‘Transactional World’
Even strong companies like Vanguard are under pressure today, said Nancy Koehn, a Harvard Business School professor who has written extensively on the power of brands.
“It’s a much more transactional world,” Koehn said. “It’s more about ‘show me the money’ than it is about emotional values like loyalty and trust.”
For now, the Vanguard brand name has been acting like a cash magnet, fueling growth despite an increasingly crowded market for index investments. Investors poured a record $194 billion into the firm’s U.S. passive funds in the first half of the year -- two-thirds more than runner-up BlackRock and about 10 times more than Fidelity Investments’ haul, according to data from Morningstar Inc.
Vanguard is “a name that clients know and trust,” said Jonathan Swanburg, a financial adviser in Houston. “We never have to explain it or justify it.”
Rivals’ Inroads
Even so, competitors are having some luck differentiating themselves. BlackRock, the world’s biggest money manager, has already found success selling its low-cost line of exchange-traded funds to individuals and financial advisers -- Vanguard’s traditional turf -- and by adding newer products such as funds following so-called smart-beta strategies, which combine features of active and passive investing. Schwab has made inroads on a smaller scale after cutting fees on its index funds and ETFs.
The rivals have intensified the price war and could continue to pick up market share as investors become more familiar with their products, according to Daniel Wiener, who edits a newsletter for Vanguard investors.
“Perceptions can shift over time,” said Wiener.
Christopher McIsaac, a managing director at Valley Forge, Pennsylvania-based Vanguard, is aware of the threat, but says prices aren’t the firm’s only asset.
“Our brand extends beyond low costs,” McIsaac said. “People trust us to put their interests first.”