Higher fees can easily make the difference between underperforming or outperforming.
This backdrop isn't going away. ETFs will continue to dominate the landscape, and fees will continue to shrink. Vanguard Group, which has led the charge into cheap index-tracking strategies, said this week that it was prepared to lower fees even more. “I don’t know what the theoretical number is,” said Bill McNabb, Vanguard's CEO, whose firm employs about 15,000 people. “Revenue will have to come from somewhere. You’ve got to pay people to do things.”
During the next downturn, staff at active managers will probably shrink even more. There is an important role for human judgment, but it will most likely come in a much smaller, more specific form than the behemoth investing malls of yore.