Inside Vanguard: Leadership Secrets From the Company That Continues to Rewrite the Rules of the Investing Business

CAHPTER 6

THE COST-FEE NEXUS

At Boston Consulting Group in the 1960s, founder Bruce Henderson made a strong case for basing an organization’s long-term strategy on low costs, arguing that they would enable the firm to charge lower prices. In doing so, the firm would gain market share and increase volume so much that the combination of lower costs and higher volume would enable it to become profitable. Repeated in a virtuous cycle, lower and lower costs would make possible lower and lower prices—that would lead to higher market share and larger volume, enabling even lower prices because the cost per unit of production would be lower.

Low fees for investors, Vanguard’s central proposition, depend on low operating and fund management costs. Reducing, ...