For seven years in a row, U.S. investors have sent more money to Vanguard Group, the world's largest mutual fund company, than any of its rivals, says fund-tracker Morningstar Inc.
The Malvern-based company now controls 5 percent of every stock exchange-listed U.S. company.
Yet Vanguard doesn't act like other dominant U.S. companies.
Instead of boosting prices, as Apple iPhone users and Comcast Xfinity-watchers suffer most years, Vanguard continues to cut its fees, already among the industry's lowest, according to Morningstar.
And while such giants as Apple, Google and Comcast plow billions into fancy new headquarters, Vanguard canceled plans to build a second Chester County campus, opting to automate processes and update buildings around its Malvern compound.
Vanguard takes a similar approach to its employees. Last year it transferred thousands of salaried workers to hourly status, outsourced information technology and customer service jobs, and rejiggered bonuses for the second time in five years so lower-grade workers find it harder to qualify.
The company also has faced a series of complaints alleging that it pushes out older workers who don't get promoted, take family leave, or raise discrimination complaints; the company denies discriminating.
Why can't Vanguard relax? Why does it keep squeezing?
"There is more fee competition," says Vanguard spokesman John Woerth. "You saw that recently with [asset managers] BlackRock lowering some expenses on exchange-traded funds, and Schwab then matched it." As a low-cost provider - like Amazon - Vanguard attracts competitors and has to cut fees ever lower to keep growing.
Vanguard says its edge is based on its unique business structure. Vanguard Group Inc., the management firm that advises Vanguard funds, is owned, not by a bank or a wealthy family, but by Vanguard's mutual funds, which are in turn owned by its shareholders.
But these cherished principles have come under unusual scrutiny.
Since its founding in 1975, Vanguard has boasted of managing the funds "at cost." But, after an SEC audit, Vanguard acknowledged last fall that its funds owed $3.2 billion in uncollected fees to its central management company. It hasn't said whether or how it will pay those fees.
That disclosure came as state and federal tax agencies are investigating former Vanguard tax lawyer David Danon's allegations that the company abused its corporate structure by charging artificially low service fees to its funds, to reduce reported profits and avoid paying billions in income taxes. Danon's lawyer, Stephen P. Sorensen, says these uncollected fees are among the revenues that Vanguard failed to pay taxes on.
Vanguard has said its structure is legal and sanctioned by long use. Woerth says its recent SEC disclosures are "unrelated to tax issues." The company denies that any of these issues - the newly disclosed liabilities, Danon's allegations or tax obligations - have affected customer fees.
If Vanguard Group cuts fees much more, it may have to start giving away money.
In January, Vanguard said it would reduce annual fees to just one basis point - 1 percent of 1 percent of clients' money - for two planned Institutional Select mutual funds tracking the big U.S. stock market indexes.
The catch: You'll need to invest at least $5 billion. That rules out most of us - but it could still make the new funds attractive to big investors, such as the $27 billion-asset Pennsylvania state pension system, which pays more than 60 times that rate in annual fees.
Vanguard is also grinding fees lower for its 20 million customers who aren't billionaires: On average, the company charges less than 14 basis points on every client dollar invested in U.S. mutual funds, less than one-quarter the industry average, according to Morningstar data. Part of the disparity reflects Vanguard's large bond-fund business, which typically charges lower fees than stock funds.
The company's partly automated Personal Advisory Service, if it catches on, could enable Vanguard to shift costs and charge still lower fund management fees. The service attracted $31 billion in 2015, its first year, though that includes some accounts from earlier advising programs.
Vanguard hasn't cut fees nearly in proportion with its rapid expansion, notes Dan Wiener, longtime publisher of the Independent Adviser for Vanguard Investors newsletter.
Since the market crash of 2008, Vanguard assets have tripled while fees are down more modestly - one-third from former levels. Result: Vanguard's U.S. fund fee income zoomed, to about $3 billion in each of the last two years, from around $2 billion in the late 2000s.
Where are the higher revenues going, if not all to customers? To boost marketing (including foreign expansion in 20 countries) and update automation, says spokesman Woerth.
At 14,000 full-time workers, Vanguard's head count isn't much changed from the early 2000s, when the firm managed just one-quarter of its current $3.4 trillion in other people's money.
"We are more efficient," says spokeswoman Arianna Stefanoni-Sherlock.
Inside Vanguard, some staff complain of the unrelenting cost cuts.
In 2010 the company restructured its Partnership payments, a cumulative point system that provides much of the compensation for chief executive William McNabb and other top officers, in ways that Vanguard veterans say reduced payments for many rank-and-file positions.
Workers were told they would still be eligible for year-end bonuses. But last year Vanguard reclassified 2,100 salaried employees as hourly workers, reducing or eliminating year-end bonuses for workers in those jobs.
It also restructured job categories that left many Vanguard "crew," as Vanguard calls its employees, calculating they would be eligible for smaller bonuses and smaller step-ups when promoted.
Vanguard employees have complained - privately, and some in lawsuits - of practices such as "forced ranking," in which employees are ranked and longer-serving ones can be left without jobs even if they've met managers' goals in the past. Vanguard has denied setting departmental job-cut quotas.The company has also outsourced information technology to U.S. and India contractors. For customer service, alongside Vanguard "crew," the company relies on hundreds of contract workers, many hired through the Randstad temporary service, even for customer-facing positions where they must take orders and make trades.
"We are running a tight ship," says spokesman Woerth. "We are always careful stewards of our clients' money. I don't think that's anything new."
Why the bonus changes? "We are standardizing," Woerth says. "It's just a change in procedure."
"We've been using contractors to staff up, as needed, for decades, particularly in our phone services and processing groups," says Vanguard's Stefanoni-Sherlock. "At any given time, contractors may make up 10 to 20 percent of our workforce," she added. "They go through the same training, and provide the same level of service," but can be "pared" when the market slows, reducing pressure to fire full-time crew.
She confirmed that Vanguard has lately increased its use of "outside providers" for IT services, but most work continues to be done internally.
Even with the changes, Vanguard's "voluntary turnover rate is about 10 percent" a year, and "our average tenure is around 10 years," says Stefanoni-Sherlock. That's less than the 11 percent to 13 percent voluntary quit rate reported by the federal Bureau of Labor Statistics for investment and insurance employers.
Vanguard has lately advertised for outside hires to fill a string of senior positions, including chief financial officer and general counsel, as well as corporate accounting and regulatory compliance. The company says this is due to generational turnover.
Has Vanguard set aside money for tax settlements or restructuring? "Are we building a war chest?" said Woerth. "I don't think that's the case."
Vanguard "was founded on being contrary," Woerth added. "Maybe there's more rigor and discipline around cost containment" than before. "But culturally, no. We've always flown coach."