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Outstanding Stewardship: The Vanguard Group

Jeffrey Ptak, CFA

Jeff Ptak: From the 31st annual Morningstar Investment Conference in Chicago, Illinois, I'm Jeff Ptak, global director of manager research for Morningstar Research Services. I'm very pleased to be joined today by Tim Buckley. Tim is Vanguard's chairman and CEO. He's here at the Morningstar Investment Conference to collect Vanguard's award as Exemplary Steward as part of Morningstar's Annual Investment Excellence Awards. 

Tim, congratulations on receiving the award. Maybe you can talk to start out about what stewardship has meant, investor-centricity has meant, to Vanguard as an organization since it got its start and then more recently as you've grown into a larger firm.

Tim Buckley: Jeff, thank you for the award. It is investor-centricity. I mean, it's the core of Vanguard, and we were started by Jack Bogle, he founded the firm as a firm that would be owned by its clients. So a lot of people don't know this, but if you invest in the Vanguard Funds, well the funds own Vanguard. When you're an investor in our funds, you actually own Vanguard. You're my boss, per se. And that makes it easy for us to always put their interests first because we don't serve an outside family. We don't serve public shareholders, we only serve our clients. I've been around Vanguard since 1991, and that tone has not changed. It was that way at $63 billion. It's that way at $5.4 trillion. We only have one group to serve, our clients.

Ptak: And we applaud you on that focus. One of the things that has changed a bit, is sort of the way you would define "client." I think maybe if we talk 10, 20 years ago about "client," we're typically talking about an investor in one of the Vanguard mutual funds. You now have a more varied set of businesses. Granted, they're still investor- and outcome-focused, but you might be managing wealth for a client with an advisory component. Can you talk about how you as CEO and your leadership team try to balance off some of the pressures that might attend to that, not only being focused on the fund investor, but the other types of clients that you have?

Buckley: Sure. I mean, our mission is the same regardless of whether we're serving clients directly or we're working with advisors and helping them serve their clients. So we're going through a 401(k) plan. At the end of the day, we're trying to help people retire better, help them put their kids through college. You want to take a stand for all investors, right? Give them the best chance of investment success. That's what we're trying to do. 

And so a few years back we realized, hey, we can actually do that, not just directly by ourselves, but there are like-minded advisors out there. They're trying to do that each and every day. They're trying to actually help their clients retire better. So why not work with them? Why not provide them with the mutual funds, the ETFs that will enable them to do that? And we've done it with thought leadership for them. We've done it more and more with other services. So whether you come to us directly or whether you come through a like-minded adviser, we see our mission to serve you as as the same.

Ptak: Vanguard is enjoying great success. One of my questions, though, is is it enough to be a fund company at scale? I mean clearly you're taking share from the rest of the industry, but you have competitors that may be leading with other lines of business or giving away things for free. So what's the future of a scaled fund company, a company that's purely focused on funds? Do they continue to have a vibrant future in this industry?

Buckley: Well, I'll give you a two-sided answer to this. One: At $5.4 trillion, there is incredible scale there for the funds. And funds--no one's come up with a better vehicle for investing than the fund. That said, you can't take that for granted. A fund has professional management, it's got scale, it's got low costs, it's got liquidity, all of these great things wrapped into it and makes it so defensible. But how many times have you heard that throughout the life of businesses, where--hey, you know what, film is a great business. It was until the digital camera came along. So we don't want to end up in that situation. So we're always looking, is there a better solution out there? That's one half. So that's the two sides I would talk about. The fund is a great business, but don't take it for granted that it will always be the perfect answer.

Define yourself by why you do something. We're there for investors that have the best chance of investment success, and right now funds are the best vehicle for that. Down the road might be something different. And increasingly we are looking toward advice as well, as another way to help investors.

Ptak: If we did a little bit of visioning, just imagine we're trying to gaze into our crystal ball, Vanguard 10 years into the future, and observing the differences between that Vanguard and the Vanguard that exists today, what do you anticipate would be the biggest differences that we would notice as observers?

Buckley: Well, Jeff, you promise not to play this back to me in 10 years? But if we look 10 years out, it's really tough to predict. Who would have predicted ETFs would be as large as they are today? But we look out there, you'll see that there's two ways that you help a person: A person's success depends on the funds they use and the advice they get.

We've been able to help revolutionize the fund industry, bring down costs, make it more client-focused. The advice industry is going through a similar revolution. It's one where technology now is making it really easy to set up a portfolio, to get the right asset allocation, find the low-cost funds, rebalance, and do it in a tax-efficient way. So technology is allowing us to bring down the costs of delivering advice. And so we hope those savings will be passed on to clients so they can keep more of their return--not just from the funds, but from advice. And we hope it frees up advisors to do more value-added things for clients.

Ptak: Sure.

Buckley: I think through solutions for their kids and what they want to do in their retirement.