Jack Bogle is gone. But head west from Philadelphia, toward the leafy borough of Malvern, Pennsylvania, and turn onto the Vanguard Group campus. There’s old Jack, cast in bronze, surveying his singular creation: Vanguard, the mutual-fund giant that changed everything.
At Vanguard’s headquarters, 117 miles and a world away from Wall Street, Bogle’s figurative heirs are charting new paths for his quirky company, that great popularizer of low-cost index funds.
The changes might seem quintessentially Vanguardian: slow, steady, even a bit boring. But to diehard fans, what’s at stake is the very soul of Vanguard, a colossus that oversaw $8 trillion at the end of February. Only BlackRock Inc. manages more.
Chief Executive Officer Tim Buckley is trying to move beyond parts of the revered founder’s playbook, and rouse the sometimes-sleepy Vanguard.
Courting suspicion from traditionalists, Vanguard is pushing ever deeper into financial advice, known internally as “Engine No. 2” of growth. It’s giving wealthier clients and advisory customers the velvet-rope treatment, in contrast to Bogle’s everyman ethos. With scant notice, it’s quintupled the minimum balance required for one personalized service to $5 million.
“I don’t think Bogle would have done a number of these things,” said John Rekenthaler, vice president of research for Morningstar Inc.
Vanguard’s still gobbling up market share and drew about $300 billion in net flows last year. But some of its greatest strengths—its outsider status, cautious approach and focus on costs—come with drawbacks in a changing industry. Some index-fund enthusiasts known as Bogleheads fret the company has veered off the straight and narrow.
A series of big moves have surprised employees and investors. Last year, Vanguard abruptly retreated from much of its business in China. It also slashed a long-standing medical benefit for retirees, provoking such outcry that Buckley reversed course and apologized.
“The way that they chose to communicate the termination of that benefit and the timing they chose was extremely poorly done,” said Katherine Lowe, who worked at Vanguard for more than two decades, through 2020. “Vanguard usually takes the high road.”
Just this month, three investors filed a class-action lawsuit, saying changes to popular target-date funds saddled thousands of individual customers with “massive” tax bills, all for the benefit of big institutions.
“The ethics came from Jack Bogle, and I’m a little concerned they’re going in different directions,” said Allan Roth, founder of Colorado-based financial planning firm Wealth Logic, and a self-described Boglehead.
And then there’s technology, a critical component of Vanguard’s low-cost model. Management’s obsessive focus on costs, as well as the company’s unusual mutual ownership model, are running up against an industry where spending on technology is ever-increasing.
A series of glitches and customer-service errors have infuriated clients. In December, U.S. customers couldn’t access trade confirmations and monthly statements. And that came after high-profile gaffes in 2018 that saw Buckley—a Vanguard lifer who started as Bogle’s assistant—vowing to spend $1 billion a year to update the firm’s technology.