two decades.

When it comes to the drive toward rock-bottom fees, Vanguard avoids some of the margin-angst faced by its competitors thanks to its ownership structure. Fund shareholders elect its board members, who in turn funnel extra cash or assets generated by its products toward lowering costs. 

Nonetheless, Ramji said he still has to weigh cutting fees versus growing the business. The asset manager last year created a new advice and wealth management division, hiring a Fidelity Investments alum to run it. 

“It’s a balancing act,” Ramji said. “We’re also making very significant further investments in technology, were making significant investments back into our client experience, making significant investments into areas like AI. We want to make sure we’re building a long-term firm.”