Vanguard Group, which has grown into the world’s largest mutual fund manager by offering low-cost investments, is prepared to cut fees further as it seeks to increase market share and boost investor returns in an environment of modest gains.

“We’re built to take advantage of economies of scale in this business,” Vanguard Chief Executive Officer Bill McNabb said during an interview Tuesday at a Morningstar Inc. investment conference in Chicago, where he also spoke about the DOL rule. “And where we see economies of scale, we pass them on to the investors in the form of lower fees.”

This year, Vanguard slashed fees as low as 1 cent per $100 invested to clients with more than $3 billion in selected funds, such as the $373 billion Vanguard Total Stock Market Index Fund, the $133 billion Vanguard Total Bond Market Index Fund and the $189 billion Vanguard 500 Index Fund. The average expense ratio at Vanguard is 18 cents per $100, compared with an industry mean of $1.01, according to company spokesman David Hoffman. McNabb declined to speculate how low fees may go at his firm, which has the majority of its assets in passive funds.

“I don’t know what the theoretical number is,” said McNabb, whose firm employs about 15,000 people. “Revenue will have to come from somewhere. You’ve got to pay people to do things.”

Following reductions in trading and management costs, the next frontier of savings for investors will come from lower advisory fees, McNabb said Wednesday during an appearance at the Morningstar conference. Vanguard started a Personal Advisor Services platform this year that offers investment counseling for as little as 30 basis points -- or 30 cents per $100 -- compared with an industry average of about 100 basis points a year, he said. The program, which has about $40 billion, targets clients with at least $50,000.

“The one area that we haven’t seen that much pricing pressure is distribution and advice,” McNabb said. “I think that’s next and I think that’s an inevitable thing given the size of the industry and it’s going to get competed away.”

Growing Importance

For investors, lower fees are a growing difference-maker in the current era of low returns, McNabb said. Over the next decade, returns will average about 2 percent on fixed-income investments and 6 percent to 7 percent on equities, for a balanced portfolio rate of about 5 percent, McNabb said. With inflation expectations running at about 1.5 percent to 2 percent, investors can count on real returns of about 3.5 percent, he said.