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Tim Buckley on Finding His Purpose With Vanguard · Masters in Business

0:02
Speaker 1: This is Masters in Business with very Results on Bloomberg Radio.
0:08
Speaker 1: I am super excited about this week's Masters in Business
0:13
Speaker 1: Live with Vanguard Group CEO Tim Buckley. If you recall
0:18
Speaker 1: pre pandemic, we had started doing these live events. The
0:22
Speaker 1: first one was with Ray Dalio, and then we didn't
0:25
Speaker 1: one with Howard Marks, and then everything closed down and
0:29
Speaker 1: we kind of put it on hiatus. Well they're back.
0:33
Speaker 1: Masters in Business Live is back, and this one with
0:36
Speaker 1: the CEO of the Vanguard Group was really quite wonderful.
0:41
Speaker 1: It was at the big E T F Exchange conference
0:45
Speaker 1: in Miami that was held last weekend. I got to
0:49
Speaker 1: sit with Tim for about an hour uh and ran
0:53
Speaker 1: through about forty five minutes worth of questions, and we
0:56
Speaker 1: took some questions from the audience. If you remember about
1:00
Speaker 1: five years ago when it was announced that he was
1:02
Speaker 1: going to be CEO, we did ten questions with Tim Buckley,
1:07
Speaker 1: and I'll link to that in the description of the podcast.
1:12
Speaker 1: This completes my set. I have now interviewed all four
1:16
Speaker 1: Vanguard CEOs from Masters in Business Jack Bogel, Jack Brennan,
1:21
Speaker 1: Bill McNab and now Tim Buckley. Really quite a fascinating conversation.
1:26
Speaker 1: A Tour to Force with no further ado. My Masters
1:30
Speaker 1: in Business Live discussion with the Vanguard Group CEO Tim Buckley.
1:37
Speaker 1: So let's talk a little bit about what we have
1:40
Speaker 1: going on right now. You've been a Vanguard for over
1:44
Speaker 1: thirty years, you've been CEO for five years. How's it going.
1:51
Speaker 1: It's been a uh, it's been a learning time and
1:55
Speaker 1: it's been a growth time, is what I would what
1:58
Speaker 1: I would say, very it's been, you know, an incredible opportunity.
2:02
Speaker 1: If you think about what Vanguard's all about. UM, we
2:07
Speaker 1: sit there each and every day figuring out how do
2:09
Speaker 1: we help people retire, better, put their kids through college, um,
2:13
Speaker 1: afford that dream home. And they've been a I think
2:16
Speaker 1: everyone in the audience agree, it's been a it's been
2:18
Speaker 1: a tough few years for investors and that's the time
2:22
Speaker 1: to rally, and certainly for us, that has been a
2:25
Speaker 1: time to show up and answer the bell for our clients.
2:27
Speaker 1: And so it's it's been a rewarding time. It might
2:30
Speaker 1: seem odd to say that, but a really rewarding time.
2:33
Speaker 1: So let's talk a little bit about your unusual career path.
2:37
Speaker 1: You come out of Harvard undergraduate and you essentially get
2:42
Speaker 1: a job as like a gopher for Jack Bogel. You're
2:45
Speaker 1: his Yeah, well it's they it was Lackey to the Lackey. Um,
2:50
Speaker 1: it's really that he had already working for Jack, working
2:53
Speaker 1: for Jack's guy. Well, I was suppose you're working for him,
2:56
Speaker 1: but I really was working for Jim Norris, who was
2:57
Speaker 1: his his assistant. We worked together for Jack Bogel, I
3:00
Speaker 1: reported to Jack Bogel. Um. I found out later I
3:03
Speaker 1: had the title of chairman's intern. And uh, I found
3:07
Speaker 1: out I had that title because they weren't sure I
3:09
Speaker 1: was going to make it through the summer. So I
3:11
Speaker 1: come out of undergrad as chairman's intern. I thought that
3:13
Speaker 1: was my title for good. After the summer they changed.
3:16
Speaker 1: I found out, well that you made it. Oh, you
3:18
Speaker 1: have a job. You have a job. I didn't know
3:20
Speaker 1: what was going to happen if the intern part didn't
3:22
Speaker 1: work out. Um, but it's a uh finding finding Vanguard.
3:27
Speaker 1: I was. I was lucky to find Vanguard. Um. Why well,
3:31
Speaker 1: coming out of school and I look, I have a
3:34
Speaker 1: My oldest is a is a junior in school now,
3:36
Speaker 1: so I'm sure he'll face this. But I was the
3:39
Speaker 1: typical senior and I was a little lost coming out
3:41
Speaker 1: of school. Um, I'm the son of a heart surgeon,
3:45
Speaker 1: and uh I grew up with someone who had a
3:47
Speaker 1: ton of purpose in his life. I mean, very like
3:50
Speaker 1: saving lives on a daily basis. That gives you a
3:52
Speaker 1: little bit of purpose. And I was lost, and he Um,
3:56
Speaker 1: I wasn't gonna go into medicine. Look, I didn't have
4:00
Speaker 1: the steady hands for it. And uh I didn't have
4:02
Speaker 1: the stomach for hospitals. And I love business. I love
4:06
Speaker 1: the market, so I want to go that we better struggling,
4:07
Speaker 1: I was. I was trying to find a place with
4:10
Speaker 1: the same type of purpose and and I was thinking,
4:14
Speaker 1: maybe I need to go back into medicine. My father
4:16
Speaker 1: said to me at that time, save lives or help
4:19
Speaker 1: people live better lives. Anything else in your wasting your time?
4:23
Speaker 1: And no, no, but he said, you don't need to
4:26
Speaker 1: go into medicine for that. And then he actually suggests
4:28
Speaker 1: I go talk to this company, Vanguard. Really, that was
4:31
Speaker 1: your father suggest He said, hey, reach out to Vanguard,
4:34
Speaker 1: and and uh I was fortunate to come down and
4:37
Speaker 1: interview with Vanguard, and look, I love at first night.
4:41
Speaker 1: I mean, it was a company owned by its climate
4:43
Speaker 1: clients with a clear purpose, um, to really give them
4:47
Speaker 1: a fair shake and and provide them with a better future.
4:49
Speaker 1: And thirty two, late thirty two years later, here we sit.
4:53
Speaker 1: What was it like working for Jack Bogel right out
4:56
Speaker 1: of school? I mean that had to be a little well, you' lee,
5:00
Speaker 1: Vanguard wasn't the Vanguard we know today thirty years ago,
5:04
Speaker 1: but it had to be a little intimidating. Well maybe
5:06
Speaker 1: I should have said I was both lost and a
5:08
Speaker 1: little clueless. I mean, remember this is you're coming out
5:11
Speaker 1: of the super Internet. I mean, Vanguard's really no one
5:14
Speaker 1: knows who Vanguard is. Um, so my friends they thought
5:17
Speaker 1: Vanguard was an airline um, which the second yeah, a
5:21
Speaker 1: second guess would have been a healthcare company. Um. And
5:26
Speaker 1: you know I used to have to describe it as
5:27
Speaker 1: as uh the Pennsylvania version of our Boston competitor. So
5:31
Speaker 1: um and uh so people didn't know Vanguard wasn't the
5:37
Speaker 1: firm it is today. And then Jack Bogel, like he
5:40
Speaker 1: wasn't the household name. So I didn't show up intimidated. Um.
5:43
Speaker 1: I showed up curious. And you know what he's uh,
5:46
Speaker 1: I asked a ton of questions and he's a guy
5:49
Speaker 1: that look wanted to teach a lot, and if you
5:52
Speaker 1: were willing to listen, you'd learn a lot. So Bill
5:56
Speaker 1: McNab was the CEO during the Finance ancial crisis, and
6:01
Speaker 1: when I spoke with him, he talked about how that
6:04
Speaker 1: created both challenges and opportunities for Vanguard. You're the CEO
6:09
Speaker 1: during the pandemic, COVID lockdown. What sort of challenge couple
6:14
Speaker 1: of bear markets? We right, let's see uh inflation at
6:18
Speaker 1: a forty year high, tightest labor tas labor market of
6:21
Speaker 1: our lifetimes. But yeah, other than that's been easy, easy times.
6:24
Speaker 1: So so what sort of challenges and opportunities have the
6:28
Speaker 1: past five years presented? Yeah, I think there's one of
6:32
Speaker 1: a huge, a huge lesson for us, and it's brought
6:34
Speaker 1: out in our our leadership team, the great leaders You've
6:38
Speaker 1: got to embrace your reality. You can't be an optimist
6:42
Speaker 1: or a pestimist. You just have to embrace the facts
6:45
Speaker 1: in front of you, brutal as they may be. And
6:48
Speaker 1: that's what we learned throughout this and you have to
6:51
Speaker 1: plot the best path forward. And maybe if you human humor,
6:55
Speaker 1: maybe we'll go back to kind of the first time
6:57
Speaker 1: we talked, and you go back to that time, because
7:00
Speaker 1: Banguard had been gone through a decade of incredible success,
7:04
Speaker 1: great growth, and look, our fund performance had been top
7:07
Speaker 1: notch if you went back to that time, and there
7:10
Speaker 1: our net promoter scores were really high, UM cash flow
7:14
Speaker 1: outpacing the industry. So all signs were great. We had
7:17
Speaker 1: a wonderful opportunity in front of us. We looked at UM,
7:22
Speaker 1: we looked at a client success and we saw it
7:24
Speaker 1: as hey, it was defined by the funds they hold it,
7:27
Speaker 1: but also by the advice they got on those funds.
7:30
Speaker 1: And for forty years, like we've been hammering, hammering away
7:33
Speaker 1: at the fund side that we had lowered the costs
7:35
Speaker 1: of investing and we had improved the quality of those
7:40
Speaker 1: funds and you know, dary I say, we made a
7:42
Speaker 1: change in the industry. Well, we started to think that
7:45
Speaker 1: maybe we could actually do that on the advice side,
7:47
Speaker 1: maybe we could be the vanguard of advice. Because we
7:48
Speaker 1: had this this PAS group that Personal Advisor Services that
7:52
Speaker 1: had some early success. So we set and said, okay,
7:55
Speaker 1: like couldy build another engine of value engine one being
7:58
Speaker 1: funds and engine to being advice. And if we could
8:01
Speaker 1: do that, that would be wonderful. So right before doing that.
8:05
Speaker 1: Right after we talked, we looked at h we have
8:08
Speaker 1: like looking at our competitive position, do it constantly and
8:11
Speaker 1: we call it, hey, let's embrace the brutal facts. We
8:14
Speaker 1: looked at the foundation of our position and it wasn't
8:18
Speaker 1: as good as we thought of us. In fact, we're
8:22
Speaker 1: low cost leader, but at that time we weren't. If
8:25
Speaker 1: you looked at our e t F assets UM at
8:27
Speaker 1: that time, less than half of them were actually would
8:29
Speaker 1: have been considered lowest cost in the industry. Our NPS
8:32
Speaker 1: scores are high, but they were declining UM because of
8:36
Speaker 1: an antiquated digital experience. We were losing market share in
8:40
Speaker 1: the critical retirement, the four one K business UM. Internationally,
8:43
Speaker 1: we were spread too thin. We're serving clients that institutional clients,
8:47
Speaker 1: and that weren't core to who we are. We're all
8:49
Speaker 1: about the individual investor. So looked at those said well,
8:52
Speaker 1: we've got to address those and we want to build
8:54
Speaker 1: this new engine of value with advice. Great awesome. That
8:59
Speaker 1: seemed like enough off and then COVID hit. We had
9:03
Speaker 1: a choice to make at that point, and the choice
9:06
Speaker 1: was do we just delay everything and play defense, or
9:11
Speaker 1: do we just add a pandemic to our list of
9:14
Speaker 1: brutal facts. We chose the ladder and said this is
9:17
Speaker 1: we have no idea how long this is going to
9:19
Speaker 1: go on, but we owe it to our clients to
9:22
Speaker 1: emerge from it stronger and better than when we went in.
9:25
Speaker 1: And we had we prioritize all our strategic plans. We
9:28
Speaker 1: had to figure out how to get them done while
9:30
Speaker 1: people were remote forces to make some tough choices and
9:34
Speaker 1: in that time and some big investments, whether we're building
9:37
Speaker 1: out our advice capabilities and building virtual teams to do it,
9:41
Speaker 1: were you know, tough choices. In our retirement business, we
9:45
Speaker 1: had to rebuild it soup to nuts and we partnered
9:48
Speaker 1: with Emphasis, but that meant went and worked for Emphasis,
9:51
Speaker 1: but it meant we could triple the resources um that
9:55
Speaker 1: we had, you know, focused on our retirement business. We
9:59
Speaker 1: looked in our our personal investor, our direct business and
10:02
Speaker 1: said we have to organize it differently, and we have
10:04
Speaker 1: to modernize that digital experience. And a tough decision overseas
10:11
Speaker 1: basically pulled back from ation. It was all institutional clients
10:14
Speaker 1: and we gave back up hundred billion in assets, which
10:17
Speaker 1: most people think it's crazy, Billow. They were all institutional
10:22
Speaker 1: separate accounts. That's that's not what we do here and
10:26
Speaker 1: gave it back to them, and that's not not where
10:29
Speaker 1: will excel. And it's just not what makes us take
10:32
Speaker 1: a little bit tangent here, Like we were managing money
10:34
Speaker 1: for people for basis point and a half and then
10:37
Speaker 1: they were going ahead and charging seventy basis points. That's
10:41
Speaker 1: not why we get out of bed, right. We want
10:43
Speaker 1: to see that an investor have a better return as
10:46
Speaker 1: a result. So maybe those tough choices and and uh,
10:49
Speaker 1: you know, five years later, we're sitting a lot better off.
10:51
Speaker 1: Whatever you identified as a structural fault line. How far
10:55
Speaker 1: along do you feel you are on the process of hey,
10:58
Speaker 1: we want to we're here, we want to end up there?
11:02
Speaker 1: Are you halfway there? Most of the way there? How
11:04
Speaker 1: how do you think? And we talked about just getting started,
11:06
Speaker 1: but you know, it's one of those things that as
11:08
Speaker 1: a leader you don't think about like, well, here's the
11:09
Speaker 1: finish line and then I'm done. It's how far can
11:11
Speaker 1: you push it and get the next team ready to
11:14
Speaker 1: take over and continue that journey? Um. But for us,
11:18
Speaker 1: you know, we we measure our success in different ways.
11:20
Speaker 1: We measure our success by how are our funds doing
11:23
Speaker 1: and we look back long term performance and right now
11:25
Speaker 1: you look back over ten years and our active funds,
11:28
Speaker 1: and we're out performing their competitive group averages sixty eight
11:32
Speaker 1: percent or out performing their their benchmarks. If you look
11:35
Speaker 1: at that et F Low Cost Leadership space, UM, there's
11:39
Speaker 1: six percent of our assets would now be considered lowest costs.
11:42
Speaker 1: So we can actually have that low cost title back
11:44
Speaker 1: if you will, UM, if you if you kind of
11:48
Speaker 1: continue on to that advice journey that we had for us,
11:52
Speaker 1: it was just thankful the last time we talked to
11:54
Speaker 1: me about eighty billion advised assets that sits at about
11:57
Speaker 1: three out of seven point two trillion at seven point
12:01
Speaker 1: two trillion, but it's growing it fifteen a year UM.
12:05
Speaker 1: And they're they're six hundred fifty thousand clients that at
12:08
Speaker 1: the bottom of the market last year and we're still
12:11
Speaker 1: right on target with their goals. And for advice for
12:14
Speaker 1: us too, is also a matter of you think about advisors,
12:17
Speaker 1: how are we using model portfolios to make their result
12:20
Speaker 1: results better? Um? Are we making sure that they have
12:23
Speaker 1: the right products from Vanguard to actually comple what they do?
12:26
Speaker 1: The right practices being in the advice business ourselves. We
12:28
Speaker 1: can help improve their practices, justify the advice that they give, UM,
12:33
Speaker 1: justify the fee, and you know, just simple things like hey,
12:36
Speaker 1: the value of tax loss harvesting. How do you make
12:38
Speaker 1: that that apparent to people? UM, something that for us
12:41
Speaker 1: save our clients about three million or four months that alone,
12:46
Speaker 1: and our digital experience. You asked about that that one.
12:48
Speaker 1: I can tell you how far along we are in
12:51
Speaker 1: modernizing that we're about seventy the way and doing that
12:54
Speaker 1: and so great change. So so you mentioned the pandemic
12:58
Speaker 1: was a little bit of the challenge. Everybody is working
13:02
Speaker 1: remote for a long time. How do you maintain corporate
13:06
Speaker 1: culture with twenty thousand, eighteen thousand employees when the vast
13:11
Speaker 1: majority of them are not coming into the office. I
13:13
Speaker 1: think it's a it's tough for every company out there,
13:16
Speaker 1: UM when you've hired thousands of people who have never
13:18
Speaker 1: set foot on a campus and you often model the
13:21
Speaker 1: behavior and the culture UM. And so the first thing
13:24
Speaker 1: for us is it's it's how it's in the leaders
13:26
Speaker 1: that you you actually select, and that's so crucial for us.
13:30
Speaker 1: So in our screening, you get aught interview questions. We're
13:32
Speaker 1: trying to figure out are you purpose driven? Like are
13:35
Speaker 1: you actually someone who's gonna be purpose driven? But then
13:38
Speaker 1: we have something that I learned from one of my
13:40
Speaker 1: mentors that you've talked with, Jack Brennan before, a former
13:44
Speaker 1: chairman CEO UM, and he always established this early on
13:48
Speaker 1: in the culture that it would be client, crew, self,
13:53
Speaker 1: always in that order. And a lot of companies will
13:56
Speaker 1: say that like, it will put the client first, but
14:00
Speaker 1: we don't have another choice like our client's own us.
14:02
Speaker 1: We don't have anyone else to serve. And then during
14:05
Speaker 1: the pandemic and being cleared, us like, yeah, but the
14:08
Speaker 1: only way we can mess that up is if people
14:09
Speaker 1: start putting themselves itselves in front of the client. And
14:13
Speaker 1: so the leaders there we have to say, okay, we
14:14
Speaker 1: have to enforce it. It's always the client first. And
14:17
Speaker 1: as a leader, then that means that you have to
14:20
Speaker 1: take care of the crew before yourself. So we emphasize
14:23
Speaker 1: that wholy that leaders are going to actually make sure
14:26
Speaker 1: that crew know that they care more about their success
14:30
Speaker 1: than their own. So for me, it's it's more important
14:33
Speaker 1: to see my team's success than Tim Buckley's success. And
14:37
Speaker 1: it's amazing how that helps build a team if you're
14:39
Speaker 1: true behind it, and it builds the collaboration on that team,
14:43
Speaker 1: and then down the road is somewhere where you put yourself.
14:45
Speaker 1: But that is a cord to our culture. We're able
14:47
Speaker 1: to do it in a virtual world. But now that
14:49
Speaker 1: people are basically back for three days a week, it's
14:53
Speaker 1: a lot easier to reinforce it um and people to
14:56
Speaker 1: see it when they're actually face to face. So back
14:59
Speaker 1: three days a week, um home optional two days a week.
15:04
Speaker 1: How does that structure change what you expect people to
15:07
Speaker 1: do when they actually come to the office. And so
15:10
Speaker 1: I'm sure a lot of people have been through this
15:11
Speaker 1: where they come into the office, and we had it
15:13
Speaker 1: at first when people came into the office and they
15:15
Speaker 1: were on teams when they're in the office. So what
15:18
Speaker 1: we're finding we're finally like, okay, there, they come into
15:21
Speaker 1: the office, they say hello to each other, they sit
15:22
Speaker 1: down their desk, and they go on video all day long. Well,
15:25
Speaker 1: that defeats the purpose of actually those serendipitous moments you're
15:28
Speaker 1: bumping into each other, trading ideas, you're sitting in a
15:30
Speaker 1: conference room, you're talking to each other, building on everyone's points.
15:33
Speaker 1: If you're on teams, she said, why is that, Well,
15:36
Speaker 1: it was because not everyone was coming in and you
15:39
Speaker 1: still had some people at home and some people or
15:41
Speaker 1: you didn't want to travel from building and building. We
15:43
Speaker 1: have a nice campus and not everyone wanted to travel,
15:45
Speaker 1: and we just said no, Actually, when you're here, like first,
15:47
Speaker 1: everyone's got to be here, and then secondly, when you're here,
15:50
Speaker 1: we expect you'd actually interact with each other, not on teams.
15:53
Speaker 1: And you know you you want to see that that
15:56
Speaker 1: teams usage drop in the middle of the week and
15:58
Speaker 1: go up on the tail n This because Monday and
16:00
Speaker 1: Friday or the virtual days. So we actually had to
16:03
Speaker 1: establish that norm that people have gotten so used to
16:05
Speaker 1: using teams all the time in the middle of the week,
16:08
Speaker 1: we had to move people away from it. So let's
16:10
Speaker 1: stick with the leadership theme and you come to the
16:13
Speaker 1: CEO row with a unique leadership background. You used to
16:18
Speaker 1: describe yourself as c I O square you were Chief
16:21
Speaker 1: Investment Officer and chief information officer, an unusual combination, and
16:28
Speaker 1: then to be elevated and CEO. How does that background
16:31
Speaker 1: affect how you think about the role of chief executive officer. Yeah,
16:36
Speaker 1: I think for every CEO you need perspective and I
16:39
Speaker 1: think both the CIO jobs gave me incredible perspective. The
16:44
Speaker 1: first one would have been back in if you think
16:47
Speaker 1: about I became c I O right at the tail
16:49
Speaker 1: end of the Internet. Craze I was on the web
16:51
Speaker 1: and then took over his uh Chief Information Officer, and
16:54
Speaker 1: that was a time of incredible hype. Right the Internet
16:58
Speaker 1: is going to change the world, Oh my gosh, will
17:00
Speaker 1: change how we actually consume you know, video, how we game,
17:03
Speaker 1: how we do business, and everyone is talking about that.
17:08
Speaker 1: You remember that well, and then it didn't happen right
17:11
Speaker 1: away and everyone ended up disappointed. We know what happened
17:14
Speaker 1: over the long run, it reminded you know, back then
17:17
Speaker 1: we we used to talk about something that I've tried
17:20
Speaker 1: to bring back for people, which is that that Gardner
17:22
Speaker 1: hype cycle, if you remember it, and that Gardner hype
17:25
Speaker 1: cycle is something where whenever there's a disruptive technology and
17:29
Speaker 1: it comes in, there's a lot, there's a lot of
17:31
Speaker 1: hype and high expectations. So unrealistic expectations followed by something
17:36
Speaker 1: doesn't happen, you have disillusionment. You have the troth of disillusionment,
17:40
Speaker 1: and people give up on it. But the true change
17:44
Speaker 1: comes when hey, you know what those loyal to that
17:47
Speaker 1: technological change figure out over not one, two, but three
17:51
Speaker 1: five years how to drive change and how to leverage it.
17:55
Speaker 1: And that's been true through time. It was true whether
17:57
Speaker 1: it's with the internet. You can plout it with mapping
18:00
Speaker 1: the genome with E v S, and it's true in
18:04
Speaker 1: investments or you have to look at a change. And
18:07
Speaker 1: you know, people talk today about okay, a private equity,
18:10
Speaker 1: some magic elixir, if I can just get private equity
18:13
Speaker 1: into my client's portfolios. It's it's not true. I mean
18:16
Speaker 1: private equity there is greater return dispersion, but the returns
18:20
Speaker 1: on private equity or often below the S and P
18:22
Speaker 1: five hunter on average. So you've got to do your work.
18:25
Speaker 1: You've got to see through and say, okay, well that
18:27
Speaker 1: means that I need to keep fees low and I
18:29
Speaker 1: have to get with the right GPS, etcetera. And so
18:31
Speaker 1: you can drive you can figure out where's that long
18:34
Speaker 1: term change going. So those two jobs give you a perspective.
18:38
Speaker 1: So okay, avoid that hype and how do you see
18:40
Speaker 1: through the long term change that you want that you
18:43
Speaker 1: think should you should drive home? Um, they're probably different
18:46
Speaker 1: in how you embrace change, and I see the world's
18:49
Speaker 1: always changing, right, So that's the dangerous thing. Like how
18:53
Speaker 1: people code, where you host, where you host something, all
18:56
Speaker 1: of those things those have you know, how applications talk
18:59
Speaker 1: to each those have totally totally changed since I was
19:03
Speaker 1: c I O. And um, but if you think in investments,
19:07
Speaker 1: certain things like there are more rules in there, like
19:10
Speaker 1: that proven investment philosophy of diversification. That's not going to
19:13
Speaker 1: change overnight, So you have to be more careful in
19:16
Speaker 1: the investment world. And both of those give me a
19:18
Speaker 1: balance of CEO. So Vanguard now has a hardcore tech
19:22
Speaker 1: geek as CEO. How has that affected the company? How
19:26
Speaker 1: has that affected how you approach the use of technology
19:31
Speaker 1: in the world of investment. Yeah, like, thanks for calling
19:35
Speaker 1: me a tech geek. I'll think that as a compliment. Um,
19:38
Speaker 1: that's how it's meant. Yeah. Um, for us, it's technology
19:43
Speaker 1: is the embodiment of our service. We're we've always been
19:45
Speaker 1: a virtual company. Just used to be through the mail
19:47
Speaker 1: and wanting hutter number when I joined. So, um it's
19:51
Speaker 1: always been that way for us. So it needs to
19:53
Speaker 1: be a necessary area of investment. And I mentioned this.
19:57
Speaker 1: When you lead with technology What can happen to you
19:59
Speaker 1: is you can if you don't continually make the investment,
20:01
Speaker 1: you fall behind because it gets so costly to address
20:04
Speaker 1: your legacy. It becomes an albatross your kind of your
20:07
Speaker 1: legacy applications. They become a burden and they slow you
20:11
Speaker 1: down and they slow down what you can do for
20:13
Speaker 1: your clients. We we made the choice of you know what,
20:17
Speaker 1: we're going to eliminate that legacy. And a few years
20:20
Speaker 1: ago we said on whether you're investing directly with your dress,
20:23
Speaker 1: investing through an advisor, whether you're investing through retirement plan.
20:26
Speaker 1: The platforms that we deal with our service infrastructure, our
20:30
Speaker 1: investment infrastructure cloud native. So we've rebuilt, we're about seventy
20:36
Speaker 1: four percent of the way through of rebuilding all our
20:38
Speaker 1: applications to be cloud native. Now that sounds cool, Like
20:41
Speaker 1: what does he give you? It builds up your your resiliency,
20:45
Speaker 1: but your speed. And I'll give you an example. Um,
20:48
Speaker 1: maybe the team won't love that, I'll use this one.
20:50
Speaker 1: But we we launched a mobile app last year, right
20:54
Speaker 1: and um it was it fell flat on its face.
20:57
Speaker 1: The mobile app like it was panned. Our science hated
21:00
Speaker 1: the mobile app and in the past when you did that,
21:03
Speaker 1: well you had to live with it, like you have
21:05
Speaker 1: to wait for nine months to fix the problem. But
21:08
Speaker 1: because it was built cloud native, that meant you could
21:11
Speaker 1: make changes to it. You can make the changes every
21:13
Speaker 1: two three days. And so we did two hundred releases
21:17
Speaker 1: to it in nine months and that app has gone
21:21
Speaker 1: way past the satisfaction ratings client satisfaction ratings of the
21:26
Speaker 1: past one and continues to grow. And so being cloud
21:29
Speaker 1: native can give you incredible speed resiliency. Last year are
21:32
Speaker 1: availability and you never get a good article written when
21:35
Speaker 1: you have high availability. You just want to avoid the
21:37
Speaker 1: bad ones. We're nine seven available for our client application.
21:42
Speaker 1: So um, that's a number I had seen before. So
21:46
Speaker 1: let's talk a little bit about fees. The Vanguard effect
21:49
Speaker 1: has been well documented. Not just the spaces that you're
21:54
Speaker 1: in force everybody else to be more fee competitive, but
21:58
Speaker 1: even spaces you first start looking at immediately has a
22:03
Speaker 1: ripple effect and fees dropped. How much lower can van
22:07
Speaker 1: good push fees? Half of my portfolio? Is it three bibs?
22:12
Speaker 1: How about too? Okay? But aren't you going to run
22:15
Speaker 1: out of room eventually? Well, the way we're we're built
22:19
Speaker 1: is it's the way we're being client own. It's the
22:20
Speaker 1: way we return profits to our clients. That's the dividend.
22:24
Speaker 1: That's the dividend that we pay out is to to
22:26
Speaker 1: lower that expense fore issue, and it's it's how we're
22:29
Speaker 1: built and it comes with those are economies of scale
22:32
Speaker 1: um Every year, just like any other company, we have
22:35
Speaker 1: our expenses that includes kind of the big investments for
22:38
Speaker 1: making in the business, and we have our revenue one
22:41
Speaker 1: and we end up you know, we've had been like
22:44
Speaker 1: you'd be very profitable year after year. Well, what do
22:48
Speaker 1: you do with that? You can? Number one, you'll put
22:51
Speaker 1: it back into the business. There's plenty of capital put
22:53
Speaker 1: back into the business if it with projects that will
22:55
Speaker 1: meet your cost of capital. So you do that. You
22:58
Speaker 1: have to make sure you have enough liquidity. You're reserves too,
23:01
Speaker 1: so if you have there's a big bear market, you
23:03
Speaker 1: want to protect your investments, et cetera risk event. But
23:06
Speaker 1: then other companies will retain earnings, the pay a dividend
23:11
Speaker 1: go to a family. What we do is you say,
23:13
Speaker 1: okay with that. With the that capital, we'll give it
23:16
Speaker 1: back to our clients in the form of lower expenses.
23:19
Speaker 1: And it's been a pretty powerful cycle, and that's why
23:22
Speaker 1: year after year we're able to kind of lower expense ratio.
23:27
Speaker 1: So got UM. I mentioned Jack Brennan. I bumped into
23:30
Speaker 1: him in the hall the other day. He was he
23:33
Speaker 1: stepped down his his CEO in two thousand and eight
23:37
Speaker 1: and he said, Tim, when I joined Vanguard, our expense
23:39
Speaker 1: ratio is eight eight basis points and it's you know,
23:42
Speaker 1: less than a tenth of that. Now, wow, that's that's
23:45
Speaker 1: pretty impressive. So many industries where you actually get more
23:49
Speaker 1: and pay dramatically less. And this has been the history
23:54
Speaker 1: of the firm from day one. This is a core
23:56
Speaker 1: of Jack Bogel's philosophy. UM. A lot of people think
24:01
Speaker 1: it's all about passive, but Jack began as an active manager.
24:06
Speaker 1: You're now about active at Vanguard. Tell us a little
24:11
Speaker 1: bit about what you guys are doing on the active
24:14
Speaker 1: side of asset management. It's a funny fact of being there.
24:17
Speaker 1: Thirty two years I joined Vanguard and UM index was
24:21
Speaker 1: only of our assets active active. So we were active
24:25
Speaker 1: firm when when I when I joined Vanguard UM and
24:29
Speaker 1: it's just it's evolved over time to be to be
24:31
Speaker 1: a index. We firmly believe in actively firmly believe a
24:35
Speaker 1: low cost active, but it's a placed in the portfolio
24:37
Speaker 1: has changed if you think about for most clients, it's
24:42
Speaker 1: an index at the core, and if you're going to
24:44
Speaker 1: if you have the the risk app type for active,
24:47
Speaker 1: it's going to play much more of a satellite um
24:50
Speaker 1: And so as we look at it, we we look
24:52
Speaker 1: towards strategies that might have well maybe it's the same
24:55
Speaker 1: a little bit higher you'd hope for information ratio, but
24:57
Speaker 1: you have a bigger risk budget standard deviation, and so
25:00
Speaker 1: you look for more excess excess return, so that plays
25:03
Speaker 1: for a better compliment to the index portfolio. Now, how
25:07
Speaker 1: do we think about active managers? People talk about yes people,
25:12
Speaker 1: it's philosophy and process and you'll go through all of those.
25:15
Speaker 1: But we found the best way to evaluate one is
25:18
Speaker 1: make sure that they can tell you what their edges,
25:21
Speaker 1: what is their active edge, and it has to be
25:23
Speaker 1: one that can't be easily duplicated in the market because
25:26
Speaker 1: in a zero sum game right where you're competing with
25:28
Speaker 1: other managers, you want one an edge that nobody else has.
25:31
Speaker 1: So you can't just say we have smart people and
25:33
Speaker 1: they collaborate well with technology, right everybody's got smart people
25:37
Speaker 1: and everyone's got great technology. You can't just say you
25:41
Speaker 1: know what, we think differently. We want you to prove it.
25:43
Speaker 1: So how do you think differently? So you've talked with
25:46
Speaker 1: the leaders of Bailey Gifford. Where do they hire from, Well,
25:49
Speaker 1: they don't hire from business schools, right, They'll hire military
25:53
Speaker 1: intelligence officers and have them work actually I'm serious with
25:56
Speaker 1: the poet and with someone else, and they keep them
25:58
Speaker 1: in pods of teens that they work together, but they
26:01
Speaker 1: don't collaborate. They don't want group things. They don't let
26:03
Speaker 1: them work with other groups. And then you measure do
26:05
Speaker 1: they truly keep that edge of differentiated thinking? We do
26:10
Speaker 1: it to ourselves are active fixed income group against super
26:15
Speaker 1: smart people supported by great technology. But what's there? What's
26:19
Speaker 1: that edge that no one else could duplicate in there?
26:22
Speaker 1: It comes from our structure. If you think about the
26:25
Speaker 1: fact that we have at like, we're client owned, so
26:29
Speaker 1: we're delivering as close to at costs as possible. We're
26:32
Speaker 1: gonna be a lower fee than than almost everybody out there.
26:35
Speaker 1: That means a low hurdle rate. What do you do
26:37
Speaker 1: with that? Well, for us, that means that hey, when
26:41
Speaker 1: you're not getting paid to take risk. When spreads are
26:44
Speaker 1: tight like right now, then don't take a lot. You
26:46
Speaker 1: don't have to, you don't have to make you don't
26:49
Speaker 1: have to take that extra spread or go out and
26:52
Speaker 1: credit quality and take extra risk there because look, you
26:56
Speaker 1: have a low expense ratu. You can be higher quality
26:59
Speaker 1: and you equal or maybe you fall behind just a
27:01
Speaker 1: little bit, and you'll keep a law of dry powder.
27:05
Speaker 1: And so then when you have spreads wide now you
27:07
Speaker 1: have you know, dislocations in the marketplace, you have plenty
27:10
Speaker 1: of dry powder, and you deploy it and with that
27:13
Speaker 1: strategy you I'll perform over the long run. And I
27:16
Speaker 1: mentioned that ten year performance. Do you look at our
27:20
Speaker 1: active fixed income. I believe nine percent of the funds
27:22
Speaker 1: have outperformed their competition over the long run. So their
27:25
Speaker 1: competitive group averages. So it's a and straight up the
27:28
Speaker 1: numbers huge, So it's a it's a differentiated way. But
27:31
Speaker 1: we measured like do they truly deploy that black powder?
27:34
Speaker 1: They that dry powder? Did they take advantage of it?
27:37
Speaker 1: So you mentioned Bailey Gifford. I bet a lot of
27:39
Speaker 1: people here in the States don't know them been around
27:43
Speaker 1: for a century in the UK. If not longer highly regarded,
27:46
Speaker 1: great track record. I want to put that in context
27:50
Speaker 1: of leadership. You're reaching out to I guess not a competitor,
27:54
Speaker 1: but appear saying how can we get better? How often
27:59
Speaker 1: does to car What sort of strategies do you put
28:02
Speaker 1: into place? How often are you saying, Hey, let's sit
28:06
Speaker 1: down and talk shop with our outside managers or with
28:09
Speaker 1: outside firms with you know, Bailey Gifford is a great entity.
28:13
Speaker 1: They were they were managing money for one of the
28:17
Speaker 1: public pensions for Yeah, So we have we have a
28:19
Speaker 1: team um who are constantly out there looking for who
28:24
Speaker 1: could be great outside managers, and they will look for
28:27
Speaker 1: that active edge and look for that differentiation, and they're
28:30
Speaker 1: constantly out there so that if there's an opportunity that
28:32
Speaker 1: pops up into fund or there's an idea for fund,
28:36
Speaker 1: that we actually have a list that we can go
28:38
Speaker 1: to right off of people that we respect and that
28:40
Speaker 1: we could work with, and that working with Vanguard, you know,
28:43
Speaker 1: one of these say one of the differentiators is that
28:45
Speaker 1: we're so long term. They have such a long term
28:48
Speaker 1: focus that they truly can have a low turnover and
28:50
Speaker 1: stick with an idea, not worry, Hey they're underperforming for
28:53
Speaker 1: two years, that like we're going to move on from them,
28:56
Speaker 1: So we're probably a lot more patient. Um. But at
29:00
Speaker 1: the same time, you know, highly educated and how the
29:02
Speaker 1: in the questions we ask So you joined the leadership
29:06
Speaker 1: team in two thousand and one, which is you know,
29:09
Speaker 1: going back now, Yeah, a decade into your career. That's
29:12
Speaker 1: a pretty fast advancement. I assume you were relatively young
29:17
Speaker 1: compared to the rest of the leadership team. How do
29:20
Speaker 1: you get from that entry to senior management? What was
29:25
Speaker 1: the career path like from there? Yeah, I was I
29:27
Speaker 1: was young and over my head really Oh yeah, definitely,
29:31
Speaker 1: I mean I was. I had been running the web
29:33
Speaker 1: and that was that was enough for me. Um. I
29:37
Speaker 1: you know, unfortunately, back then, our our c I O
29:40
Speaker 1: UH suddenly passed away and Jack Brennan asked me to
29:47
Speaker 1: step in and lead our technology group. Um. It was
29:50
Speaker 1: a surprise choice for everyone. It was a surprise for me,
29:55
Speaker 1: and I remember talking to him about it going pushing
29:57
Speaker 1: back a little bit, like, you know, like I don't
29:59
Speaker 1: have the I T background that other people would have,
30:02
Speaker 1: And he said to me, Tim, I'm not asking you
30:05
Speaker 1: to code, I'm asking you to lead and then he
30:07
Speaker 1: went through the competencies that you would expect me to
30:10
Speaker 1: bring to the table and how I could bring our
30:12
Speaker 1: I T division to the next level. That stuck with me.
30:17
Speaker 1: A couple of things stuck with me. It was the
30:19
Speaker 1: importance of competencies and developing those competencies and people and
30:23
Speaker 1: the importance of taking risk in the development of people.
30:27
Speaker 1: Another thing occurred to me probably a year later, and
30:29
Speaker 1: that was that, Um, and we're big believers in doing
30:34
Speaker 1: three three sixties on people, so getting feedback. Every leader
30:37
Speaker 1: should go out and get feedback not just from their boss,
30:39
Speaker 1: but from their peers and those people on their teams.
30:43
Speaker 1: So I did a three sixty. And you know, it
30:46
Speaker 1: always starts off with your strengths and where where you're
30:49
Speaker 1: doing well, and say like, oh gosh, you know Tim's
30:52
Speaker 1: strategic and he's got he's got to drive, and he
30:55
Speaker 1: gets results in collaborative and love and everything. And then
30:59
Speaker 1: I get down to the Okay, here's what his weakness
31:01
Speaker 1: is when he needs to work. And you know, the
31:03
Speaker 1: bottom was patients and we can come back to that
31:05
Speaker 1: some other time. Yeah, yeah, I know, UM, and it's
31:10
Speaker 1: still a weakness. UM. But second from the bottom was
31:14
Speaker 1: developing talent. Man. That was stung because I realized I
31:19
Speaker 1: had been a taker all this time, not this, not
31:21
Speaker 1: a giver. And you had been mentored by Jack Brennan,
31:25
Speaker 1: by Jack Brennan and Bill McNabb and Mike Miller and
31:28
Speaker 1: you know, all these people from time who had taken
31:31
Speaker 1: an interest in my career, and they took an interest
31:34
Speaker 1: in my career, and when people asked about me, I
31:38
Speaker 1: hadn't done as much. Now, there might have been one
31:41
Speaker 1: or two people that said I was the best thing
31:42
Speaker 1: to happen to their career, but um, by and large,
31:46
Speaker 1: I hadn't done enough. And so I spent the next
31:48
Speaker 1: you know, twenty two years saying okay, well how do
31:52
Speaker 1: I develop talent? And I would tell you that for me, um,
31:56
Speaker 1: my proudest moments of Vanguard are when someone that I
32:00
Speaker 1: have mentored ends up on our our senior leadership team,
32:04
Speaker 1: and fully half of that team I can say I
32:06
Speaker 1: hand it, had a hand and mentoring them along. So
32:09
Speaker 1: it takes conservative effort, and for a leader, it's there's
32:13
Speaker 1: nothing more rewarding because that's your That's the way you
32:15
Speaker 1: have exponential impact if you can pass on your lessons
32:18
Speaker 1: and someone else builds on them and they teach them
32:20
Speaker 1: to somebody else. That's that's where a leader can have
32:22
Speaker 1: true impact. How does a company the size of Vanguard
32:26
Speaker 1: institutionalize that sort of mentoring, leadership grooming UM bringing up
32:33
Speaker 1: the next generation, getting people to reach outside their comfort
32:38
Speaker 1: zone and become better colleagues, workers, and eventually leaders at
32:43
Speaker 1: every at every leadership level. UM. We do talent oversight
32:48
Speaker 1: where we'll go through and you you should know your
32:50
Speaker 1: teams and you'll know your leader. You're like, everyone knows
32:54
Speaker 1: their leadership team, people in their group, where they're stronger competencies,
32:58
Speaker 1: where they need to develop, and we will talk about
33:01
Speaker 1: we constantly rotate talent to develop them and rotate rotate tent. Well, look,
33:06
Speaker 1: I mean the same way that I was rotated between
33:10
Speaker 1: you know what would be a corporate area to service
33:13
Speaker 1: area to an I T two investments and you wrote
33:17
Speaker 1: you give up your best talent And it's odd most
33:19
Speaker 1: companies don't. Do you want to hold on your best talent,
33:22
Speaker 1: but advantguard you're rewarded for give up your best talent
33:25
Speaker 1: and make sure they develop and how do you develop them?
33:27
Speaker 1: And we do what We rotate people based off of
33:30
Speaker 1: their competencies we know. Think of them as buckets that
33:32
Speaker 1: you need to fill. And it may be okay, well
33:35
Speaker 1: what someone's you know, vision and strategic thinking, And it
33:39
Speaker 1: might be how well they know operations management? How good
33:41
Speaker 1: are they developing crew? And these are buckets that you're
33:44
Speaker 1: you're trying to fill along the way. You can't fill
33:46
Speaker 1: them all in one job and or with one boss.
33:49
Speaker 1: Some bosses will be better than others. So we do
33:52
Speaker 1: if we understand those about our people, then we rotate
33:55
Speaker 1: and we know what the next one or two or
33:57
Speaker 1: three rotations will be, and we do it around their competencies.
34:01
Speaker 1: As we rotate them. There's a big there's a give up.
34:05
Speaker 1: Someone loses there their expertise in a role. How do
34:09
Speaker 1: you But what they're gaining is context. They're gaining context
34:14
Speaker 1: and becoming a better leader, better decision maker. You just
34:17
Speaker 1: have to It's a system you have to balance because
34:19
Speaker 1: you can't have everyone rotate to a new new area.
34:22
Speaker 1: You have to keep institutional knowledge and really sandwich people
34:25
Speaker 1: like experience on the top, experience on the bottom, and
34:28
Speaker 1: you kind of someone fresh in the middle. So you
34:30
Speaker 1: mentioned Bill McNabb, who was your predecessor as well as
34:34
Speaker 1: Jack Brennan, his predecessor. Those those are two rock star
34:40
Speaker 1: finance ceo s. What's it like for you as a
34:44
Speaker 1: CEO still having access to their expertise and experience. You
34:49
Speaker 1: said you just bumped into Brennan. Always tell us a
34:53
Speaker 1: little bit about how you use the legacy former CEOs
34:56
Speaker 1: who are still around and how cool it is. I
34:59
Speaker 1: mean what I mean two very different leaders and um,
35:03
Speaker 1: two fabulous mentors and great friends, um, both of them.
35:08
Speaker 1: And they have a different way to see the world
35:11
Speaker 1: and see leadership. And I would encourage everyone out there
35:14
Speaker 1: that often people come into a role. Oh, I gotta
35:16
Speaker 1: put my impromature on there. I can't talk to the
35:18
Speaker 1: past leaders and look these um. Whenever I we Tay
35:23
Speaker 1: make a big decision to Vanguard, and I talked about
35:26
Speaker 1: some of them, I would actually talk to Bill and
35:29
Speaker 1: talk to Jack first. I would understand, you know, why
35:32
Speaker 1: didn't we make this decision before? How do we get
35:34
Speaker 1: to this point? They would give me the historical context
35:36
Speaker 1: and often give you information that oh I didn't think
35:39
Speaker 1: about that, and you might adjust, you might not. And
35:42
Speaker 1: they are accessible. Um. They made us leave our phones backstage,
35:46
Speaker 1: but I could text right now. You got yours. I could.
35:49
Speaker 1: I could text Bill right now and you get back
35:50
Speaker 1: to me in five minutes. Um. But neither of them
35:54
Speaker 1: will ever reach out to me and really unsolicited advice.
35:59
Speaker 1: Not Kate, Tim, what are you doing? This? This is?
36:02
Speaker 1: This is this is one way. If I reach out
36:04
Speaker 1: to them, they get back to me, But they don't
36:06
Speaker 1: reach out and go, hey, what are you thinking about?
36:07
Speaker 1: Where did you do that for? And UM, no, it's uh,
36:11
Speaker 1: it's it's great. You know I mentioned that, UM, a
36:15
Speaker 1: tough decision where the retirement business. Both of them said, hey,
36:18
Speaker 1: we should have done that earlier, and so it's reinforcing
36:21
Speaker 1: to have that. UM. And we're looking and they're they're
36:24
Speaker 1: proud that we just became in that business number one
36:28
Speaker 1: in competitive NPS, so that businesses is totally shifted and
36:32
Speaker 1: turned around. Um. But they were a hundred percent behind it.
36:35
Speaker 1: Let's let's go back one more CEO to Jack Bogel,
36:40
Speaker 1: Obviously you might give me some un solicited advice. Well,
36:43
Speaker 1: I was gonna say for sure. He never was shy
36:46
Speaker 1: about sharing his opinion, and clearly a lot of his
36:49
Speaker 1: philosophy is in the DNA of Van Guard. Put the
36:53
Speaker 1: client for us, keep costs as low as possible, always
36:57
Speaker 1: try and make the investor better. But when we look
37:01
Speaker 1: at Vanguard today, there's a lot of things that Jack
37:05
Speaker 1: would have kicked and screamed about E t f s.
37:08
Speaker 1: To begin with, he was not a big fan. Why
37:10
Speaker 1: do we have to invest overseas American companies participating that?
37:14
Speaker 1: And then lastly, the possibility of putting private equity and
37:19
Speaker 1: retirement accounts. He would be furious. I would imagine he
37:23
Speaker 1: pushed back on me on the web and would have
37:25
Speaker 1: good debates on that. And I think his vision, though,
37:29
Speaker 1: that's what was so powerful, and that's what remains. This
37:32
Speaker 1: this idea of putting the client first and giving him
37:34
Speaker 1: a fair shake. That's what you know, that's what defines us.
37:38
Speaker 1: People want to define us as a low cost index
37:41
Speaker 1: fund um, which Jack Bowood should be and was incredibly
37:44
Speaker 1: proud of. I mean, he brought this this idea that
37:47
Speaker 1: existed out there and brought it mainstream. And you know,
37:51
Speaker 1: so many people have done something to so much to
37:54
Speaker 1: extend that. But he was the visionary behind indexing for
37:58
Speaker 1: the main street investor, and so we want to remember that,
38:01
Speaker 1: but that's not all he was. He was that vision
38:04
Speaker 1: of how do you put the client first. How do
38:05
Speaker 1: you let him keep more of their return? So we look,
38:08
Speaker 1: what are other ways to do it? Because it started
38:09
Speaker 1: with low cost active but how do you do it
38:12
Speaker 1: through advice? You know, how do you do it directly
38:15
Speaker 1: advising clients? How do you help advisors become better at
38:18
Speaker 1: what they're doing so people keep more of the return,
38:20
Speaker 1: they have a better chance of raising the investment success
38:24
Speaker 1: of their clients. So that's how we define what we do.
38:27
Speaker 1: Private equity is just one of those that in private equity, look,
38:31
Speaker 1: I said, it's not an easy game. There is the
38:35
Speaker 1: first the average return is typically a little bit below
38:37
Speaker 1: the SNP and there's a wide dispersion of returns. So
38:41
Speaker 1: we're going into that. How do we make sure that
38:42
Speaker 1: our clients are on the right side of that distribution?
38:46
Speaker 1: And you know, relative fees matter, and their access matters,
38:49
Speaker 1: and we had to vet all of those. That's very
38:51
Speaker 1: consistent with the original vision of anger M. So let
38:55
Speaker 1: me throw a quote of yours back at you and
38:58
Speaker 1: and let you this could be danger pursue this quote.
39:01
Speaker 1: Our clients should not only expect change, but demand change.
39:06
Speaker 1: Explain that, well, there are owners um and you never
39:11
Speaker 1: want to be complacent as a business, so as our owners,
39:14
Speaker 1: they should actually demand that we get better and better.
39:17
Speaker 1: And the other one is that if a company wants
39:20
Speaker 1: to lead, if if you want to lead, you don't
39:22
Speaker 1: get to set the pace that you go at. Now
39:25
Speaker 1: most people would think that, okay, if you're the lead,
39:27
Speaker 1: you're the one setting the pace of the race. But
39:29
Speaker 1: the truth matter, No, it's it's it's set by like
39:32
Speaker 1: the performance of your competitors, you have to stay ahead
39:34
Speaker 1: of them and the expectations of your clients. If our
39:37
Speaker 1: clients have high expectations, we will keep our pace high
39:40
Speaker 1: and we have to exceed both of those year after year.
39:43
Speaker 1: And so we have always going to make sure we
39:45
Speaker 1: have the team, the plan, and the capabilities to do
39:47
Speaker 1: just that. So before we take questions from the audience,
39:51
Speaker 1: let me ask you. You've been at Vanguard for thirty
39:54
Speaker 1: two years, you've been CEO for just over five years.
39:58
Speaker 1: What's next? What comes next for the Vanguard Group? Verry,
40:03
Speaker 1: It's a what everyone could expect from us is to
40:07
Speaker 1: continue what we'd find a straightforward but compelling strategy, and
40:12
Speaker 1: it's to make sure we're performed producing the top performing
40:16
Speaker 1: funds that we have the top performing funds and ets
40:19
Speaker 1: out there, will wrap them with low cost, scalable advice
40:23
Speaker 1: and deliver them on a world class digitally enabled platform.
40:26
Speaker 1: Now it sounds simple to do, but you've got to
40:29
Speaker 1: bring those all together. And if you do that well
40:31
Speaker 1: and you can keep improving it, you'll create value into
40:34
Speaker 1: the future. So let's let's good answer. Let's uh go
40:39
Speaker 1: to some of the audience questions. The finance industry's record
40:44
Speaker 1: on diversity is not so great. What is Vanguard doing
40:47
Speaker 1: to lead the industry to faster change. It's one of
40:52
Speaker 1: those ones we put a first, You've got to have
40:55
Speaker 1: a big goal out there. So for us, it's will
40:58
Speaker 1: continue to grow the diverse your anger, but by we'll
41:01
Speaker 1: put the goal out there that, um, every level of
41:04
Speaker 1: leadership should look just like the rest of a Vanguard.
41:07
Speaker 1: And so we looked at and said that is a
41:09
Speaker 1: goal that is attainable, but you need to have a
41:11
Speaker 1: distinct strategy around it. So we we have chief Diversity
41:16
Speaker 1: Officer that works with all of our division heads to
41:19
Speaker 1: make sure that we have the right strategy, the right
41:21
Speaker 1: practices around how we do you know, attraction and retention,
41:25
Speaker 1: but critically development. You bring people in, you've worked hard recreema,
41:29
Speaker 1: but you're making sure they're developing in the way that
41:31
Speaker 1: we talked about and success for success for us in
41:34
Speaker 1: the past five years, we've seen you know, both our
41:36
Speaker 1: diversionary or leadership go up six percentage points. So I
41:41
Speaker 1: like this question, what's one of the biggest lessons you
41:43
Speaker 1: learned in how to develop that talent? You've you've got
41:48
Speaker 1: to figure out how to be candid um and you've
41:51
Speaker 1: got people shy from giving people feedback and it's it's
41:56
Speaker 1: everyone wants it um. It never feels good. So you
41:59
Speaker 1: have to figure out how will someone receive that feedback,
42:03
Speaker 1: and you've got to make it about getting them to
42:04
Speaker 1: the next level. And if I can, you can give
42:07
Speaker 1: feedback to any anybody, if they believe you're on you're
42:11
Speaker 1: on their side. And so how do you put it
42:13
Speaker 1: in a way that they're going to say, Okay, well
42:15
Speaker 1: this is to help you get the next level. One
42:16
Speaker 1: of my observations is or how can we work on that?
42:19
Speaker 1: And that is a great way to get someone to
42:21
Speaker 1: receive feedback? And then my advice to other people if
42:23
Speaker 1: you want to do up yourself, something I've always done
42:26
Speaker 1: is I ask for feedback and gosh, that makes it
42:28
Speaker 1: so much easier on a boss. And I used to
42:31
Speaker 1: like poor Bill McNab would do a review and say, hey,
42:33
Speaker 1: great year to me, like all right, tell me what
42:35
Speaker 1: I need to do better, not tell me like what
42:37
Speaker 1: would the team say? And I would stay after him
42:38
Speaker 1: until he gave me something to grow on and at
42:41
Speaker 1: any level, like, I don't care what level you're at,
42:44
Speaker 1: you should have two or three things you can grow on.
42:46
Speaker 1: And you're asking for feedback even the CEO. I asked
42:49
Speaker 1: for feedback, and I make sure my team, even Greg Davis,
42:52
Speaker 1: you could you have more accomplished ce io. Greg Davis
42:55
Speaker 1: is gonna hear where he's great, but he's always gonna say, Greg,
42:58
Speaker 1: your next level leadership, here's what you would work on.
43:00
Speaker 1: And so it's gonna be you know, it's gonna be
43:02
Speaker 1: that for him or for Karen Reese or for whomever
43:05
Speaker 1: is on the team. What was your biggest career mistake
43:09
Speaker 1: and what did you learn from it? Which one do
43:11
Speaker 1: we want to choose here? I would say that, um,
43:16
Speaker 1: it's I got a few of them, but let's go
43:19
Speaker 1: with conviction a lesson here that um, I'll go back
43:23
Speaker 1: in time that you know I mentioned that that hype,
43:26
Speaker 1: and I was the web guy, and I was convinced
43:30
Speaker 1: the world was gonna change overnight and online advice was
43:33
Speaker 1: going to take off and aggregation would be a key
43:36
Speaker 1: element of it. And I was selling hard and we
43:40
Speaker 1: invested a lot of money in it, and nothing happened, right.
43:46
Speaker 1: Uh remember talking to my boss at the time. He said,
43:48
Speaker 1: I knew that wasn't gonna work out. And I said, well,
43:51
Speaker 1: like Jack, why don't you say something or do something?
43:55
Speaker 1: And uh, he said to him, you had to learn
43:57
Speaker 1: that just having conviction doesn't make troph It's not enough.
44:01
Speaker 1: It's not enough. And um, but I also learned all
44:04
Speaker 1: those things that I conviction about, like there's another lesson,
44:07
Speaker 1: there's over time you stay with it, like like digital
44:09
Speaker 1: advice is accepted now, and those things you also you
44:13
Speaker 1: have to be You have to just because it didn't
44:16
Speaker 1: work doesn't mean you leave it behind. You know, when
44:18
Speaker 1: we were talking about the things Jack Bogel wouldn't have loved.
44:23
Speaker 1: I meant to ask you about direct indexing. This is
44:26
Speaker 1: a big new push you guys are doing. Tell us
44:28
Speaker 1: a little bit about that. Does that fit into the
44:32
Speaker 1: sphere of digital or how does that work within Vanguard,
44:37
Speaker 1: but directed We looked at direct indexing years ago. We
44:40
Speaker 1: started thinking about it. What's the way that you you
44:43
Speaker 1: could disrupt the E T F or or the mutual
44:46
Speaker 1: fund like is there you always should be looking is
44:48
Speaker 1: there a better way to do it? And directed nexting
44:51
Speaker 1: existed for a while. It was reserved for the ultra
44:55
Speaker 1: ultra high net worth and we could see that there's
44:59
Speaker 1: huge tax benef it's for a lot of investors and
45:02
Speaker 1: using direct indexing. But we started to see customization is
45:05
Speaker 1: people care more about the values of how they invest,
45:08
Speaker 1: and could you create portfolios where you're not gonna undermine
45:11
Speaker 1: someone's retirement, but let them invest a court of their values.
45:14
Speaker 1: And we got very interested and said, rather than hope
45:17
Speaker 1: that it goes away or doesn't undermine, why don't we
45:20
Speaker 1: embrace it and see if we can grow it and
45:21
Speaker 1: see if it is a better way to do something.
45:24
Speaker 1: And we'll find out over time, but we'll be we'll
45:27
Speaker 1: be investing heavily in And this is our our final question.
45:31
Speaker 1: If you could go back to your early days of
45:35
Speaker 1: senior leadership and and give yourself a piece of advice,
45:38
Speaker 1: what would that be? I one I've learned through time,
45:45
Speaker 1: and UM, it's always ask more questions, UM, fewer statements,
45:53
Speaker 1: more questions and listen, listen to the answers, and encourage
45:57
Speaker 1: the debate. I catch myself still doing it to a UM.
46:01
Speaker 1: I have to do it, UM. And you you're gonna
46:04
Speaker 1: learn so much more if you let that team go.
46:07
Speaker 1: And one thing I've learned, you know you've always heard
46:10
Speaker 1: you can like you may not be the smartest in
46:13
Speaker 1: the room. I grew up with this. You may not
46:14
Speaker 1: be the smartest in room, Tim, but you'll be the
46:15
Speaker 1: hardest working. And that's that's how I grew up. And
46:19
Speaker 1: I came to learn something else, which is UM. You know,
46:22
Speaker 1: even if you think you're the smartest in the room,
46:24
Speaker 1: you're never smarter than the whole room. So in time,
46:28
Speaker 1: I've learned, okay that like you were not gonna be
46:30
Speaker 1: smarter than than the room. How do we bring out
46:33
Speaker 1: the best in that room? How do we get them
46:34
Speaker 1: to collaborate? How do we get them build knowledge on
46:36
Speaker 1: each other? And you'll get you'll produce great things as
46:40
Speaker 1: a team. Wow, that was really quite an hour of
46:45
Speaker 1: fascinating conversation with Tim Buckley, Vanguard's CEO. If you enjoy
46:51
Speaker 1: this conversation well, feel free to check out any of
46:54
Speaker 1: our previous five D discussions we've had over the past
46:58
Speaker 1: eight years. You can find that at iTunes, Spotify, YouTube,
47:03
Speaker 1: wherever you get your podcasts. Sign up from my daily
47:07
Speaker 1: reading list at rid Halts dot com. Follow me on
47:10
Speaker 1: Twitter at rid Halts. You can follow all of the
47:13
Speaker 1: Bloomberg Family of podcasts on Twitter at podcast I would
47:18
Speaker 1: be remiss if I did not thank the crack team
47:22
Speaker 1: that helps us put this conversation together each week. Robert
47:27
Speaker 1: Bragg is our audio engineer, Paris Wald is my producer.
47:31
Speaker 1: Sean Russo is my head of research. Latika val Bron
47:36
Speaker 1: is our project manager. I'm Barry rid Halts. You've been
47:40
Speaker 1: listening to Masters in Business on Bloomberg Radio.