It's still ridiculous. Yes, if Vanguard were owned by a different set of shareholders than those who buy into its funds, then there'd be an incentive to charge higher management fees. That doesn't make doing so "anticompetitive", though. It's anticompetitive to "dump" goods/services on a market at an unsustainably low cost to drive competitors out of business (and then presumably raise prices once you control the market). However, it's not anticompetitive to, by design, have a lower price than your competitors and keep it that way forever.

There's absolutely nothing wrong with setting up an organization owned by its shareholders and designed to not charge excessive fees. Resenting that and attacking Vanguard for it is an underhanded tactic by those who want to make money charging fees, and thus have trouble competing with Vanguard.

The issue has nothing to do with anticompetitiveness. It's about tax avoidance.

We were talking about two different issues, then. I was referring to the persistent complaints by Vanguard's competitors that their fee structure is "unreasonably" low, often with blustering about anticompetitiveness and "dumping". Those complaints have been floating around for years, and more instances of them arose recently as everyone scrambled to throw in their two cents on the tax lawsuit.

But yes, the tax charges weren't quite as "ridiculous" (in that they require more than a moment's thought to dismiss), though I still think they're completely baseless. (And also, "tax avoidance" is the perfectly legal and sensible practice of paying as little tax as possible; the allegations against Vanguard were of "tax evasion".)

While the details would need careful comparison to the various laws in question (which I would hope Vanguard has done), I would argue that Vanguard's structure is similar in principle to that of a cooperative. If you have an organization owned by its members, that organization serves only its members, and that organization charges lower prices because its structure makes it reasonable to operate at cost for the benefit of its members, then that organization will pay less tax because it takes in less revenue. And that's completely reasonable. It's not reasonable to argue that the organization should charge more to its members specifically so it can pay more tax. The same reasoning should apply to Vanguard, though how it may set up such a structure would require a great deal more care and complexity at larger scale.

The details of the complaint would require careful evaluation against the exact letter of the law; in particular, this isn't a comment on the separate allegation about the "contingency fund". The above is simply an argument that in principle, I don't see why this should apply to Vanguard when it doesn't apply to smaller-scale organizations operated for the sole benefit of their members.

I'm only familiar with the tax argument. It's standard-bearer is a former Vanguard employee and "whistleblower" who stands to make an enormous windfall finders-fee profit if the IRS ultimately agrees with him. (On the other side of the argument: "rules are rules, and Vanguard has to comply with all of them, even the dumb ones.")

Can you provide a link to the "dumping" argument, posed well, or by any credible market participant?

> I'm only familiar with the tax argument. It's standard-bearer is a former Vanguard employee and "whistleblower" who stands to make an enormous windfall finders-fee profit if the IRS ultimately agrees with him.

As far as I can tell, that case got dropped: http://articles.philly.com/2015-11-19/business/68386489_1_da... . Though it's still entirely possible that the IRS continues to pursue it separately (they haven't commented on the status of that), it no longer appears possible for the so-called "whistleblower" to pursue it directly or to collect.

> (On the other side of the argument: "rules are rules, and Vanguard has to comply with all of them, even the dumb ones.")

Granted; it's possible there's a "letter of the law" problem here, hence my comment that the tax argument isn't quite as ridiculous. However, in terms of actual justice being served, I don't think it's reasonable for an argument along these lines to apply to Vanguard but not to any random local co-op that serves its members. (I'm ignoring the second half of the complaint here about the "contingency fund", and focusing on the "not charging enough" argument, which seems far more obviously wrong in principle.)

The difference, as far as I can tell, is that co-ops have just the one legal entity owned by the individual members, whereas Vanguard involves a second corporate legal entity, due to the nature of how the funds own Vanguard; it's the same logical structure, but the legal entity topology differs, and that may make a difference. As far as I can tell, the laws trying to say "must charge market rates" (because charging less would mean paying less tax, and we can't have that...) refer to B2B transactions, not B2C transactions. I wonder why Vanguard structures its funds using two legal entities in this way, rather than a single legal entity directly owned by the funds it itself manages?

> Can you provide a link to the "dumping" argument, posed well, or by any credible market participant?

I can't seem to find a good isntance of it at the moment. I saw a few more recent instances of it in stories associated with the tax lawsuit, mentioned by random other fund representatives commenting on the suit. They struck me as the kind of comment made offhand, rather than a careful legal argument of any kind; however, I've seen that complaint in various contexts ever since I started following (and using) Vanguard myself, before I'd heard about the lawsuit.

The end of http://www.bloombergview.com/articles/2016-02-10/vanguard-is... makes a comparison between Vanguard's low fees and Costco members; that comparison isn't quite as accurate, since Costco charges its members a fee rather than being owned by its members, but it seems like the right line of reasoning at least.

Do they charge too little though? The list of cheapest ETFs is far from being completely dominated by Vanguard http://etfdb.com/compare/lowest-expense-ratio/ Schwab makes a point to undercut Vanguard on everything, and iShares joined the game recently with its "core" ETFs.