is predicting an inevitable new fee crunch ... in wealth management.
| Frederick William McNabb III|
The Vanguard Group, Inc.
Chief Executive Officer, President, Chairman of the Board of Directors
*Photo by Jim Tweedie - Wyckoff-Tweedie Photography*
McNabb, chairman and CEO of low-cost mutual fund titan Vanguard
] (the world's largest mutual fund company by AUM), shared that prediction onstage this morning in a keynote Q&A session, moderated by Morningstar
manager research chief Jeff Ptak
, at the 2016 Morningstar Investment Conference
at McCormick Place in Chicago.
"One of two things is going to happen, probably both. There's a high probability that we're going lower or you're going to be asked to do a lot more for what you charge," McNabb tells the audience of financial advisors. "You haven't really seen much pricing pressure [on distribution and advice]. I think that's next."
McNabb shared some numbers about where Vanguard's business is today: $3.5 trillion in AUM and 15,000 employees, including 3,000 systems engineers, and its asset-weighted average expense ratio is 12 basis points. (That puts Vanguard's asset management revenue at about $4.2 billion.) In terms of Vanguard's future, McNabb, said, "the two things you can pretty much write down in stone [are] no Vanguard branches and no Vanguard stadiums, at least while I'm here."
McNabb's discussion with Ptak touched on a host of other subjects, too, including: future returns for balanced portfolios (McNabb expects 3.5 percent, or 4 percent "on the high end"); how alternatives fit inside portfolios; the infamous collapse of the Third Avenue Focused Credit Fund
(McNabb praises most high yield funds and worries that the regulatory response will go too far); proxy voting; Vanguard's growing global presence; picking subadvisors; strategic beta; active ETFs (McNabb's interested, for some strategies, pending "the right guidance from the SEC"); custody for advisors (McNabb says Vanguard is not getting back into that business); and of course the active-to-passive shift.
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