Influencing Capital Allocation with Karin Risi

Barry speaks with Karin Risi, who spent 27 years at Vanguard, the world’s 2nd largest asset manager. She has reported directly to the past four CEOs of VG. Risi formulated enterprise-level strategy, drove client and revenue growth, oversaw talent development, and influenced capital allocation for the $10 trillion investment firm serving 50 million investors globally. Risi led the firm’s $2.5T AUM Personal Investor business from 2015 to 2020; she also helped to create and drive the firm’s growth in Personal Advisors, a group that currently manages 350 billion in client assets. She has also handled Corporate crisis comms, M&A, and strategic partnerships. See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.

• 0:31Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 1:13Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

• 1:56Speaker 01

  Bloomberg Audio Studios. Podcasts, radio, news.

• 2:04Speaker 02

  This is Masters in Business with Barry Ritholtz on Bloomberg Radio.

• 2:11Barry Ritholtz?

  This week on the podcast, I have an extra special guest, The Vanguard Group's Karen Reesey, the person who is responsible for so many initiatives, so much growth, so many new products, including the Vanguard RIA, the Internal Advisory Service that runs $350 billion. This is a fascinating conversation. If you're at all interested in what it's like to be part of a fast-growing organization that is racking up trillions of dollars in assets, what it's like to create new initiatives, really, this is a tour de force conversation. She has just concluded about 28 years at Vanguard and is moving over to Harbor Vest,

• 2:53Barry Ritholtz?

  which is the outside private equity shop that Vanguard has been working with. I thought this conversation was fascinating, and I think you will also. With no further ado, my conversation with The Vanguard Group and Harbor Vest's Karen Reesey.

• 3:10Speaker 04

  Thanks for having me, Barry. I'm happy to be here.

• 3:13Barry Ritholtz?

  I'm happy to have you. I want to talk about your time at Vanguard, but before I do that, bachelor's in finance, MBA from Villanova, finance always was the career plan? That's what it kind of looks like?

• 3:25Speaker 04

  Yes, I think it looks that way, but I'll say I got more intentional over time, Barry, but no, I initially actually wanted to go to art school.

• 3:34Barry Ritholtz?

  Oh, really?

• 3:35Speaker 04

  Little-known fact, yes.

• 3:36Barry Ritholtz?

  So, from Villanova, do you go straight into the MBA, or do you work and then go back?

• 3:41Speaker 04

  I worked for a few years at Sunoco in Center City, Philadelphia, and then I started my MBA there and then joined Vanguard and finished up my MBA in my first couple of years at Vanguard.

• 3:51Barry Ritholtz?

  Really? So, right from business school, and then the only company you've worked for since school is Vanguard. That's an impressive run. How did you find your way to Vanguard?

• 4:00Speaker 04

  Like so many people at Vanguard, I had a friend that worked there. So, I was a couple of years out of school in investor relations at Sunoco, and then I had a friend who said, you know, if you want to get more into finance and investments... We have an opening at Vanguard. I think you'd really like it. And that truly is how I got into the interview process. I grew up in the area. I grew up in the suburbs of Philadelphia, so I knew Vanguard.

• 4:26Barry Ritholtz?

  Go Birds.

• 4:27Speaker 04

  Yes, but I didn't know really that much about it. And I only had one friend who worked there, but I went for the interview process and joined as an investment analyst in 1997.

• 4:37Barry Ritholtz?

  So, late 90s Vanguard had to be a really interesting place. What was it like during that period?

• 4:43Speaker 04

  It was an interesting place. It was not, not an unknown. Like many of my, you know, retired predecessors are, you know, when they joined Vanguard in the 80s, it was really off the radar. We were starting to gain traction. Indexing was starting to gain traction. The hiring classes were getting bigger. So I joined with, you know, dozens of other people when I joined Vanguard in May of 97. And, you know, we were still, though, this small-ish firm in Malvern, Pennsylvania, Valley Forge, Pennsylvania, very different from Wall Street.

• 5:17Barry Ritholtz?

  So if you joined Vanguard in 97, Jack Brennan is CEO, is that right?

• 5:22Speaker 04

  That's exactly right.

• 5:23Barry Ritholtz?

  He's a delightful, serious individual. And I'm, I, I, I find him, like every other prior CEO of Vanguard, fascinating guy.

• 5:32Speaker 04

  Yes, yes. And you're right, a serious individual, yes. Jack was leading the firm by the time I got there in 97. But of course, Jack Bogle was still sort of

• 5:41Barry Ritholtz?

  Around.

• 5:41Speaker 04

  Present on campus, you know, his whole spirit looms large even to today.

• 5:46Barry Ritholtz?

  Mm-hmm. And so, if my memory serves, it was only a couple of years later Brennan kicked himself up to chairman and Bill McNabb comes in as CEO. So you worked with some really tremendous corporate leaders.

• 6:02Speaker 04

  I did. In fact, if you think about the CEOs at Vanguard, I worked, I, I had a really special opportunity to work directly for Jack Brennan just for one year on a special assignment, working on scalable advice, which will figure later into my career trajectory. And then I worked directly for Bill McNabb, our next CEO. I worked for him in multiple capacities when he was running our institutional business. And then again, I worked for him directly as a member of the senior team when he was CEO. Similarly, Tim Buckley, our last CEO, worked for him in multiple capacities. He ran our retail division and I was working for him at that time. And then I worked for him again when he took the CEO spot.

• 6:42Barry Ritholtz?

  So you mentioned Jack Bogle. Did you get to spend a lot of time with him? He is, St. Jack is pretty legendary.

• 6:48Speaker 04

  He is legendary for sure. Not a lot of time. I never worked directly with Jack. But as I said, you know, I was working on the third floor of the Victory Building, which is where Jack still had his office for a time. And then he moved down to the second floor. So he was very present on campus in my earliest years at Vanguard. But I did not work with him directly.

• 7:08Barry Ritholtz?

  So you were head of strategy, product, marketing, communications. Like, is that one job? Is that four jobs? Tell us a little bit about your progression over 27 years through the leadership ranks at Vanguard.

• 7:20Speaker 04

  Yeah, it's, that, what you just described was my final post at Vanguard. And, and it was, yeah, kind of like four jobs, but it was one, one assignment. Throughout the 27 years, though, I had, as you know, a bunch of different roles at Vanguard. Really strong rotational culture at the firm. So I joined in the corporate division as an investment analyst. Then I moved to corporate strategy. Then I moved and I did probably a five-year stint in a couple of different roles in our institutional division. And then I spent probably a dozen years in our retail division, where, as you mentioned, I ran the, ultimately, I ran the division, but I started in different roles in the division, particularly leading the advisory group before taking over.

• 8:02Speaker 04

  And then my final post before I retired at the end of last year was, as you mentioned, strategy, marketing, global investment product development, oversight of all of our external managers, and then also corporate communications.

• 8:15Barry Ritholtz?

  So let's, let's put some flesh on the bones. When I hear corporate communications, I think investor relations, public relations, just, and, and for, it's kind of interesting, for most of Vanguard's history, not a very aggressively public firm, kind of a low-key firm, not that...

• 8:35Barry Ritholtz?

  Jack was low key, but the firm itself wasn't doing the usual rounds, isn't out there yelling and jumping up and down with a hair on fire, just very quietly, at least from my observation. Tell me if I'm wrong.

• 8:48Speaker 04

  No, I think that's a fair characterization. Jack Bogle certainly was out in the industry and vocal, but at the firm level, you're right. We didn't do a lot of advertising. We, you know, we were quite happy to be in Malvern, Pennsylvania and sort of out of the limelight. That was intentional on our part, especially in the earlier years. I think over time, we've gotten far more comfortable taking a stand and expressing our point of view, but by and large, your characterization is, is fair. The corporate communications function at Vanguard today, you know, has evolved considerably from back in the early days. We now have a crisis communications function, certainly a well-developed and global PR function, as well as all of the standard sort of corporate messaging and, and things that

• 9:33Speaker 04

  you would see on our digital properties.

• 9:35Barry Ritholtz?

  Product development, that's such an ambiguous phrase. Tell us what product development means specifically at Vanguard.

• 9:42Speaker 04

  Of course, for Vanguard, it means investment product development. So I had oversight of our 420-plus, the number's probably even greater now, first mutual funds and increasingly ETFs. And we do, as you know, all of our passively managed products are, are managed in-house by our investment management group, but our actively managed funds, or active equity funds, I should say, we do active fixed in-house, but our active equity funds are sub-advised to a stable of investment advisors and I had purview over that. My teams identified and then oversaw and, and built the relationships with each of those external advisors, firms like Wellington, Prime Cap, et cetera.

• 10:21Barry Ritholtz?

  And, and a lot of people don't realize, because, you know, Vanguard and BlackRock are synonymous with broad indexing.

• 10:29Barry Ritholtz?

  But am I getting the numbers right? About 25% on the equity side is active? Or is it even higher than that?

• 10:36Speaker 04

  It's about probably just shy of a trillion dollars in active equity.

• 10:40Barry Ritholtz?

  Uh huh. That's real money.

• 10:41Speaker 04

  Yeah. Yeah, it's real money.

• 10:42Barry Ritholtz?

  How many sub-advisors are you working with and what is that process like?

• 10:46Speaker 04

  Well, today, I think the number, it fluctuates a bit as we add managers to the stable and part ways with some others. But I think the high watermark was probably in the mid twenties. It's probably down to 22 or 23 now. You have to check with the team, but when I left, I think it was about 22 or 23 different managers. And given the design of the product and the client need we're trying to meet, we look for the best possible active manager to fill that mandate.

• 11:11Barry Ritholtz?

  So I didn't realize until you just said this earlier. All of the active fixed income is in-house, but the active equity is external. What's the difference between the two for our audience? I think I have an idea of the difference in terms of active fixed income has certain attributes that active equity doesn't, but I want to hear it from you.

• 11:35Speaker 04

  Well, and maybe one minor clarification. Vast majority of our active fixed income is managed in-house. Wellington does manage one or two active mandates for us still, legacy mandates like Ginny May, et cetera. But really, the difference being Vanguard chooses to manage funds in-house where we have the talent and expertise to do so. And active fixed income, our bond desk is tremendously deep in talent. Greg Davis, who I know you've had on the show before.

• 12:02Barry Ritholtz?

  He's great.

• 12:03Speaker 04

  Yes, he is. He and his team have, you know, built out our fixed income capabilities over the years. And so we really are in a strong position to offer active fixed income across the range. And I think you'll see Vanguard leaning into our fixed income product lineup even more going forward.

• 12:19Barry Ritholtz?

  At risk of oversimplifying this, it always feels like active fixed income, you can run a screen and screen out riskier product, riskier bonds, lower quality bonds. And that immediately accrues to outperformance for an active bond portfolio. You could develop screens to select certain quality bonds that have certain return characteristics that you like. Am I wrong? And I always feel like I'm making, I'm dumbing it down too much. It feels like you can do more on the fixed income side actively. And generate a return for your effort, whereas it's so much harder to do that on the equity side.

• 13:03Speaker 04

  I think that's fair, and I think Sarah Dever, who runs our fixed income shop at Vanguard now, would agree with you. I think there's a lot of opportunity that the team sees based on what's happening in the environment. And perhaps, I don't know, I'm not in a position to say relative to active equity. I don't know if our active equity managers would agree, but I know that Sarah's team would agree.

• 13:25Barry Ritholtz?

  You mentioned that Vanguard is headquartered in Malvern, that it was a purposeful decision not to locate and headquarters in Boston or New York City. What are the advantages of that? How does that accrue to the culture?

• 13:37Speaker 04

  I do think it plays a big role in our culture, especially over decades. I think it's a big part of, in some ways, the talent we attract. There is a very purposeful decision on the part of most people in our industry to, in many cases, relocate their family to the suburbs of Philadelphia. Many of them are coming from New York or other areas. And you have to really buy into the mission and purpose of Vanguard and its company and its culture to, you know, make a consequential decision like that. And I think it speaks to the ability for our mission and purpose to resonate with top talent in the industry.

• 14:14Barry Ritholtz?

  And to be fair, Philadelphia is a great American city.

• 14:18Speaker 04

  I agree, I agree.

• 14:19Barry Ritholtz?

  Every time I've ever gone to Vanguard, I've always arranged a weekend in Philly. It's always a blast. The food is great, the history is great. It's not like nothing is New York, but I would put Philly and Boston, you know, absolutely on par in terms of, hey, we have this great city right here.

• 14:37Speaker 04

  I would agree with you, Barry. And I think for a, from a Vanguard culture perspective, it also allowed us to really instill in, you know, now 20,000 crew around the globe, but those of us in Malvern for sure. This notion that our culture is really reflection more of Main Street than Wall Street, you kind of hear that around Vanguard every now and then, and it speaks to the clients that we serve and the way we think about product development and all of the rest of it.

• 15:03Barry Ritholtz?

  Really interesting.

• 15:04Speaker 00

  At KKR, we've spent 50 years understanding what matters to our clients and companies. From pioneering private equity to investing across credit, real assets, insurance and sports, KKR has built the experience to navigate complexity, the judgment to recognize opportunity, and the conviction to create lasting value. Because when people and institutions are counting on us, understanding what matters isn't just important, it's everything. KKR, understanding what matters. Visit kkr.com/whatmatters.

• 15:36Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs, and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 16:18Speaker 01

  and hiring practices, but according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at chatgpt.com.

• 16:59Barry Ritholtz?

  So I mentioned Vanguard is about to celebrate its 50th anniversary. By the time this airs, it's already have happened.

• 17:06Speaker 04

  That's right.

• 17:06Barry Ritholtz?

  That's 1974 was when it was launched. That's an amazing run, 50 years. What does that mean to affirm the size of Vanguard?

• 17:16Speaker 04

  Oh, I think it's, you know, an important milestone, but it is a reflection of everything that Vanguard has been over the last 50 years. I think, you know, our, our culture, our mission, our purpose has been incredibly consistent from the top down, you know, modeled by every leader. You mentioned the CEOs of Vanguard that you have already had the pleasure of talking to.

• 17:37Barry Ritholtz?

  Got to get the new guy in here.

• 17:38Speaker 04

  Yeah, you got to get the new guy in. But, you know, there is just a remarkable consistency across what we try to do for clients and, and how our leaders express that and how our crew, you know, feel that and, and reflect that to our clients when they serve them every day.

• 17:53Barry Ritholtz?

  So I'm going to share a Bill McNabb story, which I'm sure you experienced, and I want to just get your reaction to it. He told the story here during the financial crisis. He would occasionally plug into the phone system and listen to advisors speaking to clients. And not only were the clients freaked out, but you could hear people on the phone, they were a little nervous. All hands on deck, phone call, "Hey, listen, we're going to come through this better than ever. Nobody's getting fired, nobody's getting laid off. Take a deep breath, go do your jobs." And suddenly, everybody is just, you know, running on all cylinders. What was your experience during the financial crisis with McNabb at the helm?

• 18:35Speaker 04

  Very similar to what you just described and, and very consistent with how Vanguard approaches crisis, really. I mean, the, the GFC was definitely qualified as a crisis for our firm and the industry and investors. And there was a calmness coming from Bill as the CEO, but also the rest of the leadership team and providing assurance to our crew. And you're right, there was, you know, an explicit assurance that we were going to keep calm and carry on and really importantly, continue investing in our strategic priorities. Where, you know, some firms were immediately pulling back after the GFC. Vanguard had the luxury of, you know, we are...

• 19:17Speaker 04

  Playing a long game and continuing, I recall Bill and the leadership team expressing to our crew at the time, "We're going to continue to invest in our strategic priorities. We're leaning in."

• 19:26Barry Ritholtz?

  Hmm, really?

• 19:27Speaker 04

  And I think it had a very big calming effect on the crew.

• 19:30Barry Ritholtz?

  That's how he told it, and I'm not surprised at your reaction. I mentioned Jack Brennan, Bill McNabb, another rock-steady guy, that's whose hand you want on the tiller. You know this guy isn't going to be rattled by a market sell-off or a crisis. And that's really fascinating. My colleague Eric Belchunis wrote a column called "The Vanguard Effect" way back in 2016. And at the time, he ran the numbers and said Vanguard's low-fee approach has saved investors, either directly or through indirect fee pressure, a trillion dollars. That was almost 10 years ago.

• 20:14Barry Ritholtz?

  I think we could ballpark it closer to $2 trillion. Tell us about the focus on cost and how that's impacted investors and the entire industry.

• 20:25Speaker 04

  Yeah, I'm not going to check your math on that, but I'll buy Eric's and your estimate there on what we've saved investors over time. And I think the focus on cost has been relentless. It's something that is in the fabric of the organization. We counsel our investors and our clients to focus on the things they can control. And, you know, expense ratios, whether it's mutual funds or ETFs, these are things that are within an investor's control, and it helps them keep more of their return. It's part of our whole, you know, portfolio construction methodology when we advise clients. It's one of the factors, not the only factor, and maybe not even the first factor, Barry, but certainly keeping costs low is something that Vanguard feels obligated to do for its now 50-plus million investors around the world.

• 21:08Barry Ritholtz?

  Wow.

• 21:09Speaker 04

  And the Vanguard Effect, to use Eric's, you know, phrase... Is real. I mean, we have seen that particularly when we enter new markets outside the US.

• 21:19Barry Ritholtz?

  You see fee compression immediately when Vanguard shakes everybody's cage.

• 21:24Speaker 04

  Yes.

• 21:24Barry Ritholtz?

  So it's funny because Eric eventually writes the book, The Boggle Effect. You mentioned cost isn't the first principle. I kind of get the sense then of the things that you can control. It's being a long-term investor and being a buy and hold investor. That wasn't popular when Vanguard launched in 1974, was it?

• 21:48Speaker 04

  No, sometimes it's still not even popular today, but we've been pretty clear and steadfast in our view that investors should have a goal. They should be intentional about what they're trying to achieve. Having some balance and diversification, being thoughtful about how you construct a portfolio and perhaps getting the help of an advisor to do that. If an investor would benefit from that. And really having the discipline, to your point, of sticking with it for the long term and understanding what your personal risk tolerance is, your investment time horizon, and really thinking about how you're going to achieve those goals.

• 22:23Barry Ritholtz?

  So I want to ask you a question, and I'm very cognizant of the fact that you are no longer with Vanguard. We'll talk a little bit about where you've went. There has been, in the industry as a whole, but surprisingly at Vanguard also, a move towards some privates, some alternatives. Tell us about this evolution.

• 22:48Speaker 04

  Yeah, I think it's an exciting one, both for the industry but also for Vanguard. As you mentioned, we began offering, in 2020, I think, we began offering a private equity fund to some of our retail investors, those that were qualified for it. It was a first for Vanguard, but I would say the notion of broadening access to different types of investments for mainstream investors is not a first. I mean, it's what we did with mutual funds, it's what we did with ETFs, it's what we endeavor to do with advice. And so private equity is part and parcel really of that advice offer for many of our advised clients. I think you'll see a lot more of that. In fact, there was, subsequent

• 23:29Speaker 04

  to my leaving, there was a recent announcement that there is even another product that there'll be more information on with partnering with Blackstone and Wellington, which is pretty exciting.

• 23:40Barry Ritholtz?

  And where did you end up shifting after 27 years?

• 23:45Speaker 04

  Well, I'm still making the shift, you know, I'm still kind of writing my next chapter, which is really exciting, but I will be joining Harbor Vest Partners Board next month.

• 23:55Barry Ritholtz?

  So May 1st, you're at Harbor Vest. Vanguard did a, I want to say, experiment, which they've expanded, which was working with Harbor Vest, which, you know, maybe the layperson knows Vanguard, but they don't know Harbor Vest. They're one of the biggest private equity and private credit shops out there, right? Tell us, what are you doing at Harbor Vest?

• 24:16Speaker 04

  Really excited to join Harbor Vest in May. I'm going to be joining their board, really getting to know the firm in a different capacity. When I was at Vanguard, of course, in 2020, we partnered with Harbor Vest. I oversaw the team that actually selected Harbor Vest among multiple managers that we considered for our first private equity offer for both retail and OCIO clients at the time. So multiple series or vintages of that fund have progressed, and Vanguard continues to work with Harbor Vest, and now I'm looking forward to working with them in a different capacity.

• 24:47Barry Ritholtz?

  So, so this raises a fascinating question. There has been a giant shift from public to private assets over the past, you know, certainly decade or so. Not everybody can be in the top 10% as the joke goes, but it seems like there's almost a land grab going on. For the retail investor thinking about a traditional 60-40 portfolio, why should they also be thinking about adding a slug of private debt or private equity to their portfolio?

• 25:20Speaker 04

  Yeah, I think it's one of the next things that we as an industry, not just Vanguard, but more broadly, advisors have to help clients with. Retail clients in particular, who are used to, as you said, a conventional 60-40 public portfolio, really thinking about, is first, is there a role for privates in their portfolio construction? And then, if yes, if appropriate, then how they should integrate that into their portfolio? And then, which manager they should do that with? So it is a, you know, a multi-layered decision process, and I think one that advisors can really help with. That's a personal opinion. I think advisors can help clients who maybe know a little bit about private equity, but

• 26:03Speaker 04

  not enough, or have heard about private credit and all of the, you know, press headlines that private credit is getting right now, and really trying to figure out, is this right for me? And in fact, can it generate excess returns well above public markets over time? And is that something I should incorporate into my portfolio? I think that's a, you know, a problem statement that many clients aren't even approaching yet, but perhaps should. Perhaps there is a spot for, and I think if you look at all of, you called it a land grab. I think that's pretty fair. I think there's a ton of movement.

• 26:37Barry Ritholtz?

  Sure.

• 26:38Speaker 04

  Everybody I speak with, and probably those that you speak with too, are talking about democratizing privates. I think it's a trend right now, but I think in general, it's something that should be here to stay.

• 26:49Barry Ritholtz?

  So let me ask you two questions about that. An easy question and a hard question. The easy question is, hey, is this about non-correlated diversified returns? Or is this about generating alpha and outperforming markets, public markets?

• 27:03Speaker 04

  Yeah, I think it can be both. It's a really good distinction. I think it can be both. It depends on your wealth level. It depends on how much of your overall allocation you're going to put into privates, and then what type of private market asset class you're going to be working with. So yes, I think it can be an uncorrelated return opportunity, and also an alpha generation opportunity.

• 27:25Barry Ritholtz?

  So now the hard question. Vanguard built its reputation on low costs. Alternatives have a reputation of being pricey. So how do you square that circle?

• 27:38Speaker 04

  I think it's going to be a matter of you pay different things for different asset classes and private market investing is different than public market investing. So I would imagine that investors should expect to pay more for a private equity offer or private credit offer. The key for me, and again, speaking personally, would be I want to know that I'm getting a top quality manager at a fair price. I think giving a fair price is the obligation that the industry has to investors.

• 28:06Barry Ritholtz?

  And that's the Vanguard culture even spilling over into private. So we've come to know Vanguard not just for passive, not just for indexing, not just for stocks and bonds, but generally a putting clients first, a fiduciary approach to asset management. Is that consistent with some of the criticism we've seen of the alternative space? Or is it simply as much as not all alternatives are created equally?

• 28:36Speaker 04

  Certainly not all alternatives are created equally. I think you could say that for sure. And I think with regard to what Vanguard endeavors to do, it'll be up to the current CEO and his leadership team, but I would suspect that they will stay true to the notion of trying to provide clients with the best possible offers that meet their long-term investing needs. And I do think that there is a place for private assets in that, but that'll be up to the current team to decide.

• 29:04Barry Ritholtz?

  Really, really fascinating.

• 29:08Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs. And hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 29:51Speaker 01

  But according to recruiters, advisors, and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates, quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute, brought to you by ChatGPT. Get started at ChatGPT.com.

• 30:30Barry Ritholtz?

  So I read a crazy stat that in the state of Pennsylvania, if you are a certified financial planner, 93% odds that you work for Vanguard. Can that possibly be correct?

• 30:43Speaker 04

  Again, I'm not going to check your stat, but I think, yes. Having built out the personal advisor offer from the ground up and, you know, passed it on to multiple of my colleagues since then, we're now well over, I think, 1,000 advisors for sure. So it's possible. Luckily, we have other domestic offices, not just Pennsylvania. There's also Charlotte and Arizona and Dallas. So we can, we can attract talent in the CFP ranks from multiple spots.

• 31:12Barry Ritholtz?

  So, so I have to ask, you're, you're working at this giant shop and you say, "I know, let's build an RIA, a registered investment advisory firm that's a fiduciary within a giant asset manager." Tell us about the genesis of this.

• 31:29Speaker 04

  Uh, yeah, well, uh, definitely not my vision alone. There was a, it was a firm-wide kind of push, for sure. We had been, this is going way back. We had been chasing scalable advice for decades at Vanguard. We had an offer, very small relative to, you know, the firm size at the time. It was called Asset Management Services. The minimum was $500,000 to invest. You got a one-on-one dedicated advisor, much the same way you do today. And I think we charged back then, Barry, probably 90 basis points on the first million.

• 32:03Barry Ritholtz?

  Okay.

• 32:04Speaker 04

  Great offer, clients loved it, high NPS scores, but certainly not scalable. You know, we had a few hundred, fewer than 200 advisors really powering that offer. And, you know, fewer than 10,000 clients. So, we knew that we had the ability to offer great advice, using mostly Vanguard product at the core of the advice methodology at the time. And we wanted to scale it, but I credit really Jack Brennan initially for wanting that scalable advice. I, I mentioned at the top of the program that I had a special opportunity to work for Jack, doing research really, kind of pulling together research and helping the senior team

• 32:46Speaker 04

  determine whether they were going to try to do this scalable advice offer. And there were multiple iterations before Personal Advisor. Personal Advisor, which we launched in 2015, that's the offer you just referenced, well over 350 billion now, serving hundreds of thousands of clients. It started with multiple iterations inside of Vanguard. So I think we, we had a couple of goes at it before we perfected what I had the, really the privilege to lead in 2015.

• 33:15Barry Ritholtz?

  Huh, that, that's really fascinating. I know Vanguard has a direct indexing product now. It's kind of fascinating to look at all these different product lines and divisions, because in the early days, Jack Bogle didn't want to do ETFs, didn't want to do international. Hey, we do one thing, we do it really well, and everybody else can, can play catch up.

• 33:38Speaker 04

  And you can add advice to that list. He didn't, he didn't want to do advice either.

• 33:41Barry Ritholtz?

  Really?

• 33:42Speaker 04

  In fact, oh, for sure. We had thousands of frontline phone associates who were told, do not use the word advice. You know, there was a definitely a very clear line between guidance and advice, and we were very careful to step back from the advice line, if you will.

• 33:56Barry Ritholtz?

  So what's the difference between guidance and advice?

• 34:01Speaker 04

  Well, there is a regulatory difference for sure, and that's, that's what we were homing in on at the time, but.

• 34:07Barry Ritholtz?

  But you, you have discretion, right?

• 34:10Speaker 04

  Yes.

• 34:10Barry Ritholtz?

  Your fiduciaries.

• 34:11Speaker 04

  Yes.

• 34:12Barry Ritholtz?

  So, I don't see the difference. Listen, if you're giving your child advice, or you're giving them guidance, maybe guidance is a little gentler.

• 34:21Speaker 04

  Yes, guidance is gentler. It's, it's, there is definitely a difference, but, you know, I had in, in, earlier in my career, I led phone groups, you know, hundreds of phone associates and. We would train them to serve the clients' transactional needs and help them with guidance. But I cannot tell you, in the same way that Bill McNabb would monitor phone calls, I would monitor phone calls when I was leading those groups. And so many clients just wanted to know, which fund should I buy?

• 34:51Barry Ritholtz?

  So what do you say?

• 34:52Speaker 04

  And that was, you know, that was when Vanguard had a small stable of funds. And now we have, you know, 400 different options. And I think it, it also led to the genesis of our personal advisor offer because we realized there was an incredible pent up demand. People who had joined Vanguard, you know, perhaps with a, a single mutual fund, you know, maybe they started with a money market fund.

• 35:12Barry Ritholtz?

  So totally self-directed?

• 35:14Speaker 04

  Totally self-directed is really the legacy of the firm. You know, we still have a, a much greater cadre of, of self-directed clients than advised clients.

• 35:23Barry Ritholtz?

  The vast majority of assets.

• 35:24Speaker 04

  Vast majority, vast majority of clients.

• 35:25Barry Ritholtz?

  Although I say this as an RIA, I know the RIA side of the industry are big buyers and supporters of Vanguard products.

• 35:35Speaker 04

  Oh, for sure. I mean, I would acknowledge that the RIA channel for sure is, it's a totally different division at Vanguard, but it is absolutely critical to our success and growth over time. What we've been talking about is really that direct relationship when a, a client, you know, opens a, a mutual fund account directly with Vanguard and then that is essentially what, what I'm referring to is self-directed. But in the same timeframe, we were growing our financial advisor services division as well, and that is a critical component of what we do today.

• 36:06Barry Ritholtz?

  And, and when this first rolled out, there was a little rumbling. I think Vanguard managed to thread the needle and say, we're not offering advice, we're offering guidance and not exactly competing with that channel.

• 36:19Speaker 04

  Well, we were offering advice, but you're right that, um, you know, there was a little bit of needle threading to do. I think partially we were able to do that well because there was so much internal collaboration across the senior leaders at the firm. First Martha King and then Tom Rampola ran the FAS division at that time. And when Tom took over, I was running the retail division. And there was a lot of discussion around, you know, what we needed to do to both serve RIAs really well through Tom's division and also be a growing and thriving RIA ourselves, serving individual investors with our own advice methodology. And I think there's been

• 36:59Speaker 04

  a lot of collaboration between those divisions over time where we use research and the things that we learn through our investment strategy group or our in-house research, we share that with the RIAs that we serve.

• 37:12Barry Ritholtz?

  So here's a crazy stat I want to throw out at you. So total investable assets of stocks, bonds were not quite 100 trillion, but where it's not that far off in the United States. How is it possible that nobody in the RIA space has market share? You guys are $350 billion. And it's like, eh.

• 37:33Speaker 04

  Well, there are some pretty big and, and very strong independent RIAs and we serve a lot of them. They're clients of Vanguard's. But you're right. It's a, it's a fragmented market still. There's definitely a top tier for sure.

• 37:45Barry Ritholtz?

  All right. But there's 10 firms with

• 37:48Speaker 04

  Yes, you're right.

• 37:49Barry Ritholtz?

  100 billion, 200 billion, and a ton of firms with 20, 40, 60 billion. And it's funny, when I discuss these numbers with family, they think 5 billion is a lot of money. I'm like, oh, no, no, we're peons. They, they don't really, they don't really know what trillions are. But why is the industry so fragmented?

• 38:08Speaker 04

  You know, I don't know what the why is behind that, but I can certainly say, just in the time that I've left Vanguard, all of the conversations I've had around the industry, there is a ton of interest in, and you see it yourself, all of the consolidation that is happening among all of those mid and smaller tier RIAs. You know, the larger firms, the, the top tier are either buying up those RIAs, there's consolidation across the industry, there's a lot of private equity money invested and investing, interested in investing more in the RIA space. There's just a ton of movement in wealth management, which I think is exciting and hopefully is good for investors.

• 38:42Barry Ritholtz?

  And there's some crazy number, the average advisor's age is like 66. So there's a whole succession planning.

• 38:48Speaker 04

  Yeah, that's the other thing. You're right. The demographics, it's, you know, lots of RIAs are You know, looking to turn over their book and they don't have a strong succession plan.

• 38:57Barry Ritholtz?

  Huh, that's really fascinating. So, one of the things you launched at Vanguard, there's so many different initiatives you did, but the Vanguard Women's Initiative for Leadership Success, tell us a little bit about that. What led to this project and what have the results been?

• 39:14Speaker 04

  They call it WILLS internally at Vanguard, and you're right, it's the Women's Initiative for Leadership Success. It was spearheaded under Bill McNapp's leadership, and I mention that because it is so important that, top-down, the CEO made it a priority, and I think that's why it continues to thrive today. I had the honor of being one of the founding leaders of our WILLS initiative more than 15 years ago at this point, but it's still an incredibly important employee resource group within the firm, and it was the first of several. So, we probably have half a dozen or more different employee resource groups now, but the importance of encouraging women and helping them develop into leaders at Vanguard,

• 39:55Speaker 04

  and I use the term leader broadly, so leader of people, but also specialists in portfolio management, or legal, or, you know, data analytics, you name it. So, there's just been a lot of evolution over time, but that consistent drumbeat of helping our women develop into the, you know, highest potential leaders that they could be at the firm, in whatever area of expertise they were best suited to.

• 40:21Barry Ritholtz?

  What sort of advice would you give to a young woman aspiring to a leadership role in the world of investing and finance?

• 40:28Speaker 04

  If I think particularly about the advice and counsel that I have given to many younger women in the organization, I often will say, "Don't be afraid to take a risk. You know, do the work, develop a point of view, have your own point of view and be willing to share it." That's, you know, there's often a confidence gap, it's not an aptitude gap, but...

• 40:48Barry Ritholtz?

  Men blunder in regardless of their competency. Women are much more circumspect. Pardon me for mansplaining sexism, but, but like, my observations have been, man, as a dude, I'm out over my skis, I have no radio training, what am I doing here? And I've noticed, since I've been doing this, that men just seem to be...

• 41:15Barry Ritholtz?

  We are blithe idiots stumbling into things and women seem to be more thoughtful and circumspect.

• 41:21Speaker 04

  Those are your words, so I'll just say, yes, I find many times men are infinitely comfortable sharing their point of view.

• 41:29Barry Ritholtz?

  Regardless.

• 41:30Speaker 04

  Yes, but I think women can often use some encouragement to, you know, one, do the work, develop the point of view, right? That there is work to be done, but once you have a point of view, take a risk and share it and know that it's okay when you are wrong. You will be wrong. I think there's often a fear of the criticism that will, you know, will follow when you express your point of view. And I think a lot of the counsel is develop the point of view, take the risk, because no one will know you're in the room until you open your mouth.

• 42:01Barry Ritholtz?

  Right.

• 42:02Speaker 04

  And, you know, related, but perhaps a little different than that, I would give the advice to women who are looking for expanded leadership opportunities or more responsibility to be explicit in asking for it. And that's also something that you hope you keep your head down and do the work and you get noticed and you get chosen for the special project or the next assignment or the rotation. And often, you know, you're just not top of mind and that's okay. So you have to be more explicit about expressing your interest in taking on more responsibility, expanding, you know, your remit within the organization or getting on some research project. You have to tell people that you're interested in doing more than you've already been asked to do.

• 42:48Barry Ritholtz?

  So let me throw you a curve ball. You served or you are serving as a director on the Vanguard Foundation Board?

• 42:55Speaker 04

  I did serve as a member of the Vanguard Foundation Board when I was at the firm. I also served as a member of the Irish Funds Board. And I also had the opportunity, it's separate from Vanguard, but related, I also served on Vanguard Charitables Board for a number of years. So all of those, you know, through different lenses were opportunities outside of my day to day swim lane or, you know, job, if you will, to give back to either the community with regard to the Vanguard Foundation. Or get involved in our international business through our Irish Funds Distribution, through that board, or in Vanguard Charitable's case, really think about donor-advised funds and learn more about that.

• 43:36Barry Ritholtz?

  And that's a big, that's like 18, 20 billion dollars, something like that? That's a big chunk of money that people are saying, "Help us distribute this philanthropically."

• 43:45Speaker 04

  Exactly right.

• 43:46Barry Ritholtz?

  Huh, quite fascinating. All right, let's jump to our favorite questions, starting with, what are you watching these days or listening to? What's keeping you entertained?

• 43:55Speaker 04

  On the, what am I watching? I would say Hacks is...

• 43:59Barry Ritholtz?

  So good.

• 44:00Speaker 04

  Is, do you like it? I love it.

• 44:02Barry Ritholtz?

  We, not only do we love the show, but we watch it straight, you know, at the end, there's a little podcast discussion.

• 44:09Speaker 04

  Yes.

• 44:10Barry Ritholtz?

  By the showrunners and the creators, and they're just charming, delightful people.

• 44:13Speaker 04

  Yeah, yeah, for those that don't know, I think it's, it's worth, it's very different from anything you see on TV right now. Jean Smart is, you know, talk about longevity in a career, she's in her 70s, I love seeing that. And it's just a darkly funny, you know, mentorship between one character and a much younger character. It's, it's, it's a good one.

• 44:36Barry Ritholtz?

  Tell us about your mentors who helped shape your career.

• 44:40Speaker 04

  Man, too many to count at Vanguard, really just spoiled with lots of great leaders, all of whom were mentors in different ways, particularly in the very early days of my career. People like Jeff Molitor, taking a chance on me, giving me my first job at Vanguard when I was not an obvious choice, really helping me develop a thick skin. He was, he was notorious for giving very straight feedback. Martha King, I mentioned her earlier, just one of my earliest female role models at the firm when there really weren't that many, there still are not enough across the industry, but many more today than, than back in the, you know, late 90s. And then certainly, I mentioned, I've already talked about Jack Brennan, Bill McNabb, and Tim Buckley, but certainly...

• 45:25Speaker 04

  Bill McNabb and Tim Buckley for sure figure prominently in my career as advocates for me over decades. They are still to this day, as I think about writing my next chapter and what I want to do post Vanguard, I still am looking to the mentorship and advocacy of both Bill and Tim. So very grateful for them both.

• 45:44Barry Ritholtz?

  Really, really interesting list. Let's talk about books. What are some of your favorites? What are you reading currently?

• 45:49Speaker 04

  Well, favorites for sure. You can't spend 28 years at Vanguard without the required reading. A Random Walk Down Wall Street, I think, was dropped on my chair, truly within the first month of my joining the firm, one of my...

• 46:01Barry Ritholtz?

  Burton Malkiel?

• 46:02Speaker 04

  Yes, Burton Malkiel, who was a board member, yes. Longtime board member at Vanguard. But really, you know, required reading on passive, the benefits of passive investing. And, you know, when I joined Vanguard, I knew about indexing, but I didn't know it to the depth that I would later. And so that was, was an early educational book, probably in the same era when Genius Failed is a favorite of mine.

• 46:26Barry Ritholtz?

  Roger Lowenstein.

• 46:27Speaker 04

  Yep, Roger Lowenstein and the rise and fall of long-term capital management. Think about when I joined Vanguard in 97, you know, that was all unfolding in the early 2000s. I didn't know anything about hedge funds. I didn't know anything about leverage, really. I mean, it was so far afield from what was happening in Malvern, Pennsylvania, that it was just like a fascinating read and really a cautionary tale that...

• 46:51Barry Ritholtz?

  For the financial crisis, not but a decade later.

• 46:54Speaker 04

  Correct.

• 46:54Barry Ritholtz?

  All those lessons were totally ignored. If anything, maybe it made people too cocky. Don't worry about it. The Fed puts it in fact.

• 47:01Speaker 04

  Yeah, that's a fair point. What am I reading now? I just finished, and I'm like way behind the times because a million colleagues had suggested I read Outlive by Peter Attia. You know, it's been on bestseller list for multiple years now.

• 47:16Barry Ritholtz?

  Years, yeah.

• 47:17Speaker 04

  Yeah. But fascinating to think about the longevity and the notion of health span versus lifespan, looking inwardly for each person. I have some work to do to live to 100, but I'm game for it. And the book on my shelf next is related to that, and it's called The Longevity Principle. And that takes sort of a broader view of how society will need to change to support from an infrastructure, healthcare, financial sector.

• 47:44Speaker 04

  All these different dimensions that will need to change to support all these people who will be living to maybe 100 in the future and not that far away.

• 47:52Barry Ritholtz?

  And the conversation, the way the math works, if you make it into your 60s without dropping dead of a heart attack or whatever, the odds of hitting mid 80s or beyond go up dramatically.

• 48:04Speaker 04

  Yes.

• 48:05Barry Ritholtz?

  And so suddenly, the question is, hey, have I saved enough money if I'm going to be around to 85, 90? It's a genuine planning issue for anybody thinking about their financial future.

• 48:16Speaker 04

  You're right. I remember when we first started the personal advisor offer and we were creating the advice methodology, we conservatively, you know, our planning horizon was to 100 years.

• 48:25Barry Ritholtz?

  Well, every Monte Carlo simulation, it goes to 100.

• 48:28Speaker 04

  Yes, and I cannot tell you how many clients at the time said, that's insane, I'm going to drop dead at 70 or 80 or whatever.

• 48:34Barry Ritholtz?

  Hey.

• 48:34Speaker 04

  And they would fight with us. And now it's, you know, it's not inconceivable.

• 48:38Barry Ritholtz?

  That doesn't surprise me at all. Our final two questions. What advice would you give to a recent college grad interested in the career in wealth management or personal financial guidance?

• 48:51Speaker 04

  I would say for sure, pay attention to the company and the mission and purpose of that company. Be proud of the company you work for. Worry about that more than the job or the starting salary. Think hard about the company that you want to connect yourself with. I mean, it's unlikely that many college grads are going to have a 28-year run at a company like I just did, but even if you're only going to be there for a shorter stint, you know, think about the company ahead of the actual job you're going to do, because my next piece of advice is do more than is asked. Think about how you can contribute outside of, you know, your finite job description. Lastly, I would say, seek to understand the context.

• 49:35Speaker 04

  When you join a company and you're right out of college and you're eager to make a mark, I think it's really important to understand what came before you. You know, take the time to invest in relationships with your peers and understand the context of what's going on at the firm and the history behind it before you charge into whatever you're going to do.

• 49:54Barry Ritholtz?

  And our final question, what do you know about the world of wealth management and investing today that would have been useful in 1997 when you were first getting your feet wet?

• 50:04Speaker 04

  Yeah, well, again, here, I feel like a bit of a ringer because not many 23-year-olds have the benefit of people like Jack Brennan or Bill McNabb, et cetera, telling them explicitly. I remember sitting in the office with Jack Brennan, and he said, "All you need to do is live below your means." And it was something that Jack Bogle used to say all the time, and it was instilled in you the minute you got into Vanguard, along with things like invest in the 401K and take advantage of the company match and build up an emergency fund. And all these things that are the basic tenets of financial planning, but when you're in your early 20s, you know, you don't necessarily focus on. These are things that I actually, 28 years later, have benefited from because the magic

• 50:49Speaker 04

  of compounding was a very real thing that I was able to take advantage of before, perhaps, many of my peers who were working at different companies where that wasn't such a strong focus, but at Vanguard, such a strong focus.

• 51:02Barry Ritholtz?

  Well, thank you, Karen, for being so generous with your time. We have been speaking with Karen Reesey, formerly of the Vanguard Group, now on the board of Harbor Vest. If you enjoy this conversation, well, be sure and check out any of the 550 we've done. You can find those at iTunes, Spotify, YouTube, Bloomberg, wherever you find your favorite podcasts. And be sure and check out my new book, How Not to Invest: The Ideas, Numbers, and Behaviors That Destroy Wealth and How to Avoid Them. How Not to Invest at your favorite bookstore today. I would be remiss if I did not thank the crack staff that helps put these conversations together each week.

• 51:46Barry Ritholtz?

  John Wasserman is my audio engineer, Anna Luke is my producer, Sean Russo is my researcher. I'm Barry Ritholtz. You've been listening to Masters in Business on Bloomberg Radio.

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