With the arrival of the new year, Vanguard welcomed a new CEO. Tim Buckley succeeds Bill McNabb (who remains chairman) as Vanguard’s chief executive—only the fourth in the company’s 42-year history. Mr. Buckley has spent his entire 26-year career at Vanguard; he has led the company’s information technology function and its individual investor business and, more recently, served as chief investment officer and president.
In this Q&A, Mr. Buckley reflects on his early years at Vanguard and talks about what’s ahead for the company and the asset management industry amid demographic shifts, innovation, and potential regulatory changes.
You’ve spent your whole career at Vanguard. What are some of your earliest memories?
My first job was as an assistant to Vanguard founder Jack Bogle. It was 1991 and I was fresh out of college. I had the opportunity to work with him on his first book—researching, editing, and proofing the manuscript.
It seems archaic now, but we did everything by hand back then. There was no Morningstar software that enabled you to run data queries. I spent grueling hours thumbing through thousands of documents, entering return numbers into Excel, and running regressions to figure out how to predict outperformance.
The results of that analysis are as true today as 26 years ago. Few managers are able to outperform their benchmarks over longer time frames, and the best predictor is cost. The lower the cost, the more likely a brilliant manager might outperform. Intellectual firepower alone wasn’t enough back then, and it isn’t today.
You’ve held a variety of positions at Vanguard. What did you learn from those roles that prepared you for becoming CEO?
From our IT leaders, I learned how to separate hype from reality and truly leverage technology for our investors. The crew in our individual investor division taught me the essential elements of client service and how to create promoters. Finally, our investment professionals demonstrated to me that the low-cost, low-risk Vanguard approach to investing could be scaled across the globe.
Vanguard is approaching $5 trillion in assets under management. How do you plan to manage that growth?
Part of the Vanguard culture is an awareness that cash flow isn’t a goal—it’s an outcome of doing the right thing for our clients. Every dollar that comes into our firm is a vote of confidence from our clients that we’ll continue to do right by them. It’s an awesome and humbling responsibility.
So yes, growth has been tremendous, but overall, Vanguard has done a very good job managing it responsibly. Given our mutual structure, we must ensure that growth benefits our existing clients. Size allows us to fund new services for clients, share economies of scale, et cetera. If growth doesn’t benefit our existing base of clients, we’ll take action as we have in the past by closing funds.
Will Vanguard be able to continue lowering costs? What else does it need to do to remain competitive?
For Vanguard to be successful, our clients must have the best chance of investment success. There are many keys to a client’s achieving that success. Keeping costs low is one of them, so we will continue to drive costs lower. Saving more, sticking to a diversified plan, and being tax-efficient are some of the others. We have made and will continue to make investments in advice, behavioral coaching, and education to ensure that clients follow these best practices.
Where do you see Vanguard’s individual investor business headed over the next decade in terms of changing technologies and services?
When I first entered the asset management business, the majority of clients interacted with their advisors face to face. There might have been some do-it-yourselfers or some decisions that were made over the phone. But for the most part, clients would sit across the table from an advisor and discuss their financial goals.
That’s obviously changed. Those face-to-face meetings can now take place by videoconference. Some investors are comfortable with a retirement plan accessed on their smartphone and generated by an algorithm. In many ways, clients are engaged now more than ever—it’s just that the interactions aren’t happening in a physical office.
But what hasn’t changed is the actual advice. Clients still crave information about how to plan for retirement or other life goals. They’re just getting that advice in a different manner.
Our individual investor business has done an excellent job adapting to this changing environment. We are heavily investing in technology and constantly improving how we interact and communicate with our clients. I think we have a huge opening there to combine our service, products, technology, and culture to improve client experiences. Vanguard Personal Advisor Services® is the latest example of doing just that.
Speaking of investing in technology, we’ve seen a lot of headlines about cybersecurity. How does Vanguard approach this issue?
Cybersecurity is at the top of my list. Safeguarding our clients’ assets and personal information is something we take very seriously, and we know that it’s top of mind for clients, too. Not many financial services companies went into business thinking they would have to defend against hostile foreign intelligence services or organized crime. But that’s essentially what’s happened, and not just in the financial services industry, of course.
The attackers are very serious about what they do, and they’re at it 24 hours a day, seven days a week. They’re sophisticated and well-funded. So is Vanguard. We invest in people and technology to protect client assets and privacy. Protecting our clients’ data is our single largest investment every year. We have a cybersecurity operations center that works 24/7 to investigate and respond to threats, and that uses National Security Agency-level tools.
Finally, let’s talk about your life outside the office. You were board chair of the Children’s Hospital of Philadelphia. Could you talk about that experience, especially in the context of the emphasis we at Vanguard place on giving back to the community?
Children’s Hospital—CHOP—is a phenomenal organization. It is a Philadelphia institution that has been around for more than 150 years. It’s regularly ranked the best children’s hospital in the country. And it is responsible for countless medical breakthroughs.
When you meet the people who are on the front lines of giving hope to terribly sick kids, not only from our area but across the country and around the world—well, it is hard not to be in awe of them. They have a noble mission to give children back their youth. They are a mission-driven organization, just like Vanguard. Similar to the crew at Vanguard, the CHOP doctors and nurses dedicate themselves to making other peoples’ lives better. It was easy to give back at CHOP, and the parallels with Vanguard run deep.
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