The US company Vanguard pioneered a distinct low-cost strategy in the mutual fund iatlustry and is now exporting it worldwide. Mutual funds are managed by investment companies Second, Vanguard distributed their funds directly to that raise money from multiple customers and invest customers and did not need to pay commissions of the money in a group of assets (stocks, bonds, money around eight per cent to brokers. Third, the company market instruments, etc.). Each customer, often as part had internalised investment advisory functions of the of a retirement plan, then owns shares that represent funds at cost instead of using external investment advi- a portion of the holdings of the fund. They are charged sors that would charge a premium. Fourth, Vanguard an annual fee or 'expense ratio' that covers investment relied on a no-norisense thrifty organisational culture advisory fees, administrative costs, distribution fees where managers were incentivised to contro! cost and and other operating expenses. The traditional way of competing in the industry was by actively managed and differentiated investments that tried to generate as spent less on advertising than anyone else in the indus- high returns as possible and thus being able to charge try. Last, but not least, as one of the largest asset man- higher fees. The emphasis was on the business perfor- agers globally they gained large economies of scale. mance end of the business by offering differentiated funds with higher returns. Vanguard instead focused on the cost end of the business and offered custom- ers considerably lower annual fees and costs. Most chats and other cost reductions, the aim was to offer comparisons showed that Vanguard's fees or experise advisory services at a fraction of the cost of compet- ratios were 65-80 per cent less than the industry itors. They would charge annually 0.3 per cent on average depending on investment asset. The company assets compared to the industry average of one per also launched the industry's first index mutual fund that passively followed a stock market index without ambitions to generate a better performance than the market, but which outperformed many actively man- aged funds. Vanguard has started to export its low-cost focus to Europe, and their non-US assets have more than dou- bled in the last six years, reaching over $90bn (68bn, Sources: (1) D. Cakley, Financial limes, 4 March 2015. (2) S. Foley, 54bn) in Europe. 'Lowering the cost of investing is in Financial Times, 8 December 2014. our DNA,' blogged Torn Rampulla, former head of Van- guard Europe. Their low-cost strategy involved several components. First, unlike competitors it did not need to make a profit. Tim Buckley, chief investment officer explained: no one, not even senior executives, flew first class. Fifth, the company had only a few relail centres and By 2015, the next step for Vanguard was to do to the financial advisory services industry what they had done to the mutual fund industry. Based on webcam cent, according to Vanguard CEO Bill McNabb:2 "Can we provide really super-high quality advice at a very low cost and do that in a very large way, and change the market? I think we can. We continue to think of our primary mission to reduce the complex- ity and cost of investing across the board. Questions "We are not a listed company. We're a mutual com- pany. We're owned by our clients. So when we make a profit, we have two choices. We can roll that profit back into the business or we can pay it out to our owners, our clients, in the form of lower expenses. Over the years we have lowered expenses and that has attracted more clients." 1 What type of competitive strategy, low-cast, differentiation, focus or hybrid, would yu suggest as a way of competing with Vanguard? 2 Using webcam chats is one approach to lower costs in financial advisory services as indicated above. What other ways could there be to lower costs to support a low-cost strategy?