Vanguard is a juggernaut. The firm manages more than $5 trillion in assets, and spent most of 2017 gathering more than $1 billion a day in net new flows. It’s one of the most successful financial services companies in the world, beloved by its customers and its employees alike.
On Jan. 1, however, a big change happened: Mortimer “Tim” Buckley took over as just the 4th CEO in Vanguard’s 42-year history. He’ll give his first public speech as CEO on Jan. 21 at the 2018 Inside ETFs conference. In anticipation of that speech, he spoke with Inside ETFs CEO Matt Hougan about everything from active ETFs to the size of indexing, Personal Advisor and the future at Vanguard.
Matt Hougan: It's Jan. 1. You've just become the 4th CEO of Vanguard, which is pulling in hundreds of billions of dollars a year. What are you going to do? What's your focus for the first 100 days?
Mortimer “Tim” Buckley: We’re long-term investors, and we approach managing our business the same way. As such, it’s about the next 10 years, not the first 100 days.
Our core purpose is giving investors the best chance of investment success. We’ll always aim to deliver superior investment results, while innovating with new products to meet investor needs both here and abroad. Vanguard has been built on taking advantage of innovations, from the index fund to ETFs to target-date funds.
The next area of rapid change is advice. As such, we’ll invest heavily in advice in the years ahead, whether that’s partnering with our broker-dealer and RIA clients, or improving our own advice offerings to our retail clients and retirement plan participants.
Of course, we’ll also continue to focus on lowering cost, while delivering a better experience for our clients.
Hougan: Is indexing too big?
Buckley: The short answer is no, not by a long shot. There are misleading but headline-grabbing statistics quoted in the media all the time, but the reality is that indexing represents about 15% of the value of all global equities and less than 5% of global fixed-income assets. Much of the anti-indexing rhetoric comes from varied sources who’ve felt their revenue decline with indexing’s rise.
I strongly disagree with the assertions on indexing size and undue influence on the financial markets and in boardrooms. Our research shows that index funds make up less than 5% of daily trading volume. As such, there’s considerable price discovery and liquidity provided by active strategies.
There are also unfounded assertions that index fund managers stifle competition and conspire to keep prices high. Vanguard and other index providers are active and engaged on the corporate governance front, and promote good stewardship practices and healthy competition among portfolio companies.
Hougan: Is Vanguard too big?
Buckley: I might argue we aren’t big enough—$5 trillion is a big number, but that’s our clients’ money, not ours. Our revenue is $5 billion. We’re hardly Amazon.
We believe there’s so much more we can do to help investors achieve investment success in the U.S. and abroad. That said, we don’t put a high value on growth. We see it more as an outcome of delivering on our fundamental value proposition of providing superior performance and high-quality service experience at a low cost.
We see our size and scale as an advantage, enabling us to continue to lower the cost of investing and reinvesting in the business to improve client experience and outcomes.
Hougan: Is Vanguard Personal Advisor competing with advisors?
Buckley: Our goal with the introduction of Personal Advisor was to meet the advice needs of our clients. Specifically, we sought to lower the cost and complexity of investing for Vanguard investors by offering a single, comprehensive advice service that combines sophisticated technology, a personalized web experience and an ongoing, but virtual, relationship with an advisor.
We strongly believe in the value of advice and in the value of the advisor. As you may know, we’ve done significant research on quantifying the value of an advisor, and found that cogent wealth management can add 3% in net returns for investors. We’ve made a considerable investment in our advisor business, and we’ll continue to partner with our advisor clients to help them better serve their own clients.
We know how to leverage technology and scale our advice practice. I’m optimistic about the advice industry as a whole, and see continued success for advisors who employ technology, adapt to new business models and clearly articulate their value propositions.
