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Bloomberg Audio Studios. Podcasts. Radio. News. This is Masters in Business with Barry Ritholtz on Bloomberg Radio. This week on the podcast, I have an extra special guest. The Vanguard Group's Karen Risi, the person who is responsible for so many initiatives, so much growth, so many new products, including...
Thank you.
Really, this is a tour de force conversation. She has just concluded about 28 years at Vanguard and is moving over to HarborVest, 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 HarborVest's Karen Riese.
Thanks for having me, Barry. I'm happy to be here. 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. 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.
Oh, really? Little known fact, yes. So from Villanova, do you go straight into the MBA or do you work and then go back? 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. 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?
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. Go birds. 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. So late 90s, Vanguard had to be a really interesting place. What was it like during that period? 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.
So if you join Vanguard in 97, Jack Brennan is CEO. Is that right? That's exactly right. He's a delightful, serious individual. And I find him, like every other prior CEO of Vanguard, fascinating guy. 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 around.
- Around? - His present on campus, his whole spirit looms large even to today. - And so if my memory serves, it was only a couple years later,
Brennan kicked himself up to chairman and Bill McNabb comes in as CEO. So you worked with some really tremendous corporate leaders. I did. In fact, if you think about the CEOs at Vanguard, I worked, 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.
So you mentioned Jack Bogle. Did you get to spend a lot of time with him? St. Jack is pretty legendary. 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.
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. Yeah, it's that what you just described was my final post at Vanguard. And it was, yeah, kind of like four jobs, but it was one job.
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. And then my final post was.
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 communication so let's let's put some flesh on the bones that when I hear corporate communications I think investor relations public relations just and and for its kinda interesting for most a vanguard history
not a very aggressively public firm, kind of a low-key firm. Not that 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 their hair on fire, just very quietly, at least from my observation. Tell me if I'm wrong. No, I think that's a fair characterization. Jack Bogle certainly was out in the industry and vocal. But I
At the firm level, you're right. We didn't do a lot of advertising. 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 fair. The corporate communications function at Vanguard today is
Product development. That's such an ambiguous phrase. Tell us what product development means specifically at Vanguard.
Of course, for Vanguard, it means investment product development. So I had oversight of our 420 plus, the number is probably even greater now, first mutual funds and increasingly ETFs. And we do, as you know, all of our passively managed products are managed in-house.
by our investment management group, but our actively managed funds, our 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 built the relationships with each of those external advisors, firms like Wellington, PrimeCap, et cetera. And a lot of people don't realize because...
Vanguard and BlackRock are synonymous with broad indexing, but am I getting the numbers right? About 25% on the equity side is active, or is it even higher than that? It's about probably just shy of a trillion dollars in active equity. That's real money. Yeah, it's real money. How many sub-advisors are you working with, and what is that process like?
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-20s. 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.
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. 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 Ginnie Mae, 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. He's great. Yes, he is. He and his team have 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. 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, but
Whereas it's so much harder to do that on the equity side. I think that's fair. And I think Sarah Devereaux, 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. You
You mentioned that Vanguard is headquartered in Melbourne, 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? 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 find
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 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. And to be fair, Philadelphia is a great American city. I agree. 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 absolutely on par in terms of...
hey, we have this great city right here. I would agree with you, Barry. And I think 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. Really interesting. You know, ETF volumes tend to go up in a crisis situation. You know, when the going gets tough, they get going. Why? Because they are a source of liquidity when other things are not that liquid, which is exactly why the SEC sort of sketched the ETF design out back in 1988 after the Black Monday. Hear more about the evolution of ETFs and their growing influence on portfolios.
Tune in to P. Jim's The Outthinking Investor wherever you listen. Time is precious and so are our pets. So time with our pets is extra precious. That's why we started Dutch. Dutch provides 24-7 access to licensed vets with unlimited virtual visits and follow-ups for up to five pets. You can message a vet at any time and schedule a video visit the same day. Our vets can even prescribe medication for many ailments and shipping is always free.
With Dutch, you'll get more time with your pets and year-round peace of mind when it comes to their vet care. So I mentioned Vanguard is about to celebrate its 50th anniversary by the time this airs. It's already have happened. That's right. That's a 1974 was when it was launched. That's an amazing run 50 years. What does that mean to affirm the size of Vanguard?
Oh, I think it's an important milestone, but it is a reflection of everything that Vanguard has been over the last 50 years. I think our culture, our mission, our purpose has been incredibly consistent from the top down, modeled by every leader. You mentioned the CEOs of Vanguard that you have already had the pleasure of talking to. Got to get the new guy in here. Yeah, you got to get the new guy in. But there is just a remarkable consistency
across what we try to do for clients and how our leaders express that and how our crew feel that and reflect that to our clients when they serve them every day. 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? Very similar to what you just described and very consistent with how Vanguard approaches crisis, really. I mean, 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...
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.
And I think it had a very big calming effect on the crew. 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 ten years ago. I think we could ballpark it closer to two trillion dollars Tell us about the focus on cost of
and how that's impacted investors and the entire industry. 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
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 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 strategy.
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. And the Vanguard effect, to use Eric's phrase, is real. I mean, we have seen that particularly when we enter new markets outside the U.S.,
You see fee compression immediately when Vanguard shakes everybody's cage. Yes. So it's funny because Eric eventually writes a book, The Boggle Effect. You mentioned cost isn't the first principle. Right.
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? 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. 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. 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
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 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. And where did you end up shifting after 27 years?
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 HarborVest Partners board next month. So May 1st, you're at HarborVest. Vanguard did a, I want to say, experiment, which they've expanded.
which was working with HarborVest, which, you know, maybe the layperson knows Vanguard, but they don't know HarborVest. They're one of the biggest private equity and private credit shops out there, right? Tell us, what are you doing at HarborVest?
Really excited to join HarborVest 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 HarborVest. I oversaw the team that actually selected HarborVest 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 HarborVest, and now I'm looking forward to working with them in a different capacity. 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? 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 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 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 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 situation,
I think that's pretty fair. I think there's a ton of movement. Sure. 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. 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? 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. So now the hard question.
Vanguard built its reputation on low cost. Alternatives have a reputation of being pricey. So how do you square that circle? 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 a
The key for me, you know, and again, speaking personally, would be I want to know that I'm getting a top quality manager at a fair price. I think, you know, giving a fair price is the obligation that the industry has to investors. And that's the Vanguard culture even spilling over into private. So.
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?
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. Really, really fascinating.
You know, ETF volumes tend to go up in a crisis situation. You know, when the going gets tough, they get going. Why? Because they are a source of liquidity when other things are not that liquid, which is exactly why the SEC sort of sketched the ETF design out back in 1988 after the Black Monday. Hear more about the evolution of ETFs and their growing influence on portfolios. Tune in to P. Jim's The Outthinking Investor wherever you listen.
Time is precious, and so are our pets. So time with our pets is extra precious. That's why we started Dutch. Dutch provides 24-7 access to licensed vets with unlimited virtual visits and follow-ups for up to five pets. You can message a vet at any time and schedule a video visit the same day. Our vets can even prescribe medication for many ailments, and shipping is always free. With Dutch, you'll get more time with your pets and year-round peace of mind when it comes to their vet care.
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? 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 passed it on to multiple of my colleagues since then, we're now well over, I think, 1,000 advisors for sure. Wow.
So it's possible. Luckily, we have other domestic offices, not just Pennsylvania. There's also Charlotte and Arizona and Dallas. So we can attract talent in the CFP ranks from multiple spots. So I have to ask, 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. Yeah, well, definitely not my vision alone. 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 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. Okay. Okay.
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 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 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 had a couple of goes at it before we perfected what I had really the privilege to lead in 2015. 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 and
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 play catch up. And you can add advice to that list. He didn't want to do advice either. Really? Oh, for sure. We had...
thousands of frontline phone associates who were told, do not use the word advice. You know, there was definitely a very clear line between guidance and advice, and we were very careful to step back from the advice line, if you will. So what's the difference between guidance and advice? Well, there is a regulatory difference for sure, and that's what we were homing in on at the time. But
But you have discretion, right? Yes. You're fiduciaries. Yes. 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. Yes. Guidance is gentler. It's it's there is definitely a difference. But, you know, I had in earlier in my career, I led phone groups, you know, hundreds of phone associates and advisors.
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?
- So what do you say? - That was when Vanguard had a small stable of funds and now we have 400 different options. And I think 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 single mutual fund, you know, maybe they started with a money market fund. So totally self-directed. Totally self-directed is really the legacy of the firm. You know, we still have a much greater cadre of self-directed clients than advised clients. The vast majority of assets. Vast majority, vast majority of clients. Although...
I say this as an RIA. I know the RIA side of the industry are big buyers and supporters of Vanguard products. 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 client opens a mutual fund account directly with Vanguard. And then that is essentially what I'm referring to as 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. And when this first rolled out, there was a little rumbling. I think Vanguard managed to thread the needle and say, okay,
we're not offering advice, we're offering guidance and not exactly competing with that channel. Well, we were offering advice, but you're right that 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 Rampula 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 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. 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 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. Well, there are some pretty big 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 fragmented market still. There's definitely a top tier for sure.
All right. But there's 10 firms with 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 don't really they don't really know what trillions are. But why is the industry so fragmented?
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.
The larger firms, 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 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. And there's some crazy number. The average advisor's age is like 66. So there's a whole succession planning thing. Yeah, that's the other thing. You're right. The demographics, lots of RIAs are...
you know, looking to turn over their book and they don't have a strong succession plan. 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? 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 McNabb'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 it's
the importance of encouraging women and helping them develop into leaders at Vanguard. And I use the term leader broadly, so leader of people, but also specialists in portfolio management or legal or 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 highest potential leaders that they could be at the firm in whatever area of expertise they were best suited to. What sort of advice would you give to a young woman aspiring to a leadership role in the world of investing and finance? 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... Men blunder in regardless of their competency. Women are much more circumspect. Pardon me for mansplaining sexism. 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
we are blithe idiots stumbling into things and women seem to be more thoughtful and circumspect. Those are your words, so I'll just say, yes, I find many times men are infinitely comfortable sharing their point of view. Regardless. 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 counselors develop the point of view
take the risk because no one will know you're in the room until you open your mouth. And 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.
So let me throw you a curveball. You served or you are serving as a director on the Vanguard Foundation Board? 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.
And that's a big, that's like 18, $20 billion, something like that. That's a big chunk of money that people are saying, help us distribute this philanthropically. Exactly right. 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? On the, what am I watching? I would say Hacks is... So good. Do you like it? I love it. Not only do we love the show, but we watch it straight...
You know, at the end, there's a little podcast discussion by the showrunners and the creators, and they're just charming, delightful people. Yeah. Yeah. For those that don't know, I think it's worth a... It's very different from anything you see on TV right now. Jean Smart is... Talk about longevity in a career. She's in her 70s. I love seeing that. And it's just a darkly funny mentorship between one character and a much younger character. It's...
It's a good one. Tell us about your mentors who helped shape your career. 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 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 back in the late 90s. And then certainly, I mentioned, I've already talked about Jack Brennan, Bill McNabb, and Tim Buckley, but certainly,
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. Really, really interesting list. Let's talk about books. What are some of your favorites? What are you reading currently? 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
Yes, Bert Malkiel, who was a board member. Yes, long-time board member at Vanguard, but really a required reading on the benefits of passive investing and
And 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 an early educational book, probably in the same era when Genius failed, is a favorite of mine. Roger Lowenstein. 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. For the financial crisis, not but a decade later. Correct. All those lessons were totally ignored.
If anything, maybe it made people too cocky. Don't worry about it. The Fed puts it in effect. Yeah, that's a fair point. What am I reading now? I just finished, and I'm way behind the times because a million colleagues had suggested I read Outlive by Peter Attia. It's been on bestseller lists for multiple years now. Yeah. But-
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. 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, health care, financial sector perspective.
all these different dimensions that we'll need to change to support all these people who will be living to maybe 100 in the future. And not that far away. 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. 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. You're right. I remember when we first started the personal advisor offer and we're
We were creating the advice methodology. We conservatively, you know, our planning horizon was to 100 years. Well, every Monte Carlo's on the ocean, it goes to 100. 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. And they would fight with us. And now it's, you know, it's not inconceivable. That doesn't surprise me at all. Our final two questions are,
What advice would you give to a recent college grad interested in a career in wealth management or personal financial guidance? 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,
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 your finite job description. Lastly, I would say seek to understand the context. 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.
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. 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? 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 that
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 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.
Well, thank you, Karen, for being so generous with your time. We have been speaking with Karen Risi, formerly of the Vanguard Group, now on the board of HarborVest. 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 podcast. 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. 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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