The Vanguard Group, as envisioned and implemented by John C. Bogle “back in the day” was among the very best things that ever happened to the investing public. As I have written previously, Bogle should be honored for his selfless vision and the incredible generosity it bestowed. Billions of dollars that might have flowed into the Bogle family coffers went, instead, into the accounts of middle class folks. From there, those dollars purchased homes, paid for college, funded retirements, and ensured more dignified lives in old age.
Alas, nothing and nobody lasts forever. Jack Bogle grew old and was rather rudely shown the door . The Vanguard that he built grew bigger and bigger. It also grew lucrative for some of the people running it. Its management continues to vigorously advertise and solicit new funds. Clearly, it is now interested in becoming even more of a behemoth. The ethos that it exists to serve seems to have gone the way of all things.
To make matters worse, it has succumbed to the fate of so many things in our society that grow too big. Like the government, the military, the Phone Company, or Microsoft, Vanguard has become bureaucratic, unmanageable, and almost hellish to deal with. It is now stocked with “advisors” who don’t understand what they are talking about, divisions that have trouble communicating with each other, and customer service that does not serve. And, for the first time, one gets the feeling when dealing with them that “somebody is getting rich off this.”
Vanguard’s unique structure, which was among Bogle’s greatest insights, makes the company very hard to get to the bottom of. The funds own the company and the shareholders own the funds. A brilliant method for holding costs at rock bottom and cutting out the huge chunk that gets siphoned off as “profit” almost everywhere else. Alas, though, this structure also leaves management accountable to almost no one. Vanguard touts that it’s investors are “owners.” I always challenge that by asking those “owners” how much the CEO is compensated. When they reply that they do not know and cannot know, I gently suggest that maybe they really aren’t owners after all.
If Vanguard is no longer “the house that Jack built,” what is an investor to do? Where should people turn if they can no longer put up with the bureaucratic mess that has recently emerged? It is a question I have spent long hours pondering in recent months. I’m not sure I have a good answer for you.
Jack. Bogle’s incredible achievement is not a secret, though. The story of Vanguard’s founding and early years is historically available and well laid out. When he did it, the enterprise represented genius. How he did it, though, is now public information. Today anyone could follow his roadmap and build a “not-for-profit” company, using one of several possible structures, to replicate what Vanguard was in its earlier days.
Why doesn’t somebody build a “new Vanguard”? One possibility is that following Bogle’s path ensures that you cannot become “fabulously wealthy.” The head of this enterprise will never be a billionaire. Perhaps there is just not enough incentive to do what Jack did. Those with the financial and managerial skill to pull it off are simply too greedy. Surely we must reject this explanation. Bogle made plenty of money and has lived a financially secure life. While he didn’t make a fraction of what the Johnson family took out of Fidelity, he too is well up there in the One Percent. There would be great potential in following his footsteps.
Maybe there is too much fear of competing with the current Vanguard. It is true that Vanguard has now become a fiercely competitive company and is not shy about showing its claws. On the other hand, a not-for-profit financial firm that remembered who it was truly serving would build fierce customer loyalty very quickly. The American people thirst for guidance they can trust and companies who throttle their own greed. Such a firm would probably prove quite successful.
Are the young not-for-profit financial entrepreneurs scared off by too much competition in the financial services industry? It is surely true that we, as a society, are neck deep in companies all too willing to lay their corporate hands on our money. What I have called the “greater banking sector” is probably the most competitive part of the national economy. Excessive compensation tends to draw a great deal of competition. But a not-for-profit financial guidance firm would have a huge competitive advantage. People would trust it because it would be run in a way totally worthy of trust. That was Jack Bogle’s “secret sauce” and it would surely work again.
What the world needs now is a new, smaller, client owned and truly client centered Vanguard. Like the one Jack Bogle built some forty years ago. All that we lack, so far, is some skilled, idealistic and, I would argue, patriotic folks to make it happen.