Vanguard Group clients who were anxious when an outsider became the asset manager’s CEO a year ago may be relieved by Salim Ramji’s recent comments.
The former BlackRock executive covered several Vanguard and industry developments in a Morningstar podcast last month, from the company’s forays into artificial intelligence to its efforts to connect retail investors to private investments.
“I talked a lot about my impressions of Vanguard being a special and unique place. I want that to continue, and there are some things that we’re investing to do better in,” Ramji told Christine Benz, Morningstar personal finance and retirement planning director, and Morningstar indexes strategist Dan Lefkovitz.
“How do you both continue to evolve, continue to serve investors’ needs well, and how do you still remain true to who we are as a company and as an institution?” he asked, according to a transcript. “That's certainly going to be an enduring thing that’s at the top of my mind.”
Ramji, who last July became Vanguard’s first external CEO hire, discussed the asset manager’s technology investments, focus on actively managed fixed income funds and approach to private equity access for clients.
AI for Advisors
Noting Vanguard’s technology investments in the past three years, the CEO said, “I think we’re turning the corner, but this isn’t a destination. This is a constant journey.” Vanguard’s personal investor platform is now over 90% “cloud native, and that was really hard, laborious, costly work to make that happen.” Clients are starting to see the results, he said.
“We think we now have the most modern kind of infrastructure stack in the industry. What it allows us to do … is be able to make improvements on a lot of the front-end design and a lot of the front-end user experience,” Ramji said. It also gives Vanguard an opportunity to layer AI applications on top of that.
Vanguard is piloting a few dozen AI applications but holding back on launching most to make sure it has worked out the kinks, Ramji told the podcast audience. In April, the company released an AI-based tool that allows advisors to synthesize market views and communicate them in a customized way to clients, he said.
“Some of these capabilities which we built for our own advisor team, we’ve now made available to all advisors,” Ramji said.
Neil Bathon, managing partner at FUSE Research Network, told ThinkAdvisor on Tuesday he was reassured by Ramji’s remarks on preserving Vanguard’s client-oriented legacy. “It sounds like he’s fully embraced what they’re about,” he said.
“There’s a clear benchmark for being customer- and client-centric at Vanguard," and if other firms compared themselves to Vanguard in that regard, “I think they would realize how far short they fall sometimes,” Bathon said.
Digital Advice
As for Vanguard’s approach to advice, Ramji noted the company got into that service about a decade ago partly to keep clients who wanted it. Now, he noted, the firm offers a digital advice platform, which has a $100 minimum account size, dropped from $3,000 last year.
“So for $100 you can now get a diversified portfolio of underlying ETFs. You can get a digital advice capability. And the thinking behind that was that everybody should have access to good advice. And it shouldn’t just be the preserve of the very affluent or the folks that very high-net-worth advisors want to serve,” Ramji said.
“And if you think as you look out over the next 10 years there’s going to be fewer advisors and more demand for their services … if we’re to help more and more people achieve investment success who need advice we’re going to have to do that digitally,” with Vanguard planning to embed AI capabilities to further personalize it, he said.
Turning to the industry’s move toward connecting retail investors to private investments, Ramji indicated Vanguard would exercise some caution.
Private Markets
“As a general matter, complexity for decades has really been a mask for charging higher fees. And I think part of what Vanguard’s been about has not just been about low fees, but simplicity. And I think that’s going to be a really important feature of Vanguard going forward as well around being able to keep things simple, to help clients invest for the first time, to help clients continue to invest in a good way for the long term,” Ramji told Morningstar.
Private markets exposure might make sense for some very high-net-worth clients, “but for us, it still has to adhere to the Vanguard principles. It’s got to be good quality. It’s got to be at a low fee. And it’s got to be done in a way which is intelligible and simpler, if you will, than the client could otherwise get,” the CEO said.
Vanguard is starting to experiment with whether it could provide access to some clients who fit the profile, “and we’ll see how we get in terms of that journey,” Ramji added.
Industrywide, he said, “I think it’s going to be some time, like a long time, longer than most people expect before this really goes mainstream in a big way. And I think a lot of it is not just the complexity and the fees, but just the complexity of consuming the product.”
FUSE Network’s Bathon said he was pleased with Ramji’s comments on Vanguard’s patience in introducing private investments and making sure it’s best for clients. The ultimate benefit for the average Vanguard client may not be so clear-cut, he said.
No Crypto ETFs
Explaining Vanguard’s refusal to offer a cryptocurrency ETF, Ramji said, “we like investments that deliver cash flow or have the prospect of delivering cash flow. That could be cash, could be bonds, could be equities, could, over time, if the circumstances are right, be private markets.
“We don’t like things that don’t. We don’t have a gold ETF. We don’t have a silver ETF. And so it’s a logical extension, then, as to why we don’t have ETFs in other things that don’t either deliver cash flow or have the prospect of delivering cash flow. And that’s OK,” Ramji said.
“We’re OK not being everything to everybody,” he said, adding that certain products either don’t fit Vanguard’s investment philosophy or the company doesn’t think it has the right scale or expertise. “And so that’s where I’d put some of those types of ETFs in that bucket.”
(Thanks to indexing, Vanguard is the biggest backer of Strategy, which makes large-scale bets on bitcoin, Bloomberg reported.)
Active Fixed Income Funds
As for Vanguard’s recent emphasis on active fixed income funds, Ramji said they're a strong point for the firm, offering investors an opportunity to achieve alpha at low cost.
“The thing that’s really exciting for us is the ability to deliver active fixed income at a quarter of the fee that what the industry charges,” Ramji said, noting the firm’s index fixed income funds are even cheaper.
“Fixed income has definitely distinguished itself as a place to beat the index,” FUSE’s Bathon said.
Todd Rosenbluth, VettaFi research head, noted by email Tuesday that Vanguard has a proven, successful record with actively managed mutual funds.
“It has been great to see the firm bring many new active ETFs to market offering taxable and municipal bond exposure,” he said. “Vanguard has leveraged its scale and expertise with these new funds and seen initial benefits. We expect more product development to occur in 2025.”
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