William McNabb: What’s an appropriate margin? Is it 40% in our business or is it 35% or 25%? I don’t know the answer to that. I don’t have to worry about it. “It is phenomenal that a single company could represent almost 20% of the U.S. mutual fund industry,” said Michael Rawson, a Morningstar analyst, in a comprehensive Financial Times article by Stephen Foley that ran last week. McNabb wrote that after the financial crisis, governments “took steps to ensure that Main Street would not be on the hook—again—for bad bets placed by Wall Street. Now regulators might place that burden squarely back on Main Street mutual-fund investors without any solid evidence that the funds or their managers could bring on another panic.
He continued, “if that happens, the 90 million Americans invested in mutual funds for retirement, education or a new home could be forced to once again bail out ‘too big to fail’ Wall Street firms.” (NYSE: VOO) (NYSE: VTI)
“First of all everyone thought it was going to be the end of the bond market,” McNabb said. “Well, the bond market handled it just fine. But it didn’t wreck the rest of PIMCO either, the firm is still a very vibrant firm.” “If regulators impose burdensome regulations on mutual funds, it could disrupt the capital markets and hamstring the formation of capital that fuels our economy.”
A spokesman for Vanguard, contacted for this article, e-mailed: “There is not a great deal of transparency about the process of SIFI designations and the requirements once an asset manager is designated, so it is premature to make any speculations on a specific impact to investors — but we do know there will be an impact.” Ben Johnson, director of passive funds research at Morningstar. In fact, the trend towards passive investing is overwhelmingly secular and doesn’t show signs of swinging the other way, or even diminishing. “If anything we’ve recently seen the opposite, particularly in the realm of U.
S. equities,” he says. “Personal Advisor is largely proprietary, focused on Vanguard funds. And we have no plans to hang out a shingle in your hometown. You won’t see us opening offices in cities across the country,” she wrote. “Will there be some overlap with advisors like you? Maybe. But the universe of investors who need advice is sufficiently large—and growing—to enable both of us to successfully serve our respective clients, and more important, to help all investors succeed.”
“If you’re running a public company, you and your shareholders are paying a lot of attention to the profit margin,” McNabb told the Financial Times, “What’s an appropriate margin? Is it 40% in our business or is it 35% or 25%? I don’t know the answer to that. I don’t have to worry about it.”