Can an Outsider Fix the House that Bogle Built?

of slowly go out of the scene. But when he got hired, I was like, Okay, it's it's a little shocker, but Vanguard is evolving all the time and this makes sense to me on a couple levels. I think Vanguard is they have new challenges. You know, get getting flows into ETFs isn't exactly a huge challenge for them, but they have some new challenges. Will go over. But also I think that Salim, you know, probably won them over.

He's a true indexing advocate and he can run an ETF business, and Vanguard is very into ETFs these days. So if you when I started to think about it, it wasn't that big of a shake up. Plus he got a report to the board. He can't go crazy. But it is interesting because he was advocate for the Bitcoin ETF and that is there's a couple kinds of things he's done that I think we're probably pushing the would push the envelope there for sure. So it's going

to be interesting. But you know, Vanguard is almost fifty years old, and my guess is that their culture he adapts to it more than he and you know, pushes a blackgron culture on Vanguard, that's my guess.

Great to be with you. Okay, just how significant is this leadership change because there has not been that many CEOs since Jack Bogel stepped down in ninety five ninety five, right, so this is a little bit of a legacy issue.

And so it's an interesting pick as an outsider coming into a firm which has a very strong I mean, I guess on some level, all cultures are unique, but a very strong and unique culture. And I think that's, you know, one of the things that caught people by surprise, maybe a touch less you know who they picked, but just that they picked somebody, you know, coming in describe

the vanguard culture. So it's you know, I think they kind of talk about it almost as a mission, sort of a zeal about low cost index investing for the masses. That basically, you know, Jack Bogel took a product that you know, wasn't very postpopular in the seventies and an index fund and index fund, and you had a very strong furv and belief that it could be marketed and sold to the masses, and over time it would outperform and low costs would be a winner for investors across

America and then later on essentially the world. And that really is the mission of the company. And it's not a for profit company. It has this almost sort of unique ownership structure, all kind of geared towards keeping costs low.

because I'm the investor. And so that's why the fees came down little by little. The first index film was like sixty, seventy basis points, but it went down, down, down until it got to like twenty ten in the nineties. That's when it took off. So to me, indexing wasn't really that grade of an invention. It was okay, it was cheapness that was sweeping the nation. So indexing kind of got lucky, I think, but they were kind of hand in glove, right, this idea of low cost and

then you put an index fund on top of that. Boom. I mean, that's the big idea. But an index fund at seventy basis points, I don't really think is that grade of a concept.

he has his books. He's a very he's a student of the index. But he he kept trying to give credit to Wells Fargo, who technically invented the index fund. Bogel saw it and ran with it and came out with the second index fund. But Bogel always said he did it, but he always glorified his story. But my point is, I think Selim couldn't say that Bogel and Vanguard were the big deal because he's a black rock.

So in his podcast and on arts, he would say Wells Fargo indexing, low friction, low cost, He's into all of he checked all the boxes, but he wouldn't save the V word. I think of black rock, you can't say the vword. Now he's at Vanguard and I think he'll go a little wild promoting this, and I think he'll be able to now be more full throated about how he feels about Bogel. And I thought I'd like to get your take on this, Sola that when he was in the interview, to go over an outsider, you

have to win over their hearts. My guess is he went for three four interviews and it was this passion for indexing and low costs and access that won them over because they knew he had the experience, but did he have the did he have the cult DNA? And I think he showed he had that.

the industry. And prior to being at Blackrock, he was a partner at McKinsey for a long time where he also advised Blackrock, but you know, he was in the asset management and wealth management practice there and so I think I think that kind of a background, perhaps a little less on as a trader. You know, that's Wall Street trader. That's not his sort of sort of origin story formative years. It's very much a kind of you know, advisors, strategic consultant, academic if you will. You know, he's a

lawyer by training. I can see that being, you know, more of the mold or model that if Vanguard were to pick somebody, that would be kind of the person that they would consider. So yeah, I mean, I think he really is a student in the markets. Lots of people are, but I think I think that is a kind of a personality that you know, that's how a lot of people describe them.

continuity and change. Right, the culture is so strong that there's like an entire you know, millions of people who are investors, who are you know, bocal heads, and they've bought into this philosophy and it has been good for them and they don't want to see that just die away. So being true to that while also finding areas for growth,

right like that is the challenge. As Eric said, you know, ETFs and indexing has really taken off, maybe took off the trajectory of it took off more in the last ten to twenty years than maybe in the prior twenty years, but nonetheless is taken off. There's a question of how much more can it grow. There's a lot of talk now about whether active management or more active selections of funds because rates are higher now the task of investing,

maybe there are more opportunities for active managerement. Part of this is all marketing and spin, but there is a lot of discussion about that being more growth there than just basically put it in a fond and forget about it and you'll be fine. And so I think for Vanguard and the question is are there areas that they can find and try to exploit And they've been trying to do this and advised you to account. They've been getting into it more international, they've tried and fits and

starts and not been terribly successful. And then you know, not necessarily an area for growth, but it kind of goes across everything is the technology of the firm, and I think, you know, there are a lot of criticisms of its ease of use, whether it's technologically as sophisticated as other firms. So there are lots of areas in the firm that are sort of growth potentials, and I think that the challenge, obviously is to realize them and

to actually grow. And I think that's part of the mission well, that somebody with the little McKinsey blood would have some appeal. I think then.

was all about enough. He didn't think we should grow at all because he thought we're going to lose track of the hearts and souls of the actual customers and they're all going to be numbers. Thus, I think they're well beyond that now they have like eight point three triol and they have double what when he was upset. So I do think within the current vanguard CEOs, he fits perfectly. To me, he's like a Buckley. It's Bogel that's so different and will always be the anomaly in physics.

Everyone else, to me is a more normal and he's very reserved. He's not going to say anything. Stupid. Bogel would just drop bombs right and left. And he was a pr person's nightmare, but in a fun way, in a good way. And at the time, I think to break through the industry at that time, and because you're not distributing, you have no distribution fees, so you have to get everybody to come to you. You have to

be pretty maverick, pretty maverick. Everyone else is more of a caretaker, but they they're all trained in like MBA to grow, like what else. He supposed to do. They're supposed to go to do a new firm. Ago, let's actually retract. So everybody's you know, been trained to grow. I think the point you brought up was interesting about the advisory business. So I don't think he has to do much with ETFs. I think the fish are jumping

in the boat. They're at this point you could probably say don't invest with us, and the money would still come in. They taken nine hundred million dollars a day for the past decade. Their ETFs this year have taken in thirty six percent of all flows. This had a six hundred shores. It's fine. Advisory is interesting. So most of the people in the wealth management business are Vanguard fund investors who got old. That's why they launched it. But this got three hundred billion. But the fees are

real low droll. They're like point two five and below, So if you have a lot of money, you can get to for point five or point ten per Most advisors are one percent. So this is dramatically cheaper, and I think Salim could make that one of his legacies. Tim Buckley even called the wealth management engine number two. I think he'd be good at that. And may basically

taking their advisory service externally. The only thing with that is once you become an advisor and your full service and you have all different types of people who want different things. They're going to request private equity, they might request crypto, they might request options like it's going to take you into some Unboglian areas. But again, Vanguard's past that because remember Bogel got pissed off at every CEO,

especially his successor. I mean there was like twenty five years of him dropping bombs on management from his research office. So he would drop the same bombs on Salim. I don't see anything that different there.

another thing Vanguard needs a lot of help with. Did you look at that at all? Because I know I looked at their Yelp reviews are bad. Bogle Heads forums. They're even these bugle heads they love Bogel They're like, I don't like Vanguard. I was at the Bugleheads convention. I met somebody who's like, I am in low cost Vanguard funds but on Fidelities platform. Yeah, so well, what do you think he's going to do?

That's not something Vanguard has. And it is a kind of a connection that a lot of clients like to have that you know, you can walk into a branch and talk to your advisor. Vanguard doesn't have that, and it's entirely by phone, and unless you have a lot of money, you're basically put into kind of like a bucket of advisors and you kind of call or email and you get like whoever responds. That's not, you know, always the case, but it's not like having one personal connection.

And so I think they kind of have to decide, you know, if they really want to expand greatly into that and if they need to change the business model at all, and then you know, the company does become more and considerably different than what it is today. Comparison is also different. Blackrock is not a you know, people don't have personal individuals don't have personal black Rock accounts.

You're holding Iyeshirt's ad Fidelity or ad a broker unless you're like a foundation or a large institutional investor, and that's you know, these companies, while they do many things that are the same, they also do they also very important differences between like how they sell stuff, who they sell it, the lineup of products, the advisory business. So you know, I think that kind of institutional business is

very much core to Blackrock. It's not as core to Vanguard except on the four oh one k accounts.

want ETF to be contaminated by the crazy stuff. And that's something that Bogel and Vanguard and Salim all would agree on.

has a Fallen Angels bond ETF. Well, Vanguard has the next level up, but they don't go one level down to the niche of just double b's. Maybe there'll be a Vanguard double B. Vanguard has a market neutral mutual fund, maybe they launch something like that, which'd be interesting in an ETF format. The active equity the Vanguard active equity mutual funds have a lot of money, but they're seeing outflows. That's one area of Vanguard is like having problems just

like every other active equity mutual fund manager. But if they came into the ETF world, people are buying active equity ETFs, and they're buying them if they're cheap. So they're already cheap. So if they launched like a Wellington Wins or a variety of their active if it made them available in the ETF format, I think they would sell. But again the question is how much is he going to convince the board we need to sell more versus

we're fine work on this other stuff. But I could see some tiny incremental changes on the product line, but I don't see them say launching you know, a double leveraged high old bond ETF or anything like that. May Yeah, No, they're not going to go. He's not gonna get that just won't happen. Again, this is obviously describing kind of new versions of vanilla basically, Yeah.

very active traders, if not institutional traders. Like sometimes there's a misconception that ETFs are traded mostly by retail and they go in and out ETFs, Blackrock and a bunch of other large firms are become a tool for various sophisticated institutional portfolio managers to go in and out of the market, and like, that's one of the reasons that Blackrock has many more and many more specific funds.

Vu is in the top twenty most traded ETFs consistently, and if Voo starts to get more volume will at some point it's going to start to peel away investors from spy because it is three times cheaper. It's three base points versus nine. So it's interesting if Salim's black rocky in mind, which would be like, we should go after the trading crowd because it's going to help us get more assets from spy. That would be what he thinks as an IVV manager, But will he think that

as a VU manager? That's going to be interesting because you could argue that if you get more volume, the spreads are lower, so the costs will be lower people coming in and out, and the more people in it, the more you could lower the fee based on the mutual fund structure, So you could actually do some mental gymnastics that say, actually trading in our ETFs is good for everybody long term for the mission. You could definitely do that, and I think he did it at Blackrock,

Get will will those connections be made at Vanguard? I'm fine with it. And at some point if an ETF like VU is the most traded and cheapest, I mean look out like these ETFs that trade a lot and their low cost like IVV and VU. It's unbelievable how powerful these things are going to be are in the future.

There's whole ecosystems around them with options and VU alone this year is taken in thirty six billion dollars right the record in a year is like forty five, so it's already like halfway there at fifty maybe, so it's already fourteen billion away from the record. It's unbelievable how powerful some of these, I'd say the top twenty ETFs at Vanguard and I shares are becoming.

mutual funds literally into an ETF? Will they take like I don't know the windsor and just make it an ETF. If you do that, what you do is you push everybody to a brokerage account and the question is where do they push them. The good news for that is it takes some I think, burden off of your customer service desk because remember everybody who was in Vanguard had to go to their website and buy the funds and

now their Vanguard's problem. Whereas if you buy it on Fidelity, they could call Fidelity person and not a Vanguard person even if you own the Vanguard fund, you know what I'm saying. So by pushing the ETF, they they start to help their customer service burden. But at the same time, I just don't see them converting a mutual fund. That just doesn't seem like their culture. But I the only reason, the only way I could see it is if they convince,

if they come up with the idea. Again, little mental gymnastics. The more we get people, our own people into ETFs, the more we disperse their customer service needs.

their clients, the like. It's that kind they're kind of juggling multiple things, like a technology, a sort of you know, all companies wrestle with that, but also at the same time thinking about having even deeper connections with their clients by way of advisory, so they kind of it kind of cuts both ways. I think that's probably mission number one. And you saw Saliam sort of mention it. Approaching his job with the zeal of a convert I think was

some close to the line. And I think that that kind of sentiment is just so central to the company. It's basically in his inbox when he starts right, like, you know, how much does he stray and how much does he stay true? I mean, that's clearly the question.

funk commercial. It's like somebody with a golden retriever on the beach and their kids just graduated college. You know, It's like that kind of boomer thing. And I know they have all the money, But do you think that Selene will help maybe make Vanguard a little edgier or make their message resonate more with younger people, because the boomers are going to transfer the wealth down soon and younger people get more money. It's just the nature of life.

And so I think they have a little problem there in converting that really punk rock message. I mean, I Thinkvogel to me is as you know, we run the Oracle, is punk rock interesting. But it seems like Vanguard's kind of gotten a little less of that and they become a little more smooth boomerash.

is obviously a version of that. It's interesting that a bunch of companies, and not necessarily Vanguard specifically, but a bunch of companies sort of bizarrely like seeing that because if Robinhood was the first stop on a younger investors traders, person's sort of financial journey or whatever that they want to call it, once they kind of get that out of their system, they're sort of like attuned to now doing something with their money, and then the question is

like where else can they put it? And a lot of other companies that are perhaps you know, more staid and boring are not necessarily opposed to some of that sentiment among younger investors because it at least gets people interested, and once they're interested, it's at least an opening that they can entice them their own way.

goal they have. That be My other point is that that's the populism part of the memestocks and crypto that I think there's something not being translated that this is the way to do that. The problem is, I just think this becomes like a faster way to do it and more fun. So when I'm on podcasts with Meme and especially the Memestock people, I'm like, look, just admit this is just the good time with you and your friends.

Just admit that's what it is. Because if your real goal is to make money and sort of like stick it to the man, there's this other way that really does it in a true way, in a scientifically proven way. Your way is the exact opposite. It's really just making like hedge funds that make markets richer and they.

more rough around the edges. But we'll see. I just think they should embrace it, just like if I was Tim Cook, I would totally embrace Steve Jobs and be like, Yeah, this guy found out our company is great, and here's what he said and did and whatever. So I would just keep that in mind. If I was running Vanguard, I would use that as a tool in my toolbox rather than like, oh, you know, that happened a long

time ago, we're this new company. I think they could benefit from really bogolizing their message a little.