For the U.S. asset management industry, the most terrifying enemy is not tariffs, but Vanguard

One of the world's largest asset management companies, Vanguard Group, dropped a "bombshell" in the U.S. asset management industry this week. The company announced on Monday a significant fee reduction for nearly half of its U.S. funds, marking the largest fee cut in Vanguard's nearly 50-year history.

This fee reduction involves 87 funds, with an average cut of 20%, expected to save clients $350 million in expenses this year. This move immediately triggered market reactions, with major competitors like BlackRock and Franklin Templeton seeing significant declines in their stock prices following the announcement.

Vanguard's new CEO Salim Ramji stated in an interview with The Wall Street Journal that last year, Vanguard attracted $306 billion in new funds in the U.S. ETF market alone, and the company has a responsibility to return the benefits of scale to its clients. At the same time, lowering fees is also a reflection of the "trust covenant" that Vanguard has established with its clients over the long term.

It is noteworthy that this fee reduction is not merely a price war strategy. Ramji emphasized that while lowering fees, Vanguard is also continuously investing in technology upgrades and improving customer experience. This indicates that the company is seeking to enhance overall service quality and competitiveness while maintaining its low-cost advantage.

When discussing investment strategies in the current market environment, Ramji raised some points worth noting. He believes that although Vanguard still adheres to the fundamental principles of diversification, long-term holding, and index investing, clients' investment portfolios may need to be more balanced.

Particularly against the backdrop of strong performance in the stock market in recent years, many investors' stock-bond allocations may have become unbalanced. Therefore, Vanguard has also focused on reducing fees for bond funds to encourage investors to adjust their asset allocations. Ramji believes that the fees for actively managed bond funds in the current market are generally too high, which is an area where Vanguard can leverage its advantages.

For traditional asset management companies, growth in assets under management (AUM) relies more on market returns rather than organic growth. Therefore, tariff policies may impact short-term market returns and interest rates, subsequently affecting their recent AUM. However, in the long run, such short-term market fluctuations have limited effects on the fair value estimates of asset management companies. Analysts typically refer to 10-year forecast data provided by multiple capital market forecasting institutions, assuming that any short-term market declines will recover in the future.

Compared to market volatility, Vanguard's fee reduction poses a greater challenge to the asset management industry. Although the median fee cut from Vanguard is only 1 basis point, the fee reductions for the 87 funds range from 1 to 6 basis points, which will force other asset management companies to follow suit in reducing fees Historically, the fee rates of actively managed funds from traditional asset management companies have been lower than the industry average, resulting in less pressure to reduce fees. However, this situation seems to have changed in the past year. The actual fee reduction rates of some asset management companies have exceeded the overall industry level.

According to Bloomberg, companies such as Invesco, Federated Hermes, and Affiliated Managers Group have all seen their base management fees decline more than the industry average and the overall level of actively managed funds in recent quarters. Franklin Resources is also expected to join this trend as the company works to regain the business lost by Western Asset Management in the medium to short term.

External analysis suggests that Vanguard's large-scale fee reduction action has sounded the alarm for the entire asset management industry. In the context of fee compression becoming a long-term trend, how asset management companies can maintain profitability while remaining competitive will be a significant challenge facing the industry.

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