Tim Buckley on Finding His Purpose With Vanguard

Masters in Business Live is back, and this one with the CEO of the Vanguard Group was really quite wonderful. It was at the big E T F Exchange conference in Miami that was held last weekend. I got to sit with Tim for about an hour uh and ran through about forty five minutes worth of questions, and we

took some questions from the audience. If you remember about five years ago when it was announced that he was going to be CEO, we did ten questions with Tim Buckley, and I'll link to that in the description of the podcast. This completes my set. I have now interviewed all four Vanguard CEOs from Masters in Business Jack Bogel, Jack Brennan, Bill McNab and now Tim Buckley. Really quite a fascinating conversation.

A Tour to Force with no further ado. My Masters in Business Live discussion with the Vanguard Group CEO Tim Buckley. So let's talk a little bit about what we have going on right now. You've been a Vanguard for over thirty years, you've been CEO for five years. How's it going. It's been a uh, it's been a learning time and it's been a growth time, is what I would what I would say, very it's been, you know, an incredible opportunity.

If you think about what Vanguard's all about. UM, we sit there each and every day figuring out how do we help people retire, better, put their kids through college, um, afford that dream home. And they've been a I think everyone in the audience agree, it's been a it's been a tough few years for investors and that's the time to rally, and certainly for us, that has been a time to show up and answer the bell for our clients.

And so it's it's been a rewarding time. It might seem odd to say that, but a really rewarding time. So let's talk a little bit about your unusual career path. You come out of Harvard undergraduate and you essentially get a job as like a gopher for Jack Bogel. You're his Yeah, well it's they it was Lackey to the Lackey. Um, it's really that he had already working for Jack, working for Jack's guy. Well, I was suppose you're working for him, but I really was working for Jim Norris, who was

his his assistant. We worked together for Jack Bogel, I reported to Jack Bogel. Um. I found out later I had the title of chairman's intern. And uh, I found out I had that title because they weren't sure I was going to make it through the summer. So I come out of undergrad as chairman's intern. I thought that was my title for good. After the summer they changed. I found out, well that you made it. Oh, you have a job. You have a job. I didn't know what was going to happen if the intern part didn't

work out. Um, but it's a uh finding finding Vanguard. I was. I was lucky to find Vanguard. Um. Why well, coming out of school and I look, I have a My oldest is a is a junior in school now, so I'm sure he'll face this. But I was the typical senior and I was a little lost coming out of school. Um, I'm the son of a heart surgeon, and uh I grew up with someone who had a ton of purpose in his life. I mean, very like saving lives on a daily basis. That gives you a

little bit of purpose. And I was lost, and he Um, I wasn't gonna go into medicine. Look, I didn't have the steady hands for it. And uh I didn't have the stomach for hospitals. And I love business. I love the market, so I want to go that we better struggling, I was. I was trying to find a place with the same type of purpose and and I was thinking, maybe I need to go back into medicine. My father said to me at that time, save lives or help

people live better lives. Anything else in your wasting your time? And no, no, but he said, you don't need to go into medicine for that. And then he actually suggests I go talk to this company, Vanguard. Really, that was your father suggest He said, hey, reach out to Vanguard, and and uh I was fortunate to come down and interview with Vanguard, and look, I love at first night.

I mean, it was a company owned by its climate clients with a clear purpose, um, to really give them a fair shake and and provide them with a better future. And thirty two, late thirty two years later, here we sit. What was it like working for Jack Bogel right out of school? I mean that had to be a little well, you' lee, Vanguard wasn't the Vanguard we know today thirty years ago, but it had to be a little intimidating. Well maybe I should have said I was both lost and a

little clueless. I mean, remember this is you're coming out of the super Internet. I mean, Vanguard's really no one knows who Vanguard is. Um, so my friends they thought Vanguard was an airline um, which the second yeah, a second guess would have been a healthcare company. Um. And you know I used to have to describe it as as uh the Pennsylvania version of our Boston competitor. So um and uh so people didn't know Vanguard wasn't the firm it is today. And then Jack Bogel, like he

wasn't the household name. So I didn't show up intimidated. Um. I showed up curious. And you know what he's uh, I asked a ton of questions and he's a guy that look wanted to teach a lot, and if you were willing to listen, you'd learn a lot. So Bill McNab was the CEO during the Finance ancial crisis, and when I spoke with him, he talked about how that created both challenges and opportunities for Vanguard. You're the CEO during the pandemic, COVID lockdown. What sort of challenge couple

of bear markets? We right, let's see uh inflation at a forty year high, tightest labor tas labor market of our lifetimes. But yeah, other than that's been easy, easy times. So so what sort of challenges and opportunities have the past five years presented? Yeah, I think there's one of a huge, a huge lesson for us, and it's brought out in our our leadership team, the great leaders You've got to embrace your reality. You can't be an optimist or a pestimist. You just have to embrace the facts

in front of you, brutal as they may be. And that's what we learned throughout this and you have to plot the best path forward. And maybe if you human humor, maybe we'll go back to kind of the first time we talked, and you go back to that time, because Banguard had been gone through a decade of incredible success, great growth, and look, our fund performance had been top notch if you went back to that time, and there our net promoter scores were really high, UM cash flow

outpacing the industry. So all signs were great. We had a wonderful opportunity in front of us. We looked at UM, we looked at a client success and we saw it as hey, it was defined by the funds they hold it, but also by the advice they got on those funds. And for forty years, like we've been hammering, hammering away at the fund side that we had lowered the costs of investing and we had improved the quality of those funds and you know, dary I say, we made a

change in the industry. Well, we started to think that maybe we could actually do that on the advice side, maybe we could be the vanguard of advice. Because we had this this PAS group that Personal Advisor Services that had some early success. So we set and said, okay, like couldy build another engine of value engine one being funds and engine to being advice. And if we could do that, that would be wonderful. So right before doing that.

Right after we talked, we looked at h we have like looking at our competitive position, do it constantly and we call it, hey, let's embrace the brutal facts. We looked at the foundation of our position and it wasn't as good as we thought of us. In fact, we're low cost leader, but at that time we weren't. If you looked at our e t F assets UM at that time, less than half of them were actually would

have been considered lowest cost in the industry. Our NPS scores are high, but they were declining UM because of an antiquated digital experience. We were losing market share in the critical retirement, the four one K business UM. Internationally, we were spread too thin. We're serving clients that institutional clients, and that weren't core to who we are. We're all about the individual investor. So looked at those said well, we've got to address those and we want to build

this new engine of value with advice. Great awesome. That seemed like enough off and then COVID hit. We had a choice to make at that point, and the choice was do we just delay everything and play defense, or do we just add a pandemic to our list of brutal facts. We chose the ladder and said this is we have no idea how long this is going to go on, but we owe it to our clients to emerge from it stronger and better than when we went in.

And we had we prioritize all our strategic plans. We had to figure out how to get them done while people were remote forces to make some tough choices and in that time and some big investments, whether we're building out our advice capabilities and building virtual teams to do it,

were you know, tough choices. In our retirement business, we had to rebuild it soup to nuts and we partnered with Emphasis, but that meant went and worked for Emphasis, but it meant we could triple the resources um that we had, you know, focused on our retirement business. We looked in our our personal investor, our direct business and said we have to organize it differently, and we have to modernize that digital experience. And a tough decision overseas

basically pulled back from ation. It was all institutional clients and we gave back up hundred billion in assets, which most people think it's crazy, Billow. They were all institutional separate accounts. That's that's not what we do here and gave it back to them, and that's not not where will excel. And it's just not what makes us take a little bit tangent here, Like we were managing money for people for basis point and a half and then

they were going ahead and charging seventy basis points. That's not why we get out of bed, right. We want to see that an investor have a better return as a result. So maybe those tough choices and and uh, you know, five years later, we're sitting a lot better off. Whatever you identified as a structural fault line. How far along do you feel you are on the process of hey, we want to we're here, we want to end up there? Are you halfway there? Most of the way there? How

how do you think? And we talked about just getting started, but you know, it's one of those things that as a leader you don't think about like, well, here's the finish line and then I'm done. It's how far can you push it and get the next team ready to take over and continue that journey? Um. But for us, you know, we we measure our success in different ways.

We measure our success by how are our funds doing and we look back long term performance and right now you look back over ten years and our active funds, and we're out performing their competitive group averages sixty eight percent or out performing their their benchmarks. If you look at that et F Low Cost Leadership space, UM, there's six percent of our assets would now be considered lowest costs.

So we can actually have that low cost title back if you will, UM, if you if you kind of continue on to that advice journey that we had for us, it was just thankful the last time we talked to me about eighty billion advised assets that sits at about three out of seven point two trillion at seven point two trillion, but it's growing it fifteen a year UM. And they're they're six hundred fifty thousand clients that at the bottom of the market last year and we're still

right on target with their goals. And for advice for us too, is also a matter of you think about advisors, how are we using model portfolios to make their result results better? Um? Are we making sure that they have the right products from Vanguard to actually comple what they do? The right practices being in the advice business ourselves. We can help improve their practices, justify the advice that they give, UM, justify the fee, and you know, just simple things like hey,

the value of tax loss harvesting. How do you make that that apparent to people? UM, something that for us save our clients about three million or four months that alone, and our digital experience. You asked about that that one. I can tell you how far along we are in modernizing that we're about seventy the way and doing that and so great change. So so you mentioned the pandemic was a little bit of the challenge. Everybody is working

remote for a long time. How do you maintain corporate culture with twenty thousand, eighteen thousand employees when the vast majority of them are not coming into the office. I think it's a it's tough for every company out there, UM when you've hired thousands of people who have never set foot on a campus and you often model the behavior and the culture UM. And so the first thing for us is it's it's how it's in the leaders that you you actually select, and that's so crucial for us.

So in our screening, you get aught interview questions. We're trying to figure out are you purpose driven? Like are you actually someone who's gonna be purpose driven? But then we have something that I learned from one of my mentors that you've talked with, Jack Brennan before, a former chairman CEO UM, and he always established this early on in the culture that it would be client, crew, self,

always in that order. And a lot of companies will say that like, it will put the client first, but we don't have another choice like our client's own us. We don't have anyone else to serve. And then during the pandemic and being cleared, us like, yeah, but the only way we can mess that up is if people start putting themselves itselves in front of the client. And so the leaders there we have to say, okay, we

have to enforce it. It's always the client first. And as a leader, then that means that you have to take care of the crew before yourself. So we emphasize that wholy that leaders are going to actually make sure that crew know that they care more about their success than their own. So for me, it's it's more important

to see my team's success than Tim Buckley's success. And it's amazing how that helps build a team if you're true behind it, and it builds the collaboration on that team, and then down the road is somewhere where you put yourself. But that is a cord to our culture. We're able to do it in a virtual world. But now that people are basically back for three days a week, it's a lot easier to reinforce it um and people to

see it when they're actually face to face. So back three days a week, um home optional two days a week. How does that structure change what you expect people to do when they actually come to the office. And so I'm sure a lot of people have been through this where they come into the office, and we had it at first when people came into the office and they

were on teams when they're in the office. So what we're finding we're finally like, okay, there, they come into the office, they say hello to each other, they sit down their desk, and they go on video all day long. Well, that defeats the purpose of actually those serendipitous moments you're bumping into each other, trading ideas, you're sitting in a conference room, you're talking to each other, building on everyone's points.

If you're on teams, she said, why is that, Well, it was because not everyone was coming in and you still had some people at home and some people or you didn't want to travel from building and building. We have a nice campus and not everyone wanted to travel, and we just said no, Actually, when you're here, like first, everyone's got to be here, and then secondly, when you're here, we expect you'd actually interact with each other, not on teams.

And you know you you want to see that that teams usage drop in the middle of the week and go up on the tail n This because Monday and Friday or the virtual days. So we actually had to establish that norm that people have gotten so used to using teams all the time in the middle of the week, we had to move people away from it. So let's stick with the leadership theme and you come to the

CEO row with a unique leadership background. You used to describe yourself as c I O square you were Chief Investment Officer and chief information officer, an unusual combination, and then to be elevated and CEO. How does that background affect how you think about the role of chief executive officer. Yeah, I think for every CEO you need perspective and I

think both the CIO jobs gave me incredible perspective. The first one would have been back in if you think about I became c I O right at the tail end of the Internet. Craze I was on the web and then took over his uh Chief Information Officer, and that was a time of incredible hype. Right the Internet is going to change the world, Oh my gosh, will change how we actually consume you know, video, how we game, how we do business, and everyone is talking about that.

You remember that well, and then it didn't happen right away and everyone ended up disappointed. We know what happened over the long run, it reminded you know, back then we we used to talk about something that I've tried to bring back for people, which is that that Gardner hype cycle, if you remember it, and that Gardner hype cycle is something where whenever there's a disruptive technology and it comes in, there's a lot, there's a lot of

hype and high expectations. So unrealistic expectations followed by something doesn't happen, you have disillusionment. You have the troth of disillusionment, and people give up on it. But the true change comes when hey, you know what those loyal to that technological change figure out over not one, two, but three five years how to drive change and how to leverage it. And that's been true through time. It was true whether

it's with the internet. You can plout it with mapping the genome with E v S, and it's true in investments or you have to look at a change. And you know, people talk today about okay, a private equity, some magic elixir, if I can just get private equity into my client's portfolios. It's it's not true. I mean private equity there is greater return dispersion, but the returns on private equity or often below the S and P five hunter on average. So you've got to do your work.

You've got to see through and say, okay, well that means that I need to keep fees low and I have to get with the right GPS, etcetera. And so you can drive you can figure out where's that long term change going. So those two jobs give you a perspective. So okay, avoid that hype and how do you see through the long term change that you want that you think should you should drive home? Um, they're probably different in how you embrace change, and I see the world's

always changing, right, So that's the dangerous thing. Like how people code, where you host, where you host something, all of those things those have you know, how applications talk to each those have totally totally changed since I was c I O. And um, but if you think in investments, certain things like there are more rules in there, like that proven investment philosophy of diversification. That's not going to change overnight, So you have to be more careful in

the investment world. And both of those give me a balance of CEO. So Vanguard now has a hardcore tech geek as CEO. How has that affected the company? How has that affected how you approach the use of technology in the world of investment. Yeah, like, thanks for calling me a tech geek. I'll think that as a compliment. Um, that's how it's meant. Yeah. Um, for us, it's technology is the embodiment of our service. We're we've always been a virtual company. Just used to be through the mail

and wanting hutter number when I joined. So, um it's always been that way for us. So it needs to be a necessary area of investment. And I mentioned this. When you lead with technology What can happen to you is you can if you don't continually make the investment, you fall behind because it gets so costly to address your legacy. It becomes an albatross your kind of your legacy applications. They become a burden and they slow you down and they slow down what you can do for

your clients. We we made the choice of you know what, we're going to eliminate that legacy. And a few years ago we said on whether you're investing directly with your dress, investing through an advisor, whether you're investing through retirement plan. The platforms that we deal with our service infrastructure, our investment infrastructure cloud native. So we've rebuilt, we're about seventy four percent of the way through of rebuilding all our

applications to be cloud native. Now that sounds cool, Like what does he give you? It builds up your your resiliency, but your speed. And I'll give you an example. Um, maybe the team won't love that, I'll use this one. But we we launched a mobile app last year, right and um it was it fell flat on its face. The mobile app like it was panned. Our science hated the mobile app and in the past when you did that, well you had to live with it, like you have

to wait for nine months to fix the problem. But because it was built cloud native, that meant you could make changes to it. You can make the changes every two three days. And so we did two hundred releases to it in nine months and that app has gone way past the satisfaction ratings client satisfaction ratings of the past one and continues to grow. And so being cloud native can give you incredible speed resiliency. Last year are availability and you never get a good article written when

you have high availability. You just want to avoid the bad ones. We're nine seven available for our client application. So um, that's a number I had seen before. So let's talk a little bit about fees. The Vanguard effect has been well documented. Not just the spaces that you're in force everybody else to be more fee competitive, but even spaces you first start looking at immediately has a ripple effect and fees dropped. How much lower can van

good push fees? Half of my portfolio? Is it three bibs? How about too? Okay? But aren't you going to run out of room eventually? Well, the way we're we're built is it's the way we're being client own. It's the way we return profits to our clients. That's the dividend.

That's the dividend that we pay out is to to lower that expense fore issue, and it's it's how we're built and it comes with those are economies of scale um Every year, just like any other company, we have our expenses that includes kind of the big investments for making in the business, and we have our revenue one and we end up you know, we've had been like you'd be very profitable year after year. Well, what do you do with that? You can? Number one, you'll put

it back into the business. There's plenty of capital put back into the business if it with projects that will meet your cost of capital. So you do that. You have to make sure you have enough liquidity. You're reserves too, so if you have there's a big bear market, you want to protect your investments, et cetera risk event. But then other companies will retain earnings, the pay a dividend go to a family. What we do is you say,

okay with that. With the that capital, we'll give it back to our clients in the form of lower expenses. And it's been a pretty powerful cycle, and that's why year after year we're able to kind of lower expense ratio. So got UM. I mentioned Jack Brennan. I bumped into him in the hall the other day. He was he stepped down his his CEO in two thousand and eight and he said, Tim, when I joined Vanguard, our expense ratio is eight eight basis points and it's you know,

less than a tenth of that. Now, wow, that's that's pretty impressive. So many industries where you actually get more and pay dramatically less. And this has been the history of the firm from day one. This is a core of Jack Bogel's philosophy. UM. A lot of people think it's all about passive, but Jack began as an active manager. You're now about active at Vanguard. Tell us a little bit about what you guys are doing on the active side of asset management. It's a funny fact of being there.

Thirty two years I joined Vanguard and UM index was only of our assets active active. So we were active firm when when I when I joined Vanguard UM and it's just it's evolved over time to be to be

a index. We firmly believe in actively firmly believe a low cost active, but it's a placed in the portfolio has changed if you think about for most clients, it's an index at the core, and if you're going to if you have the the risk app type for active, it's going to play much more of a satellite um And so as we look at it, we we look towards strategies that might have well maybe it's the same a little bit higher you'd hope for information ratio, but

you have a bigger risk budget standard deviation, and so you look for more excess excess return, so that plays for a better compliment to the index portfolio. Now, how do we think about active managers? People talk about yes people, it's philosophy and process and you'll go through all of those.

But we found the best way to evaluate one is make sure that they can tell you what their edges, what is their active edge, and it has to be one that can't be easily duplicated in the market because in a zero sum game right where you're competing with other managers, you want one an edge that nobody else has. So you can't just say we have smart people and they collaborate well with technology, right everybody's got smart people and everyone's got great technology. You can't just say you

know what, we think differently. We want you to prove it. So how do you think differently? So you've talked with the leaders of Bailey Gifford. Where do they hire from, Well, they don't hire from business schools, right, They'll hire military intelligence officers and have them work actually I'm serious with the poet and with someone else, and they keep them in pods of teens that they work together, but they don't collaborate. They don't want group things. They don't let

them work with other groups. And then you measure do they truly keep that edge of differentiated thinking? We do it to ourselves are active fixed income group against super smart people supported by great technology. But what's there? What's that edge that no one else could duplicate in there? It comes from our structure. If you think about the fact that we have at like, we're client owned, so

we're delivering as close to at costs as possible. We're gonna be a lower fee than than almost everybody out there. That means a low hurdle rate. What do you do with that? Well, for us, that means that hey, when you're not getting paid to take risk. When spreads are tight like right now, then don't take a lot. You don't have to, you don't have to make you don't have to take that extra spread or go out and credit quality and take extra risk there because look, you

have a low expense ratu. You can be higher quality and you equal or maybe you fall behind just a little bit, and you'll keep a law of dry powder. And so then when you have spreads wide now you have you know, dislocations in the marketplace, you have plenty of dry powder, and you deploy it and with that strategy you I'll perform over the long run. And I mentioned that ten year performance. Do you look at our active fixed income. I believe nine percent of the funds

have outperformed their competition over the long run. So their competitive group averages. So it's a and straight up the numbers huge, So it's a it's a differentiated way. But we measured like do they truly deploy that black powder? They that dry powder? Did they take advantage of it? So you mentioned Bailey Gifford. I bet a lot of people here in the States don't know them been around for a century in the UK. If not longer highly regarded, great track record. I want to put that in context

of leadership. You're reaching out to I guess not a competitor, but appear saying how can we get better? How often does to car What sort of strategies do you put into place? How often are you saying, Hey, let's sit down and talk shop with our outside managers or with outside firms with you know, Bailey Gifford is a great entity.

They were they were managing money for one of the public pensions for Yeah, So we have we have a team um who are constantly out there looking for who could be great outside managers, and they will look for that active edge and look for that differentiation, and they're constantly out there so that if there's an opportunity that pops up into fund or there's an idea for fund, that we actually have a list that we can go to right off of people that we respect and that

we could work with, and that working with Vanguard, you know, one of these say one of the differentiators is that we're so long term. They have such a long term focus that they truly can have a low turnover and stick with an idea, not worry, Hey they're underperforming for two years, that like we're going to move on from them,

So we're probably a lot more patient. Um. But at the same time, you know, highly educated and how the in the questions we ask So you joined the leadership team in two thousand and one, which is you know, going back now, Yeah, a decade into your career. That's a pretty fast advancement. I assume you were relatively young compared to the rest of the leadership team. How do you get from that entry to senior management? What was

the career path like from there? Yeah, I was I was young and over my head really Oh yeah, definitely, I mean I was. I had been running the web and that was that was enough for me. Um. I you know, unfortunately, back then, our our c I O UH suddenly passed away and Jack Brennan asked me to step in and lead our technology group. Um. It was

a surprise choice for everyone. It was a surprise for me, and I remember talking to him about it going pushing back a little bit, like, you know, like I don't have the I T background that other people would have, And he said to me, Tim, I'm not asking you to code, I'm asking you to lead and then he went through the competencies that you would expect me to bring to the table and how I could bring our I T division to the next level. That stuck with me.

A couple of things stuck with me. It was the importance of competencies and developing those competencies and people and the importance of taking risk in the development of people. Another thing occurred to me probably a year later, and that was that, Um, and we're big believers in doing three three sixties on people, so getting feedback. Every leader should go out and get feedback not just from their boss, but from their peers and those people on their teams.

So I did a three sixty. And you know, it always starts off with your strengths and where where you're doing well, and say like, oh gosh, you know Tim's strategic and he's got he's got to drive, and he gets results in collaborative and love and everything. And then I get down to the Okay, here's what his weakness is when he needs to work. And you know, the bottom was patients and we can come back to that some other time. Yeah, yeah, I know, UM, and it's

still a weakness. UM. But second from the bottom was developing talent. Man. That was stung because I realized I had been a taker all this time, not this, not a giver. And you had been mentored by Jack Brennan, by Jack Brennan and Bill McNabb and Mike Miller and you know, all these people from time who had taken an interest in my career, and they took an interest in my career, and when people asked about me, I

hadn't done as much. Now, there might have been one or two people that said I was the best thing to happen to their career, but um, by and large, I hadn't done enough. And so I spent the next you know, twenty two years saying okay, well how do I develop talent? And I would tell you that for me, um, my proudest moments of Vanguard are when someone that I have mentored ends up on our our senior leadership team, and fully half of that team I can say I

hand it, had a hand and mentoring them along. So it takes conservative effort, and for a leader, it's there's nothing more rewarding because that's your That's the way you have exponential impact if you can pass on your lessons and someone else builds on them and they teach them to somebody else. That's that's where a leader can have

true impact. How does a company the size of Vanguard institutionalize that sort of mentoring, leadership grooming UM bringing up the next generation, getting people to reach outside their comfort zone and become better colleagues, workers, and eventually leaders at every at every leadership level. UM. We do talent oversight where we'll go through and you you should know your

teams and you'll know your leader. You're like, everyone knows their leadership team, people in their group, where they're stronger competencies, where they need to develop, and we will talk about we constantly rotate talent to develop them and rotate rotate tent. Well, look, I mean the same way that I was rotated between you know what would be a corporate area to service area to an I T two investments and you wrote you give up your best talent And it's odd most

companies don't. Do you want to hold on your best talent, but advantguard you're rewarded for give up your best talent and make sure they develop and how do you develop them? And we do what We rotate people based off of their competencies we know. Think of them as buckets that you need to fill. And it may be okay, well what someone's you know, vision and strategic thinking, And it might be how well they know operations management? How good

are they developing crew? And these are buckets that you're you're trying to fill along the way. You can't fill them all in one job and or with one boss. Some bosses will be better than others. So we do if we understand those about our people, then we rotate and we know what the next one or two or three rotations will be, and we do it around their competencies. As we rotate them. There's a big there's a give up. Someone loses there their expertise in a role. How do

you But what they're gaining is context. They're gaining context and becoming a better leader, better decision maker. You just have to It's a system you have to balance because you can't have everyone rotate to a new new area. You have to keep institutional knowledge and really sandwich people like experience on the top, experience on the bottom, and you kind of someone fresh in the middle. So you mentioned Bill McNabb, who was your predecessor as well as

Jack Brennan, his predecessor. Those those are two rock star finance ceo s. What's it like for you as a CEO still having access to their expertise and experience. You said you just bumped into Brennan. Always tell us a little bit about how you use the legacy former CEOs who are still around and how cool it is. I mean what I mean two very different leaders and um, two fabulous mentors and great friends, um, both of them. And they have a different way to see the world

and see leadership. And I would encourage everyone out there that often people come into a role. Oh, I gotta put my impromature on there. I can't talk to the past leaders and look these um. Whenever I we Tay make a big decision to Vanguard, and I talked about some of them, I would actually talk to Bill and talk to Jack first. I would understand, you know, why didn't we make this decision before? How do we get

to this point? They would give me the historical context and often give you information that oh I didn't think about that, and you might adjust, you might not. And they are accessible. Um. They made us leave our phones backstage, but I could text right now. You got yours. I could. I could text Bill right now and you get back to me in five minutes. Um. But neither of them will ever reach out to me and really unsolicited advice. Not Kate, Tim, what are you doing? This? This is?

This is this is one way. If I reach out to them, they get back to me, But they don't reach out and go, hey, what are you thinking about? Where did you do that for? And UM, no, it's uh, it's it's great. You know I mentioned that, UM, a tough decision where the retirement business. Both of them said, hey, we should have done that earlier, and so it's reinforcing

to have that. UM. And we're looking and they're they're proud that we just became in that business number one in competitive NPS, so that businesses is totally shifted and turned around. Um. But they were a hundred percent behind it. Let's let's go back one more CEO to Jack Bogel, Obviously you might give me some un solicited advice. Well, I was gonna say for sure. He never was shy about sharing his opinion, and clearly a lot of his

philosophy is in the DNA of Van Guard. Put the client for us, keep costs as low as possible, always try and make the investor better. But when we look at Vanguard today, there's a lot of things that Jack would have kicked and screamed about E t f s. To begin with, he was not a big fan. Why do we have to invest overseas American companies participating that? And then lastly, the possibility of putting private equity and

retirement accounts. He would be furious. I would imagine he pushed back on me on the web and would have good debates on that. And I think his vision, though, that's what was so powerful, and that's what remains. This this idea of putting the client first and giving him a fair shake. That's what you know, that's what defines us. People want to define us as a low cost index fund um, which Jack Bowood should be and was incredibly proud of. I mean, he brought this this idea that

existed out there and brought it mainstream. And you know, so many people have done something to so much to extend that. But he was the visionary behind indexing for the main street investor, and so we want to remember that, but that's not all he was. He was that vision of how do you put the client first. How do you let him keep more of their return? So we look, what are other ways to do it? Because it started with low cost active but how do you do it

through advice? You know, how do you do it directly advising clients? How do you help advisors become better at what they're doing so people keep more of the return, they have a better chance of raising the investment success of their clients. So that's how we define what we do. Private equity is just one of those that in private equity, look, I said, it's not an easy game. There is the first the average return is typically a little bit below the SNP and there's a wide dispersion of returns. So

we're going into that. How do we make sure that our clients are on the right side of that distribution? And you know, relative fees matter, and their access matters, and we had to vet all of those. That's very consistent with the original vision of anger M. So let me throw a quote of yours back at you and and let you this could be danger pursue this quote. Our clients should not only expect change, but demand change.

Explain that, well, there are owners um and you never want to be complacent as a business, so as our owners, they should actually demand that we get better and better. And the other one is that if a company wants to lead, if if you want to lead, you don't get to set the pace that you go at. Now most people would think that, okay, if you're the lead,

you're the one setting the pace of the race. But the truth matter, No, it's it's it's set by like the performance of your competitors, you have to stay ahead of them and the expectations of your clients. If our clients have high expectations, we will keep our pace high and we have to exceed both of those year after year. And so we have always going to make sure we have the team, the plan, and the capabilities to do just that. So before we take questions from the audience,

let me ask you. You've been at Vanguard for thirty two years, you've been CEO for just over five years.

What's next? What comes next for the Vanguard Group? Verry, It's a what everyone could expect from us is to continue what we'd find a straightforward but compelling strategy, and it's to make sure we're performed producing the top performing funds that we have the top performing funds and ets out there, will wrap them with low cost, scalable advice and deliver them on a world class digitally enabled platform. Now it sounds simple to do, but you've got to

bring those all together. And if you do that well and you can keep improving it, you'll create value into the future. So let's let's good answer. Let's uh go to some of the audience questions. The finance industry's record on diversity is not so great. What is Vanguard doing to lead the industry to faster change. It's one of those ones we put a first, You've got to have

a big goal out there. So for us, it's will continue to grow the diverse your anger, but by we'll put the goal out there that, um, every level of leadership should look just like the rest of a Vanguard. And so we looked at and said that is a goal that is attainable, but you need to have a

distinct strategy around it. So we we have chief Diversity Officer that works with all of our division heads to make sure that we have the right strategy, the right practices around how we do you know, attraction and retention, but critically development. You bring people in, you've worked hard recreema, but you're making sure they're developing in the way that we talked about and success for success for us in the past five years, we've seen you know, both our

diversionary or leadership go up six percentage points. So I like this question, what's one of the biggest lessons you learned in how to develop that talent? You've you've got to figure out how to be candid um and you've got people shy from giving people feedback and it's it's everyone wants it um. It never feels good. So you have to figure out how will someone receive that feedback, and you've got to make it about getting them to

the next level. And if I can, you can give feedback to any anybody, if they believe you're on you're on their side. And so how do you put it in a way that they're going to say, Okay, well this is to help you get the next level. One of my observations is or how can we work on that? And that is a great way to get someone to receive feedback? And then my advice to other people if you want to do up yourself, something I've always done is I ask for feedback and gosh, that makes it

so much easier on a boss. And I used to like poor Bill McNab would do a review and say, hey, great year to me, like all right, tell me what I need to do better, not tell me like what would the team say? And I would stay after him until he gave me something to grow on and at any level, like, I don't care what level you're at, you should have two or three things you can grow on. And you're asking for feedback even the CEO. I asked for feedback, and I make sure my team, even Greg Davis,

you could you have more accomplished ce io. Greg Davis is gonna hear where he's great, but he's always gonna say, Greg, your next level leadership, here's what you would work on. And so it's gonna be you know, it's gonna be that for him or for Karen Reese or for whomever is on the team. What was your biggest career mistake and what did you learn from it? Which one do

we want to choose here? I would say that, um, it's I got a few of them, but let's go with conviction a lesson here that um, I'll go back in time that you know I mentioned that that hype, and I was the web guy, and I was convinced the world was gonna change overnight and online advice was going to take off and aggregation would be a key element of it. And I was selling hard and we invested a lot of money in it, and nothing happened, right. Uh remember talking to my boss at the time. He said,

I knew that wasn't gonna work out. And I said, well, like Jack, why don't you say something or do something? And uh, he said to him, you had to learn that just having conviction doesn't make troph It's not enough. It's not enough. And um, but I also learned all those things that I conviction about, like there's another lesson, there's over time you stay with it, like like digital advice is accepted now, and those things you also you have to be You have to just because it didn't

work doesn't mean you leave it behind. You know, when we were talking about the things Jack Bogel wouldn't have loved. I meant to ask you about direct indexing. This is a big new push you guys are doing. Tell us a little bit about that. Does that fit into the sphere of digital or how does that work within Vanguard, but directed We looked at direct indexing years ago. We

started thinking about it. What's the way that you you could disrupt the E T F or or the mutual fund like is there you always should be looking is there a better way to do it? And directed nexting existed for a while. It was reserved for the ultra ultra high net worth and we could see that there's huge tax benef it's for a lot of investors and

using direct indexing. But we started to see customization is people care more about the values of how they invest, and could you create portfolios where you're not gonna undermine someone's retirement, but let them invest a court of their values. And we got very interested and said, rather than hope that it goes away or doesn't undermine, why don't we embrace it and see if we can grow it and see if it is a better way to do something.

And we'll find out over time, but we'll be we'll be investing heavily in And this is our our final question. If you could go back to your early days of senior leadership and and give yourself a piece of advice, what would that be? I one I've learned through time, and UM, it's always ask more questions, UM, fewer statements, more questions and listen, listen to the answers, and encourage the debate. I catch myself still doing it to a UM.

I have to do it, UM. And you you're gonna learn so much more if you let that team go. And one thing I've learned, you know you've always heard you can like you may not be the smartest in the room. I grew up with this. You may not be the smartest in room, Tim, but you'll be the hardest working. And that's that's how I grew up. And I came to learn something else, which is UM. You know, even if you think you're the smartest in the room,

you're never smarter than the whole room. So in time, I've learned, okay that like you were not gonna be smarter than than the room. How do we bring out the best in that room? How do we get them to collaborate? How do we get them build knowledge on each other? And you'll get you'll produce great things as a team. Wow, that was really quite an hour of

fascinating conversation with Tim Buckley, Vanguard's CEO. If you enjoy this conversation well, feel free to check out any of our previous five D discussions we've had over the past eight years. You can find that at iTunes, Spotify, YouTube, wherever you get your podcasts. Sign up from my daily reading list at rid Halts dot com. Follow me on Twitter at rid Halts. You can follow all of the Bloomberg Family of podcasts on Twitter at podcast I would be remiss if I did not thank the crack team

that helps us put this conversation together each week. Robert Bragg is our audio engineer, Paris Wald is my producer. Sean Russo is my head of research. Latika val Bron is our project manager. I'm Barry rid Halts. You've been listening to Masters in Business on Bloomberg Radio.