Martha King is an optimist, but one who's a big believer in the power of negative thinking.
She says that's it's only by anticipating what could go wrong that you can prepare yourself to overcome obstacles in order to achieve your goals. Positive thinking just kills motivation.
That guiding principle infuses everything she does, and has helped her propel Vanguard's Financial Advisor Services (FAS) unit into a $1-trillion-in-assets business. Today FAS not only represents about a third of the company's total assets, but it's also Vanguard's fastest-growing unit, snagging about half of the firm's asset growth in 2014. Consider that a short 10 years ago, FAS was in its infancy, with only about $180 billion.
You could argue King has done the most to bring better and cheaper products into the hands of financial advisors—and ultimately investors—everywhere during her 15-year tenure at the helm of the unit. Her success largely hinges on Vanguard's laser focus on costs and on investor outcomes, a focus that applies to its mutual funds but is increasingly centered on ETFs.
King joined Vanguard's institutional unit right out of college some 30 years ago, but about 15 years ago, she was asked to get a new business unit running that would be calling on financial advisors.
"The reason was quite clear to us: Things were changing in the financial advisory community in the U.S.," King told us. "There was a growing acceptance of, and interest in, fee-based solutions."
"We saw broker-dealer firms and other firms that did commission-based businesses start to form capabilities to let their brokers become financial advisors in these fee-based practices. It was a door-opener for Vanguard," she said.
The trend was a perfect fit for Vanguard, which had never had a payment-for-distribution program. Because of that, the mutual fund provider wouldn't have been calling on these brokers, but in a fee-based world, they could. That opportunity happened to coincide with the launch of Vanguard's first ETF, the Vanguard Total Stock Market (VTI | A-100).
"Why did we do it? Vanguard was a leader in index mutual funds, so for us, ETFs represented both an opportunity and potentially a threat," King said. "Our leadership in traditional index mutual funds was quite clear, but what if ETFs were going to take over? We wanted to make sure we were prepared for either eventuality."
"The fortunate convergence of these events happening was that ETFs were a far better way for us to start opening doors with financial advisors when we began to do so 15 years ago," she said.