Thomas Rampulla on Vanguard's Mission

Radio this weekend. On the podcast, I have an extra special guest, Tom ram Poula has been with the Vanguard Group since He has worked with every CEO, starting with Jack Bogel all the way up to the curren CEO, Tim Buckley, and has essentially helped to establish the Financial Advisors Group, essentially the group at Vanguard that works with r A s and broker dealers and other UH financial professionals who provide portfolios, advice, financial plans UH to the

investing public. He has a unique perch from with which to view the financial services industry, both from within Vanguard as well as looking out over the financial landscape and seeing what's going on with such trends as mutual funds, E t f s, direct indexing, the rise of passive, the rise not just a Vanguard, but the dominance of Vanguard and the associated Vanguard effect, the pressure on fees

that have helped make investing so affordable. We we discuss all these things, as well as why there has never been a better tell him to be a retail investor than right now, right here in this era. I found the conversation to be absolutely fascinating and I think you will also, So, with no further ado, my conversation with the Vanguard groups Tom Rampulla. I'm Barry rit Halts. You're listening to Masters in Business on Bloomberg Radio. My special

guest this week is Tom Rampulla. He is the managing director of Vanguard's Financial Advisor Services Division, where he began back in two thousand and two. That group provides investments, services, education, and research to more than a thousand financial ad lisory firms representing more than three trillion dollars in assets. Tom joined Vanguard back in Tom Rampula, Welcome to Bloomberg. Thanks, Barry,

it's great to be here. Yeah, it's good to have you. So. So I've worked my way through, uh, just about the whole c suite at Vanguard, and I'm glad we finally got to you. Um, tell us a little about about your plans coming out of college. How did you ends

up at Vanguard? Yeah, I believe it or not, Barry, I wanted to go to Wall Street coming out of school and came up to New York and, uh, wall Street didn't work out for a variety of reasons, but I ended up working sort of an adjacent industry and the portfolio management software business, and it really wasn't where my passion was. So decided to make the move from New York to Philadelphia. And I had a friend that

worked at Vanguard. I honestly knew nothing about Vanguard. In fact, that was at of Philadelphia career Fair when I first graduated, and there was a Vanguard table there and somebody said, you want to go interview a Vanguard. I looked and I was like, no, I don't think so. And they said, what do they do. I think that's a supermarket or something that. So that's how clueless was. But um, it was really lucky. I had this friend started Vanguard in

March of quickly realized it was a pretty special place. Um, you know, it's a It's a place where it's really incredibly mission driven, It's got such a sense of purpose, were owned by our clients, all these things that actually took me a while to realize working there. But yeah, it was a little bit of a by chance. Wasn't really looking for Vanguard, but somehow I found it and got really really lucky. So so going back to Philadelphia

is not a big change to you you went. I went to Bloomsburg University, which is a midside school in central Pennsylvania, and then Drexel, which is right in the middle of Philly. Went to Drexel part time while I was at Vanguard. Um did that commute down to Philadelphia from the suburbs, you know, three times a week for a number of years, which isn't too bad if you go in the opposite the direction of traffic. Right, I don't know about that. Not a lot of great mass

transit from Malverne to Film, from Malvern to Philly. Actually you could, you can. You can take the train, but at that time it was a long time ago. I think I graduated ninety three. Um, it was more convenient to drive. So so you mentioned of Vanguard was a special place when you joined it. It's clearly a different place today than it was in the eighties and nineties. Uh, tell us a little bit about what it was like working there, you know, pretty much before Vanguard became the

beheamoth we know it as today. Yeah, it was a startup. It felt like a startup. I mean, it wasn't. It wasn't quite a startup. Probably we probably had seven employees at the time, but only about thirty billion in assets under management, and we were trying to figure things out and grow. Nobody really cared about indexing, and if they did care about it, usually pretty negative thoughts about indexing. You know, we were called un American and you are communist. Yeah,

that's right, we were Communists. Why settled for average? All those things? But you know, Jack Bogel was at the home when I started. I was fortunate enough to work with him for about eight years, and you know, he was so passionate about our mission. Um. You know, he would we have partnership picnic every summer and he would get up and speak and it would fire you up for the rest of the year. The guy was incredibly inspirational and you really felt like you were you were

taken on the ablishment and doing something special. So it was really really fun start up, very collaborative, felt like a family. Um. And you know, it took a while to start growing, to be honest with you, I mean, we really didn't start growing probably in mid nineties, you know, started to get a little bit of attention. Then Now in the nineties everybody was growing, stocks were going high, or you're the middle of an eighteen year or so

giant thousand percent bowl market. What was Vanguard doing in the mid nineties that finally began to gain traction? Was it? Was it the underlying philosophy started to find some some adherents or was it just the rising tide lifted all? But I think I think a couple of things, Barry. First of all, we had some real zealots, you know, the Bogel heads of today, which you probably familiar with. Um, they stumbled onto Vanguard. We didn't do advertising, we didn't sell.

We were actually Jack Bogle wouldn't let us say the word sell or product or advertising. UM. He actually had to put a dollar in a jar near his office if you did UM. But you know, we had something special, and I think people realize that people may not even really understood that they owned the company, you know, by investing in the funds on the company. But you've got this core base of of people that really identified with Vanguard, felt like they're part of the club, and great word

of mouth, so that was helpful. We had some great performance from some of our active funds early days, winds Or Fund, John Neff's superstar fund manager that helped UM. You know, really talking about indexing, Jack taking that on, taking the industry on. People started to get disappointed in performance.

You had star managers in the early nineties. That sort of the shine came off the star a little bit, so indexing had a little bit more of appeal cost, you know, when you really camera home to what you can control as an investor. Cost. It finally started to catch on with people like, hey, I can get low cost through indexing and get the market return, which, by

the way, over time is pretty darn good returns. And and around the same time you started to see the rise of some UH academics saying, a the market sufficient very few if anybody can beat it, and those who can, you don't know. It's persistent, if it was luck, if it was whatever. And there was a lot of UM academic defense of the idea of the advantages passive that's right, Yeah, I mean Bert mackiel, Sure, that's right. Random walked down while she was a Vanguard board member for many years.

Charlie Ellis another one, um you know, the Losers game his book there. So there was a lot of academic research around and it started to become practical. People started to release see it and feel it and that that started to give us a little bit of wind in our sales. So back in the forget late eighties, even in the early nineties, when you start to attract more capital, did you ever imagine, hey, in twenty years, twenty five years will be you know, six seven, eight trillion dollars. Uh? No,

not at all. It was it was a tough go early early on UM and Jack was adamant about, Hey, cash flow and market share is an outcome. We have to just do what's focused on, doing what's right for investors. Don't worry about growth, you know. He really hammered that home to us. So we didn't really think big like that. We're just trying to do the right thing. So yeah, I'd say absolutely not. Had no idea how big we'd be.

When did it become clear that this was going to be a multi trillion dollar I'm not I'm not sure if there was ever a moment where I said, wow, this is you know, we're big. Um. I do think after the Global financial crisis we really start to get momentum. Our funds held up well. We served during the everybody saw outflows except Vanguard. That's right. We picked up share there um, and I do think that that trusted brand.

People started to understand that they own the company, and you know that the benefits of that structure are enormous and many. Um. And so coming out of the financial into the financial crisis, now the financial crisis, we really start to take off. I was in London at the time and you could see, Wow, things are really starting to happen here. You mentioned London. You served as head of Vanguard's UK and European operations. Tell us a little

bit about that experience. It was a fabulous experience that was coming off helping start our financial advisor business, the business i lead today. I did that for about six or seven years, and then Bill McNab, the CEO at the time, asked me if i'd go and start a similar business in in the UK and run the European operation. So packed up my wife and my four kids and went to London and it was an unbelievable experience. It felt like the the old days at Vanguard. You know,

you were coming in starting up. I was employee number one in London. Um, we're taken on high cost funds, active managers sort of the industry trying to bring transparency and low cost of the industry, and it was just really fun to build that business and we had a

great team there. What was that always supposed to be a finite amount of time or did something specific bring you back to the U S now it was I was told three d years to five years and ended up being there seven years and probably would have stayed even longer, but I got the opportunity. Bill McNab again, who I know, you know, was CEO and asked me if i'd come back and joined senior f and lead the f A S business, which was a lot bigger than when I left in two thousand eight, and I

was thrilled to be able to do that. That's fantastic. So let's talk a little bit about the Advisor Services division. What exactly does it do and what sort of clients,

uh and customers are you working with? Yeah, well, first of all, we work with financial advisors of all types in the industry, UM, non vanguard financial advisors, so you've got broken dealers, independent regter investment advisors are a S and bank wealth advisors and uh, you know, we have a team that serves those advisors and the home offices of those advisors talking about vanguards product and educating about product.

We also do a lot of education around advice and behavioral finance and coaching and all these things to help advisors drive great outcomes for their clients. Well, we'll talk a little bit about advisors alpha in a bid. But you mentioned broker dealers. I did not realize they were part of this group because I recall back in the day they used to arg for shelf space like supermarkets do for serials. How does Vanguard operate and not advertise, not pay shelf space. Yeah, we still don't do that.

We like the transparency of an explicit fee. But I think the move to fee based advice in the broker dealer community really helped drive that. So advisor charges for the advice that they provide the clients, and that pays pays the bills and so um, we don't we don't do the payment for distribution. Now it's pretty limited to et f s with our broken dealer relationships, not exclusively, so that the model around ETFs is a little different.

There isn't that same payment for service with the metro funds. That's right, Barry. Really interesting and and let's talk a little bit about the research and education that you provide. Is this aimed at the advisor community, is it aimed at the investor of public within your group? Who's your focus? It's both, Um, you know, we do the typical stuff market economic outlooks and research their product research, but importantly being advisors work with their clients, coaching them through tough

times like this. Um, So we we do have uh materials and research target at the advisor, but we also helped them out and target their end client. You know, Vanguards deals with tens of millions of individual investors and we know how to speak to them very clearly and very candidly and very openly. So we leverage that expertise and we help advisors speak to their clients about you name it, market savings, all all the things that they

talked about. So so I think it was fran Kinnary a Vanguard came up with the concept of advisors Alpha. Tell us a little bit about that, Yeah, advisor's alpha. Um, we all know and believe very strongly today that advisors help clients and in fact, the Vanguard, which is a big shift from many years ago. We think most investors would be well served with using a financial advisor, and they bring a lot of value. Right, So there's the hey, I'll i'll work with you and we'll develop goals and

a plan how to get there. They'll they'll construct a portfolio, they'll do tax planning, right so the harvest losses to offset future gains. They'll do a state planning, other complex financial planning. And so what Fran and his team did they did research and said how how much alpha does

an advisor add through the services they provide? And you know it's hard, it's hard to pin that down exactly, Barry, but we've come up with about three basis three basis points or three percentage points of alpha working with an advisor. And if you think about that, you know, you pay an advisor fifty basis points a hundred basement whatever they're providing on average annually. So really good value there. And a lot of that comes from, believe it or not,

the behavioral coaching. To say the very least, that there was a study done not too long ago that showed when people panic out of the market, something like of them never returned back to equities. That that leaves a mark when it comes time to mark. Uh, you add in tax lost harvesting, and just helping with having a financial plan. I'm I'm a believer. Hey, that's that's my

day job. But I'm always curious to hear how you guys came up with that phrase, which is so funny because when I think of Vanguard, I think of beta. I don't think of alpha. Developing a way to obtain alpha seems sort of contrary. That's right, you can obtain alpha even even if you use all beta as underlying investments. The real value is the behavioral coaching and the tax management. Again, the more complex value add around financial planning. So you

mentioned um transparency and low fees. Price obviously has a big impact on long term returns. How can Vanguard keep lowering its fees? At what point do you just run out of runway? Yeah, our fee cuts are not a pricing marketing strategy, Barry, It's it's a function of the corporate structure of Vanguard. So we're really a mutual mutual fund company. What I mean by that is, if you're an investor in one of our funds, you own a

little pro rata piece of Vanguard. And if you think about that from a leadership perspective, of management perspective, You focus on one constituent, you the investor, and that's it. Don't have to worry about my shareholders on Wall Street. I don't have to worry about some family or family office that owns me. It's all about you. So as we grow become more efficient, we get scale. We sort of make a profit, and we take that profit and

we do two things with it. One, we invest in the business to better serve you, right so better digital experience if your retail investor, more services for advisors. We also take that profit and drive down expense ratios. And really that's what we're all about, delivering value back to those investors in our funds who own the company. And as we grow and grow, that scale helps us drive down the expense ratios. So so when I think of owning a financial I think of three things. Uh. First,

I control I get to vote my shares in a proxy. Second, if there's a dividend distribution, I capture some of that in Third, if it's ever sold, I participate in the equity when it's a mutual. Those things will kind of roll into one. They do. Yeah, we I mean, we could pay you a dividend, but it's actually more tax efficient if we lower your fees. Huh. So that that's really that's really quite fascinating. Um, we talked about research

and education. Let's let's talk a little bit about portfolio analytics, financial planning tools. I didn't know you guys have a healthcare calculator. Tell us about some of the software and other analytical tools you guys have made available. Yeah, so, UM.

I think one of the unique things about Vanguard is we serve a lot of different markets, right, So, we serve financial advisors, we serve retail investors, and we actually have an advice business of our own, and through that advice business, we've developed a lot of capabilities, whether it's the Thought Leadership Advisors ALPHA that we talked about before,

or some technology capabilities for our advisors to use. And what we've done is taken some of those capabilities and deliver them to the f a S clients, the Financial Advisor Services client to help them drive better outcomes for their their clients. So healthcare cost Estimator is a really

great example. We partnered with a firm in this space and developed a module to help with healthcare cost and determining healthcare costs in retirement, and we offer that module and a lot of materials around it and client and client materials to advisers to help them talk about healthcare with their clients. It's it's typically the largest expense people have. They have trouble getting their head around it, and it's a really valuable tool. It's just an example of you know,

one of the things we do quite quite interesting. So one of the other giants in the space is black Rock. They have a risk management technology. How do you guys think about risk management? What does that mean to advisors who are trying to serve their clients in a somewhat volatile environment. Yeah, we have a really good risk management

tool as well. Uh, it's it's through our Portfolio and Analytics and consulting service and uh, you know, you run a portfolio through it and will give you all your risk exposures. We can consult with you on Hey, you might be overexposed here under exposed. Did you know that? Oh you didn't? You want to do something about it? We can help you with that. So we provide a similar service to our clients. They deem it really really valuable. Um,

it's interesting. I get every day, I get net promoter scores from clients and and this service in particular, I can't remember a time when it hasn't been like a nine out of ten or a ten out of ten. They see it as incredibly valuable. And one thing they cite verbatim all the time is objectivity. You know, hey, it really feels like Vanguard's trying to help me out, not trying to necessarily sell me a product. And so we distributed through that through thousands of advised We have

thousands of those engagements a year. Quite quite interesting. So there's a quote I really love UM, and I want to get your feedback on it. There has never been a better time to be a retail investor than right now. True false true? Why is that? Why is now so great to be I'm an optimistic guy, Barry, but but seriously, I think, UM, if you think about the markets and market structure, you know, you think about this, you can get exposure to the entire stock market and ETF for

two and a half three basis points. That's pretty Penny's pen Henny's UM. Think about trading. I'm buying into It's free, right, advice more accessible now than ever I can decide to do it digitally. I can go hybrid and have digital and an advisor with me, or I can you know, see my advisor down the street and go in person. So there's so many services there. There's so many tools for investors, or so many tools for advisors to help investors. I think it's a fabulous time. Yeah, no, I totally agree.

And I wasn't referring to what's going on in the market. I just mean generally, if you have a long term perspective, it's cheap, it's easy, it's transparent. You know, you go back to the early days of Jack Bogel, and we'll talk about that in a little bit about how hard it was to simply try and come up with an execution for here's the whole market or here's the SMP five. You couldn't do that fifty years ago. It was practically impossible.

That's right. It was. It was tough. The technology wasn't there, The cost, the frictional costs were high. You know, in trading UM it's really um come in favor of retail investors quite quite interesting. So when you began at Vanguard, Jack Bogel was a CEO. Jack Brennan followed him Bill McNabb, now it's Tim Buckley that that's kind of a a list of CEOs tell us about the way the CEOs you work with impact how the firm operates. Yeah, I was fortunate to work with all four CEOs of Vanguard.

I worked with Jack Bogel for about eight years before he retired, and you know, Jack was the visionary, the guy that would get everybody motivated that we're doing something special. We were small at the time. Uh, people thought we were a little quirky. We're out in Pennsylvania, you know, far away from Wall Street. But he was such a motivator and instilled this sense of purpose. You know, you're you're part of something bigger than yourself, which was really exciting.

And you know, Jack his words, he he could give a speech like nobody else, and you know what he wrote in the press and on interviews. He was just so inspirational. So the perfect guy to to get us really going. And then Jack Brennan took over after Jack Bogel retired, hand pick successor. We started starting to grow a little bit there, and I think Jack Brennan was the right guy at that time as well. And there's a common theme here you'll hear from me about the

right guy at the right time. Jack was helping us grow up and mature. So we're growing like crazy, and you know, we're financial services firm, so growth is good, but you have to have control and processes and quality and you know, you got to make sure you can handle the volumes, both from an investment perspective but also importantly from a processing and client service perspective. And Jack

was great at that. He brought in, you know, the old total quality management programs and centers for excellence and really matured us as an operator. He retired and uh in two thousand eight, Bill McNab took over. We all know what happened in two thousand and eight. But again, I think Bill was was the right guy at the right time. There was such turmoil and you know Bill, he's a calm guy. Um and and really you know, harness the power of the team to get us through

that tough environment. Leaned really hard into leadership development. You know, we uh, we had a bunch of really great technical experts, but as you grow immature, you want to have a strong leadership team and Bill really invested in that lean of that and that's that's a big part of his legacy. Also looked outside of the US to to grow a little bit more aggressively there. And again, great guy at the right time. Bill retires, Tim Buckley takes over. Tim's

a fabulous CEO. UM. You think about his background in today's and very interesting. He was chief information officer, head of all I t Advantguard and then chief investment officer. Think about the trends in our our industry today, tech, the intersection of investments, advice and technology, and Tim's got that intersection in his portfolio of experience, which is pretty incredible. And he's a really smart guy, very disciplined, very creative. UM. And I think the way we think about the world

now has changed under Tim. I think we're much more focused on outcomes and driving great outcomes for clients. Were much more nimble than we ever were through some new management systems of pushing decision making down and being more nimble, and uh, it's been really nice to be a big organization yet pretty responsive. That's really uh, quite quite interesting. You were in London and eight o nine is that right?

So so there's a story. I'm curious if you saw or witness this from your perch in the UK at the time. Bill McNabb tells the story about I guess it's just part of regular quality control. They audit customer service reps on the phone with Vanguard investors and there's a pretty clear freak out going on as the market melts down in in oh eight and this eventually reachs reaches McNabb, or maybe he was listening on one of these calls and does an all hands on deck conversation

and says, listen, we're growing like a weed. There're gonna be no layoffs. Were hiring, Stop worrying about your jobs and serve the client and make everybody comfortable. UM. What was your view of that from from across the ponds. Yeah, I think, um, look, we we we ask our employees to be loyal to us, and I think you know they deserve loyalty as well, and there was a lot

of uncertainty. UM, people were worried about their jobs. I mean, the market takes such a big hit, you know, were paid off of sts under management and they all of a sudden declined by significant ount so a lot of people were worried. I think Bill's leadership got us through that, UM saying Hey, well, phones have slowed down, lots of slowed down. We got plenty of work for you to do. And I think, uh, the team really appreciated that, and I think it allowed them to serve clients better and

more calmly. From my vantage point, honestly, I was employee number one and in London, as I mentioned, so I had my head down. Um. You know another thing Bill did that I thought was really great at the time is in London Sky's following everybody's laying off. Bill said, don enough, we're gonna keep investing. Just go with your business plan. I was able to get great people that were dislodged or not dislodged, but wanted stability, wanted a

great brand, and came to Vanguards. We hired great people. We were able to buy advertising really cheap. I mean, we were able to really lean in. And that's the beauty of Vanguards corporate structure. We can really focus on the long term. And hence Bill could say that too. Two employees, Hey, we're with We're in this for the long term. We're committed to you. I don't have to worry about a quarterly earnings call. So so let's talk about that brand a little bit, what what makes it

so unique? What create what makes that culture so special and different from what we typically see uh in the world of finance. Yeah, I think people feel in the Vanguard brand a sense of trust and you know, they get that their owners, they're what's most important all decisions around doing what's best for them. And I think that just permeates and and we the brand were known as

a really trusted brand and financial services. That's a really good thing obviously when you're when you have people's money, and then it creates a culture of again, um, being part of something bigger than yourself. You know, it's not it's not just a business, it's a cause, it's a purpose. We're trying to make people's lives better by helping them save for retirement, fund college, by a home, whatever their financial dreams are. We're there to help them and they

know that. People people understand that and it's all about them and UH permeates both the brand and the culture within Van Card. So given given that framework of Brandon culture, obviously lots of things have changed since the days of Jack Bogel. He wasn't a big fan of ETFs. He wasn't a big fan of uh international investing. They're probably half a dozen different UM initiatives that Vanguard has come

up with that Jack isn't a fan of. How has that culture persisted even as the company itself has gone through pretty substantial changes, not just growth but the products you're offering. Yeah, so, um, it's funny Jack. Jack had a lot of things that were off limits. I think I mentioned earlier. We weren't allowed to say sell. We weren't allowed to call products products. We had to call him programs for some reason. Uh Colin's stand ETFs UM.

Wasn't interested in international, didn't think you had to do it um either business or investing. Wasn't a big fan of advice, you know, Jack, like, you don't need really Oh yeah, Jack, Jack was you don't need advisor. Total stock market, total, on market total international thrown together, that's all you need. Isn't that advice in and of itself? It wasn't he just acting as an advisor by providing that portfolio and telling people, yeah, I went to buy it and how long to hold it for? Yeah? I

mean that's uh. He was an advisor. He didn't like advice. He didn't like selling his funny story, true story, Barry. I know Jack very very well. Uh, you know, worked with him a long time. Actually spent some time one summer with him and his family where we happened to be um vacationing up at Lake Placid in my family, and I went and visit him and spent a day

on the boats, know them really really well. And I got on a plane to go to Boston and there was Jack um and coach of course, and my seat was right now he's uh he was, yeah, he got a little smaller as he aged, but um, yeah, so he's he's sitting there and he would never fly anything but but coach and um. But my seat was right next to his. And I hadn't really hung out with

Jack a whole lot. He was, you know, off doing the research and and um, you know, testifying a Congress and doing other things, not not involved in the company at all. Hey, Thomps, you know, glad, God, we're sitting next to each other. So what do you do in these days? So Jack hates ETFs, doesn't like advisors, and he hates sales. And I had to tell him that I was the head of sales, selling et S to

financial advisors and Barry, I'm not kidding. He folded his arms and looked straight ahead and didn't talk to me the rest of the flight. On true story, Absolutely true story. So yeah, we've come a long way since then. I mean, you know, I think Jack's distaste for ETFs is he worried them that they would be used incorrectly. That it's a fair pretty clear that those fears were mostly unfounded. They are mostly unfounded. And you know, you think about

what e t fs. It made indexing so much more accessible. You know, financial advisors could now, um, you know, really use indexing in a big way through e t F s um. It just became so much more accessible to public and helped indexing, which we know is a good

thing for investors grow and grow and grow. So Gus Sauder, who was our chief investment offer time, was a big dishoner of et f s and felt that that they may be disruptive and be the new way the index and I think he was uh spot on there, and so we leaned into them, and Jack didn't love it, but you know, we did it, and we're happy we did it. Providing advice if you think about driving investor outcomes, we have great, low cost product. What else can you

do to help investors um get better outcomes? And it's financial advice, So we have our own financial advice, but also importantly working with my clients. Working with those financial advisers to help them do better for their clients really important to the mission. So I would say some of the execution has changed it a little bit, but the mission is absolutely there. Low cost, broadly diversified, driving great outcomes,

helping investors get the best chance for investment success. So there's a crazy stat that I've never been able to validate. You're probably the right person to ask. I read somewhere that something like nine percent of certified financial planners in the state of Pence, Vania work for Vanguard. Is that remotely true? I can't. I can't verify that, but I would guess it's probably pretty close. Really, Yeah, that's just that's just astonishing. So let's talk a little bit um

about the Vanguard Effect. My friend Eric Valcunas, who is a Bloomberg intelligence analyst, wrote a column a couple of years ago called the Vanguard Effect and eventually turned that into a book, The Bogel Effect, where he points out not only has Vanguard driven down costs for their own clients. If that was the end of the story, all right, it would be an interesting little tale. But what's happened is through market forces and competition, everybody else in the

financial services has been forced to follow suit. And Beltunist calculates it's hundreds of billions soon to be a trillion dollars in costs savings. Tell us a little bit about the Vanguard effect. Yeah, I think it's true. I agree with Eric that you know, Vanguard are are set up structurally to drive costs lower. Became very competitive. Investors wanted

low cost, came to Vanguard and droves. Competitors had to respond or or not grow, and so they cut price, which we all know that compounds over long periods of time and it's a good thing for investors. And we saw that as we started to really grow in the US that took effect in a big way. But I'll tell you that the first time I heard the headline the Vanguard effect is I went to London in two

thousand eight. We launched our first set of funds in the UK in June of two thousand nine, and right before that, a couple of our competitors before as we're actually officially out, they cut their price and there was an article in the ft and it it talked about the Vanguard effect. We didn't even launch yet, we weren't even grown. We didn't know if we're gonna be successful,

just the thread of moving into a space. So so how does Vanguard think about competitors A Do you even think about competitors or do you just focus on doing your own thing? At a certain point, you have to be aware of what's going on places like State Street or Black Rock or Wisdom Tree. Yeah. Look, we're certainly aware of the competition. But we've always said do what's right and customers will will follow. And so for us,

it's very very easy to do what's right. We just don't have any conflicts of interest in any decision making we have. It's all about the end investors, so you only offer them quality products. You don't go to fads so they don't get burned. You communicate very clearly and candidly about the risks. You know, you talk about return, but talk about the risks as well to manage expectations. And when you do what's right, you get a lot

of trust built up and you grow. So should I not hold my breath waiting for the Vanguard crypto e t F? Is that, Uh, it's unlikely we'll have a crypto et F Barry. Um, you know, the way we look at crypto is it doesn't really have an intrinsic value. It's more of a supplied demand thing. So that feels more like speculation than Yeah, but an investible asset. But the technology behind crypto is pretty interesting and there's some great, great use cases for that, and we think that's the

future in many aspects of financial services market. Really interesting. All right, so we mentioned belt Tunas's book. Let's talk about Robin Wiggleworth's book Trillions. You know, we we all sometimes feel like the area we work in our space. Oh, I know the history that I'm really knowledgeable about that, But as I read that, I was genuinely shocked as to the history of both the industry and what took place in passive investing in indexing. Tell us a little

bit about how trillions resonated over at Vanguard. Yeah it was. I thought it was really well written. Um, you know, I lived part of that revolution, if you will, of indexing. But there are certainly things that I learned from that book, some of the other characters that were involved, some of the really early days and the characters around that as well,

So it resonated really well. It was interesting for me because I helped start our et F business UM back in the early two thousand's and a lot of those folks UM I knew, and we're trying to get these things going and and it was a really interesting time. Once again, you kind of felt like you were doing something disruptive and really exciting. But I thought it was a fascinating history. I would recommend that book to to

anybody that's interested investing at all. I think it's got a great history of of something that was super disruptive, but maybe a little more of a slower burn than than people might think. Yeah, no, absolutely, it was definitely a slow burn and then exploded UM. And I think to some degree, I think the inherent advantages of ETFs over mutual funds are are part of that. I know some people like the ability to just buy when they want to buy and not have to wait till the

end of the day and get mutual fund pricing. But to me, the single biggest advantage of ETF seems to be enormous tax benefit of not paying for somebody else who's selling. Um. Explain, first off, if mutual funds were introduced today, would they even be approved if it was a new product. Wait, this is much worse than he yes, why why would we want to approve that? How do you think about the differences between the two products. Yeah, look,

I think mutual funds are still a very good product. Um. You know, they may not go away in the too short of term. Um, it's a really good product. I think there's some benefits to mutual funds. Um. If you think about four one K plans, they really go Yeah you read in my mind they certainly work well and in a quality any qualified retirement you don't need an e t S you don't, um, you know you you only need to strike an N A V once a day. Um,

So there's that aspect of it. Index mutual funds are pretty tax efficient as well, not quite as tax efficient for most as the e t F. You still have that changeover and I recall when something like Tesla was added, it had a big disruptive impact. So if that's some mutual funds that's not in a qualified account, there could be ramifications versus the straight up ets. That's right. That that that's absolutely right. And then if you go to active strategies. Uh, you know ETFs right now, most of

the growth is in transparent ETFs. UM, non transparent are starting to come along. Um, that's only for equity funds right now. Equity assets, not fixed income. So to the extent you've got an active manager that feels that they're not very comfortable disclosing holdings on a daily basis, they're gonna want to keep that in mutual fun until the technology advances there. Uh, there's also barried there's a lot of embedded gains in some of these mutual funds, so

you don't necessarily want to jump ship. You might shift to e t f s, but selling out your old low cost basis holdings doesn't make a lot of sense. So maybe that's some of the reasons as well. It makes a lot of sense. Let's talk about another product. Can we use the word product? Um custom indexing, You guys also are direct indexing. You call it personalized indexing. UM. I was skeptical about this ten years ago. Over the

past few years, I've um come to embrace it. Tell us a little bit about why Vanguard does direct indexing and what makes your product unique to Vanguard. UM. So, first of all, just quick education, UM, personalized indexing, custom indexing, direct indexing, they're all the same thing. UM. It's a little different structure than your your E t F. And by the way, e t f are super tax efficient and great in many ways. But the e t F you buy, you buy v t I. You own a

share of v t I, not the underlying holdings. In direct indexing or personalized indexing, you actually hold the basket of underlying securities individually. So all five what is VT I two thousands something something like that. It's it's it's a lots of page through. For sure, you own the underlying securities, and it's basically a separate account, but very scalable, and I'll talk about that in a second. And what you can do with individual securities. It allows you to

do to two things pretty well. One be very tax efficient. So since you're holding five hundred security instead of one, you can look at losses and individual securities, harvest those losses and you can allocate them to go against future gains. So it's very tax tax efficient. And that's probably the biggest use case with so tax that that tax efficiency and that adds quite a bit alpha. You know, go

back to adviser's alpha. Doing that, well, you can add a substantial amount of alpha to what sort of numbers are you looking at? Because I know was just an outrageously unusual year. You know, Um, it can be pretty substantial. I mean it could be a couple of percent at times. Um. So, uh, it's very very valuable. Now it doesn't it's not for everybody obviously, you know, your average investor may not benefit as much and then they're a tax efficient et F might be the way to go. So it's a great

use case. Another use case is investors being able to express views on the market, meaning their personal values along the lines of E s G, but without buying an E s G fund. You can really customize that. That's right, So you could say, hey, I you know that one of the challenge with E s G products is everybody's got different definition of what E s G is, So hey, I want to exclude X, Y or Z, but I don't want to exclude a being. See you can do that in this structure, and you can. We've had clients

who say we don't want cigarettes or vice stocks. We've had other people say no, no, I'm fine with an index. I just don't want any gunstocks um And we've had other people say, hey, I don't want anybody associated with abortion providers. It's not a left or right thing. It's you pick what your values are and you can express that in your portfolio. It doesn't differ appreciably from the

index other than that narrow um group. The exception being if you say, hey, I don't want any energy, any oil, any carbon, Well that'll differ dramatically, But most of the other tweaks seem to be around the edges. That's right. If you with what you do with direct index things, you optimize around something. So if you exclude five stocks, you optimize and overweight the others and minimize tracking air

versus the index. So you're right, it's tends not to be too much unless you exclude something like energy, which would be a big chunk. Huh really really quite intriguing. Jack Bogel once said, the first signed Vanguard's mission has created a better world for the investor will be when our market share begins to erode. Has that not happened yet? You guys don't seem to be losing market share now. In fact, we're gaining market share and just about all businesses. Um,

there's a lot of opportunities still out there. I mean in my business, we've got maybe a share something like that. Lots to go there, even on the on the retail side, tons to go there. You think about the advice market and the retirement market, and then international chiefs, there's there's a tremendous amount of opportunity there. So we still have to bring the mission to many millions more people. So if you're still taking share, at what point do you

become the biggest investing firm in the world. I don't know. I've read some articles recently that are making projections on that. But again I've got Jack Bogel's voice in my head from saying that growth doesn't matter, just do what's right for investors. So we don't think about that too much. So so I promised we would talk about the state of the world today. Two has been, UM, just a

very challenging environment. I don't think we've seen both stocks and bonds down double jet since you want something like that, So that's forty plus years. What's it like working with asset managers during a stressful time like this. Yeah, it's um, you know, assets are down and you get paid off assets in this business, which tends to be a good thing because stocks and bonds tend to go up over time. But um, yeah, so it's it's a bit stressful. Clients

are stressed. You spend a lot of time talking to your clients, trying to bring perspective, the long term perspective, not to pend that advisor's outfit. Even if you're not an advisor, you're talking to somebody on the phone. You're trying to say, hey, calm down, put this in perspective to him off the ledge. You talk them off the ledge. And uh, my clients, the advisors are really earning their fees right now and and um providing a tremendous amount of value. Uh So there's a lot of phone volume,

a lot of digital volume. So we're very very very busy. Um. And you know it's all about common people down. We'll get through this. You look at the long term. Um, things tend to work out. We you know, are investing philosophy is first of all, get objective, put a plan together, make sure it's a low cost plan. And the other thing is be discipline right, stick to your plan. Just get rid of the noise. This is big noise. This isn't just some little blit. This big noise, but you know,

get rid of the noise and be disciplined. Most times that's around rebalancing. This time, stocks and bonds are both going down, so you're not rebouncing so much. But you know, marchy was a great opportunity to rebalance and add some values. So it's really sticking to that long term approach and that discipline is what we really recommend. So you sit in a unique perch. You're not only watching what's going on at vanguard from the inside, but you're looking out

at the world of advisors. And as we've seen over the past twenty years, fiduciary fee based advisors have been capturing share at the expense of transactional brokerage UM. From your perch, tell us what you see of the world of finance looking out over the next decade. How are things going to continue, what's going to change? What do you think about when you think about the future of finance.

I think financial services UM for a long time had been a bit stodgy right, So you know, you focused on returns and um, you provide a good returns, You've got some flows, and you might do some advertising a brand, but client expectations have increased incredibly, so they're not comparing Vanguard to Fidelity anymore. They're comparing Vanguard to my experience with Uber and so you know, I think, um, you have to have great products, you have to be innovative there,

you have to keep fees low. But the client experience is it's happening now, but I think that's a huge next frontier for financial services really now in the client experience, like some of the other industries have done, and we're on a journey there. We're getting better with it, but there's a lot of opportunity there. I think advice is going to continue to grow. UM, do it yourself is a lot tougher than Jack Bobio said it was. There's a lot to it, and again we think most investors

are better served by some sort of advice. So we see the growth and that we see the the intersection of advice and investments and technology to bring mass customization. And if you think about what we just talked about, direct indexing and personalized indexing. That's customization. The technology allows you to do that and mass now and scale that, so that mass customization is gonna be really important. I know,

only have you for a limited amount of time. So let me jump to my favorite questions that we ask all of our guests, starting with, you have a bunch of kids. What were you doing to keep them busy during the pandemic? Tell us what you were watching on either Netflix or Amazon. Yeah, so, um, all my kids were either in we're in college during during the pandemic. I got two out. Now were they at school? They did come home, so my wife and I were empty

nesters for a few months celebrating that. And then also so us and the two dogs, and you know, just life was very very chill, and then you know, pandemic hits and you know I'm doing I'm like a commando coming to get my son out of Manhattan and bring them home. And um, so they all came home and it was fabulous. You know, actually look at a little bit of a gift because they were gone and they came back for a few months. So we did a lot of cooking. Uh, they started a garden. My one

daughter bought some chickens, some crazy things like that. Did a lot of streaming. Um, I don't remember what we were watching at the time, silly things like The Tiger King. Don't know if you saw that on Netflix, A crazy show, UM documentary. I did a lot of streaming together. Played a lot of games too, like went back old school and you know, cards and backgammon and things like that. So it was really really good quality family time that sounds like fun. Tell us about some of your early

mentors who helped shape your career. Yeah. When I first came to Van Guard eighty eight, I was in a business where we were providing administrative and accounting services for actually competitors and the guy that ran the division was this guy called Bill of a Starts and um, we we hit it off really well from my first day there.

And he was a great mentor. You know, I'm twenty two, not right out of school but out of school year and he really uh help me develop some confidence, believed in me, talked about how you know, really helped me build relationships, taught me how to write well, to be honest with you. So a really good early mentor. And then Bill McNab and I first intersected. I think it was around actually applied for a job in his group and didn't get it, but we we connected through that

and and my entire career. Bill was a great mentor for me. UM and you know, gave me a lot of opportunities to to grow and develop. So I really appreciate that. There was also a guy when I worked in our fixed income group. UM. He passed away unfortunately a number of years ago, but Mike Proplaski and UM, he taught me about the fixed income market and how to be an analyst and how to manage portfolios. And you know, that was tremendous. And then taking that to

all my other positions. Having that investment, that hands on investment knowledge was just gold for me the rest of my career. So that's a that's a few of the early early days, the folks who mentored me. I've heard the name for sure. UM let's talk about books. What are some of your favorites and what are you reading right now. It's a little embarrassing, but I if you think about the theme of a couple of these books, A couple of my favorites. I love Bonfire The Vanities, UM,

you know it Uh, I wouldn't say that's that's highly regarded. Yeah, it was cool because it was, you know, kind of a story about New York in you know, the late eight Wall Street and then kind of doing something wrong and losing everything. So it always scared me, you know, scared me straight if you will. Um. And then you know, around the same time, maybe a couple years later, it

was Liars Poker, which I just found fascinating. Michael Lewis book just had its thirtieth anniversary and reissue recently, and I gotta tell you it holds up pretty well. The great the great part about that book is he wrote it to talk people out of going to Wall Street, and I think it inspired millions to do it. Um. You know, so uh to my old you know favorite books. Right now, I'm reading a book. Did you grew up in the Trying State area? Do you remember crazy Eddie? Sure?

Of course Eddie had antar and what were his prices? They were insane? That's right, they were. Um. There's a book right now called Retail Gangster. I don't know if it's new. Book just just came out in the last couple of months, and it is the story of Eddie Anton and yeah, I'm about a third of the way through it, and it's fascinating. He was a character at

a criminal but really retailer. That wasn't his brother in law who wrote it, who was the accountant who went to jail and the one who turned but he is prominently featured in the Yeah, he's a fascinating guy, don't He didn't write it, but I don't. I don't remember who the author is, but it's a it's been good so far. When when I was in college, I worked at the local Lathayette if you're a New York region, so you remember, laughing he had a million years ago

and they had this um. Crazy Eddies had this wonderful um scam they would do when they were out of stock on something. They would cut the price in half and then once it came back into stock, it went back to regular price. So you're selling it for two hundred bucks. Crazy Eddie has it for So you call up Crazy Eddie, Hey, I want to buy three of these were out of stock. You should go get the crazy Eddies. They don't have it. When when it's in stock,

it's two hundred one, it's out of stock. People wouldn't believe you. I would think it's insane. Their prices are literally insane. The people used to think the guy on the commercial and it was Crazy Eddie and that was just an actor, just an actor. And you know what I did when I when I I read about the book, I think in the journal or in Bloomberg or something like that, and it was like, oh, this is interesting.

So I got and then I went on YouTube and looked at a bunch of the old commercials and brought back childhood message. That guy, you know, he was, he was something he would have the Santa Claus had on during the Christmas That's right. I forgot about that. They were ubiquitous, both both the ads and and Crazy Eddie. At one point in time. They were like a couple of dozen UM stores. And uh, they blew up spectacular

they did. They did quite quite interesting. Um. So our last two questions starting with what sort of advice would you give to a recent college grad who was interested in a career in either investments, et F mutual funds financial advice? What would you tell a recent college grad? Well, I have a couple of recent college grads, my twins graduated about a year ago. And what I told them was um, and it's not necessarily specific to finance, but um,

it certainly applies. And that is pick a company, not a job. And what I meant by that is find a company that aligns with your values. Um, and you know, do something that you're interested in there. Don't worry about your job, your first job, your second job, whatever. But if you align with a company, could be there forever, you can have a career there. And obviously I'm biased in a Vanguard thirty four years I stumbled onto Vanguard and happen to find a company that aligns with my values.

I got lucky. They grew tremendously, But I think it's really important. Yeah, money is nice, um, But being happy or work, being satisfied and having an organization that aligns with what you care about, I think is more important than anything. And you have a lot more longevity and happiness in your career if you do that. And our final question, what do you know about the world of investing today that you wish you knew back in or so when you were first getting started. Yeah, a couple

of things. And either just Jack bo principles, and of course I listened to them, but I may have I may have strayed a little bit um here and there. But first of all, it's really hard to consistently pick winners. Um hence the appeal of indexing. But yeah, you might get a winner, you might get a few winners, but it's it's hard to do that over time. And and sort of as a corollary to that is stay away from fads. I I did get caught up personally in

the dot com era a little bit. And you know, I had my long term four one K investments and all probably diversified vanguard funds, but I had a brokerage accountant. I made some mistakes on companies like Vertical Net I was gonna, you know, And so be careful to fads and um give them my my children age and their interest in investing, you know, growing up in an investing house. Uh. They told me I was old and stodgy, you know, not being excited about crypto or some of the meme stocks.

Are your kids apes? Are they n f T fans or no? They they're they all well compliance. They all have to invest in vanguards, so they're they're broadly diversified and low cost funds. As you would image but they're really interesting and of course all their friends are. It made so much money on this and then till the until they didn't, So um, stay away from the trends. Just focus on a long term have some discipline. The other thing is I was fortunate to get this advice.

I showed up my first DAID Vanguard, did my onboarding. They said, oh, we got this four wind K plan. I'm like, I'm not really sure what that is. Like, oh, just max out your contribution. That's what everybody does, and we'll match up to ten or eleven percent whatever it is. And I just did it and it's thirty four years ago.

It adds up for sure. So one of the last wee with that match and growing taxes right, growing tax offer and so hey, just you know, time is on your side with investing, So start young, even if it's a little bit, and it adds up over time. I am genuinely shocked when we sit down with the potential clients and and one of the things that comes up is why are you throwing away free money if your firm is going to match up to you know, four

or five six percent is pretty standard these days. If the firm is going to give you five percent of your salary to put into your four own Why would you say no to that? It's for I understand that there are bubbles we all want, but it's not like you know, they don't even feel it. Yeah, it's it's not like it's that big a chunk. It's rash and free money. And yet you know, whenever people talk about rational investors, why do people say no to free money?

That seems to be somewhat rash? Absolutely right. So my my daughter tried to say no. Then she she's in New York and say it's really expensive. I said, I'll match it. So you put it in the company and I'll match it. And so we did that for a year and wander off and she realized that she could do it. So that's fantastic. Hey, Tom, thank you for being so generous with your time. We have been speaking with Tom Rampula. He is the managing director of Vanguard's

Financial Advisor Services division. If you enjoy this conversation, we'll be sure to check out any of the previous I don't know, four hundred and thirty we've had over the past eight years. You can find those at iTunes, Spotify, and now, YouTube, or wherever you get your podcast from. We love your comments, feedback and suggestions. You can write to us at m IB podcast at Bloomberg dot net. UH. Sign up from my daily reading list at ridlts dot com.

Follow me on Twitter at rid Halts. I would be remiss if I did not think the crack staff that helps these conversations get put together each and every week. Uh. Starting with my producer is Paris Walds. My head of research is Sean Russo. Sebastian Escobar is our audio engineer. Attica val Bron is my project manager. I'm Barry rid Halts. You've been listening to Masters in Business on Bloomberg Radio