Jack Bogle stays true to form. As a champion of low-cost, no-load funds with minimal costs and expenses, his office at Vanguard Investment headquarters, on America’s east coast, fits the bill: a low budget fit-out, devoid of ostentation or any frills and with no discernible view. The shipping-themed room is littered with stacks of papers, covering the desk, furniture and even part of the floor.
Always full of opinion, Vanguard’s sometimes controversial and somewhat humble founder remains unbending when it comes to his stance on commissions. More than 30 years after founding Vanguard, Bogle still sees no role for commissions in financial services and can’t understand how any industry, which pays to sell something, can be called a profession.
With funds of USD $1.1 trillion under management, Vanguard is one of the top five managers in the world, although just $100 billion emanates from outside the US. Vanguard’s robust presence inside the US has largely been achieved through mum and dad’s direct investing on the strength of Vanguard’s low cost promise and high profile, high performing funds. Facing an ageing population which had grown in wealth and education, Bogle feels that Vanguard has been well-positioned for success.
Bogle credits Vanguard’s success to good business practices and the mutual’s moral position, including reduced costs and not paying advisors. “We are the mutual that is really a mutual,” Bogle said. “Most are just profit making machines for advisers.” Bogle said that asset managers are more concerned with making returns on their own capital than that of their investors. In fact, in a recent book Bogle quoted a Harvard study which demonstrated that, over the long term, investors were two percent better off not using financial advisers at all.
Vanguard Down Under
Australia has been the most successful of Vanguard’s offshore groups. Jim Gately, the former managing director of international, credits this success to a number of factors, including the leadership of Australia’s managing director Jeremy Duffield and CIO Eric Smith; the freedom and flexibility allowed in setting up the Aussie operation; entering the market just before superannuation became compulsory and being the first major player to introduce indexing and offering separate accounts for institutional mandates. Growth in retail efforts are, however, viewed as thwarted by Vanguard’s refusal to pay adviser commissions.
But Bogle, and Vanguard, remain firm to the mutual’s core principles. Vanguard’s consistent approach to value and brand continues to lead to top marks in integrity surveys and is the key to the organisation’s success in the face of being at war against paying commissions for distribution. “Artistic success is investors winning; commercial success is the firm winning,” Bogle said. “They should be linked. In our case they are.” And, most importantly, Bogle stands by his mantra: Cost is everything over time.
When asked about philanthropy, Bogle remained forthright, “it is important, but not really to be admired unless sacrifice is made,” he said. “That Gates or Buffet is giving away billions is having no effect on their life.”
When asked if he sees any other ‘Bogles’ in the industry, Bogle said “no”. “No mutual funds needs, or wants, a Jack Bogle. But the investor needs a Jack Bogle.”
John C. Bogle, 77, founded the Vanguard Group in 1974, serving as CEO and chairman before retiring in 1999. He currently serves as president of Vanguard’s Bogle Financial Markets Research Center. Vanguard 500 Index Fund, the largest fund in the group and the first index mutual fund, was founded by Bogle in 1975. Vanguard is headquartered in Malvern, Pennsylvania, US, and manages over $1.1 trillion (US) of assets for more than 22 million people, including more than 120 mutual funds.
Bogle made a short visit to Australia many years ago and loved it. “It’s like America without warts,” he said.