Transcript: Tom Rampulla

Transcript: Tom Rampulla 1

 

 

 

The transcript from this week’s, MiB: Tom Rampulla, Vanguard’s Financial Advisor Services Director, is below.

You can stream and download our full conversation, including the podcast extras on iTunes, Spotify, Stitcher, Google, YouTube, Bloomberg, and Acast. All of our earlier podcasts on your favorite pod hosts can be found here.

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

BARRY RITHOLTZ, HOST, MASTERS IN BUSINESS: This week on the podcast, I have an extra special guest, Tom Rampulla has been with the Vanguard Group since 1988. He has worked with every CEO, starting with Jack Bogle, all the way up to the current CEO Tim Buckley, and has essentially helped to establish the Financial Advisors Group, essentially the group at Vanguard that works with RIAs and broker dealers and other financial professionals who provide portfolios, advice, financial plans to the investing public.

He has a unique perch from with which to view the financial services industry, both from within Vanguard as well as looking out over the financial landscape and seeing what’s going on with such trends as mutual funds, ETFs, direct indexing, the rise of passive, the rise not just of Vanguard, but the dominance of Vanguard, and the associated Vanguard effect, the pressure on fees that have helped make investing so affordable. We discussed all these things as well as why there has never been a better time to be a retail investor than right now, right here in this era. I found the conversation to be absolutely fascinating, and I think you will also.

So with no further ado, my conversation with the Vanguard Group’s Tom Rampulla.

I’m Barry Ritholtz. You’re listening to Masters in Business on Bloomberg Radio. My special guest this week is Tom Rampulla. He is the managing director of Vanguard’s Financial Advisor Services Division, where he began back in 2002. That group provides investment services, education and research to more than a thousand financial advisory firms, representing more than $3 trillion in assets. Tom joined Vanguard back in 1988. Tom Rampulla, welcome to Bloomberg.

THOMAS RAMPULLA, MANAGING DIRECTOR, FINANCIAL ADVISOR SERVICES DIVISION, VANGUARD: Thanks, Barry. It’s great to be here.

RITHOLTZ: Yeah, it’s good to have you. So I’ve worked my way through just about the whole C-suite at Vanguard, and I’m glad we finally got to you. Tell us a little about your plans coming out of college. How did you end up at Vanguard?

RAMPULLA: Yeah. I believe it or not, Barry, I wanted to go to Wall Street coming out of school and came up to New York. And Wall Street didn’t work out for a variety of reasons, but I ended up working sort of an adjacent industry in the portfolio management software business, and really wasn’t where my passion was. So I decided to make the move from New York to Philadelphia, and I had a friend that worked at Vanguard. I honestly knew nothing about Vanguard. In fact, I was at a Philadelphia Career Fair when I first graduated and there was a Vanguard table there and somebody said, “Do you want to go interview at Vanguard?” I looked and I was like, “Oh, no, I don’t think so. And I said, “What do they do? I think that’s a supermarket or something.” That’s how clueless I was.

But it was really lucky, I had this friend who started at Vanguard in March of 1988, quickly realized it was a pretty special place. You know, it’s a place where it’s really incredibly mission-driven. It’s got such a sense of purpose. We’re owned by our clients. All these things that actually took me a while to realize working there. But, yeah, it was a little bit of a by chance, I wasn’t really looking for Vanguard, but somehow I found it and got really, really lucky.

RITHOLTZ: So going back to Philadelphia is not a big change to you. You went to where then?

RAMPULLA: I went to Bloomsburg University, which is a midsized school in Central Pennsylvania.

RITHOLTZ: And then it’s Drexel which is right in the middle of Philly.

RAMPULLA: I went to Drexel part time while I was at Vanguard, did that commute down to Philadelphia from the suburbs, you know, three times a week for a number of years.

RITHOLTZ: Which isn’t too bad if you go in the opposite direction to traffic, right?

RAMPULLA: I don’t know about that.

RITHOLTZ: Not a lot of great mass transit from Malvern to Philadelphia.

RAMPULLA: Not from Malvern to Philly. Actually, you can take the train. But at that time, it was a long time ago, I think I graduated ’93, it was more convenient to drive.

RITHOLTZ: So you mentioned Vanguard was a special place when you joined it. It’s clearly a different place today than it was in the ‘80s and ‘90s.

RAMPULLA: Yeah.

RITHOLTZ: Tell us a little bit about what it was like working there, you know, pretty much before Vanguard became the behemoth we know it as today.

RAMPULLA: Yeah. It was a startup. It felt like a startup. I mean, it wasn’t quite a startup. We probably had 700 employees at that time, but only about $30 billion in assets under management.

RITHOLTZ: Right.

RAMPULLA: And we were trying to figure things out and grow. Nobody really cared about indexing and if they did care about it, it’s usually pretty negative thoughts about indexing. You know, we were called Unamerican and white.

RITHOLTZ: You’re communist.

RAMPULLA: Yeah, that’s right. We were communist, why settle for average, all those things. But, you know, Jack Bogle was at the helm when I started. I was fortunate to work with him for about eight years. And you know, he was so passionate about our mission. You know, we have partnership picnic every summer. He would get up and speak, and it would fire you up for the rest of the year. The guy was incredibly inspirational. And you really felt like you were taking on the establishment and doing something special. So it was really, really fun startup, very collaborative, felt like a family. And you know, it took a while to start growing, to be honest with you. I mean, we really didn’t start growing probably mid ‘90s, you know, started to get a little bit of attention then.

RITHOLTZ: Now in the ‘90s, everybody was growing. Stocks were going higher.

RAMPULLA: That’s right.

RITHOLTZ: You’re in the middle of a 18-year or so giant 1,000% bull market. What was Vanguard doing in the mid ‘90s that finally began to gain traction? Was it the underlying philosophy started to find some adherence, or was it just the rising tide lifted all boats?

RAMPULLA: I think a couple things, Barry. First of all, we had some real zealots. You know, the Bogle heads it today, which you’re probably familiar with.

RITHOLTZ: Sure.

RAMPULLA: They stumbled on to Vanguard. We didn’t do advertising. We didn’t sell. Actually, Jack Bogle wouldn’t let us say the word seller, product or advertising. You actually had to put a dollar in a jar near his office if you did. But, you know, we had something special and I think people realize that. People may not even really understood that they own the company, you know, by investing in the funds in the company. But you got this core base of people that really identified with Vanguard, felt like they’re part of the club and great word of mouth. So that was helpful.

We had some great performance from some of our active funds early days, Windsor fund, John Neff superstar fund manager that helped, you know, really talking about indexing. Jack taking that on, taking the industry on. People started to get disappointed in performance. You had star managers in the early ‘90s that sort of the shine came off the star a little bit. So indexing had a little bit more of appeal cost. You know, when you really hammer home to what you can control as an investor costs, it finally started to catch on with people like, “Hey, I can get low cost through indexing and get the market return,” which by the way, over time, is pretty darn good returns.

RITHOLTZ: Yeah, absolutely. And around the same time, you started to see the rise of some academics saying; A, the market is efficient, very few, if anybody can beat it.

RAMPULLA: That’s right.

RITHOLTZ: And those who can, you don’t know its persistence, if it was locked, if it was, whatever. And there was a lot of academic defense of the idea of the advantages passive?

RAMPULLA: That’s right. Yeah. I mean, (Brandon Boekel).

RITHOLTZ: Sure. (Brandon) walked down Wall Street.

RAMPULLA: That’s right. (Brandon) walked down Wall Street. He was a Vanguard board member for many years.

RITHOLTZ: Charlie Ellis, another one.

RAMPULLA: Charlie Ellis, another one, you know, The Loser’s Game, his book there. So there was a lot of academic research around it, and it started to become practical. People start to really see it and feel it, and that started to give us a little bit of wind in our sails.

RITHOLTZ: So back in the late ‘80s, even in the early ‘90s, when you start to attract more capital, did you ever imagine, hey, in 20 years, 25 years, we’ll be you know, 6, 7, $8 trillion?

RAMPULLA: No, not at all. It was a tough call really early on. And Jack was adamant about, “Hey, cash flow and market share is an outcome. We have to just do it, focus on doing what’s right for investors. Don’t worry about growth.” You know, he really hammered that home to us. So we didn’t really think big like that. We’re just trying to do the right thing. So, yeah, I’d say absolutely not, had no idea how big we’d be.

RITHOLTZ: When did it become clear that this was going to be a multi-trillion-dollar firm?

RAMPULLA: I’m not sure if there was ever a moment where I said, “Wow, you know, we’re big.” I do think after the global financial crisis, we really started to get momentum. Our funds held up well. We served investor —

RITHOLTZ: Even during the crisis —

RAMPULLA: Yeah, we picked up share.

RITHOLTZ: Everybody saw outflows except Vanguard.

RAMPULLA: That’s right. We picked up share there. And I do think that trusted brand, people start to understand that they own the company. And you know, the benefits of that structure are enormous and many. And so coming out of the financial — into the financial crisis — now, the financial crisis, we really start to take off. I was in London at that time and you could see, wow, things are really starting to happen here.

RITHOLTZ: You mentioned London, you served as head of Vanguard’s U.K. and European operations. Tell us a little bit about that experience

RAMPULLA: It was a fabulous experience. I was coming off helping start our financial advisor business, the business I lead today, did that for about six or seven years. And then Bill McNabb, the CEO at that time asked me if I’d go and start a similar business in the U.K. and run the European operation. So packed up my wife and my four kids and went to London, and it was an unbelievable experience. It felt like the old days at Vanguard. You know, you were coming in —

RITHOLTZ: Starting up.

RAMPULLA: — starting up. I was employee number one in London. We’re taking on high cost funds, active managers, sort of the industry, trying to bring transparency and low costs to the industry. And it was just really fun to build that business. We had a great team there.

RITHOLTZ: Was that always supposed to be a finite amount of time, or did something specific bring you back to the U.S.?

RAMPULLA: No, I was told three years to five years, and I ended up being there seven years and probably would have stayed even longer. but I got the opportunity. Bill McNabb, again, who I know you know, was CEO and asked me if I’d come back and join senior staff, and lead the FAS business, which was a lot bigger than when I left in 2008 and I was thrilled to be able to do that.

RITHOLTZ: That’s fantastic. So let’s talk a little bit about the Advisor Services Division. What exactly does it do, and what sort of clients and customers are you working with?

RAMPULLA: Yeah. Well, first of all, we work with financial advisors of all types in the industry, non-Vanguard financial advisors, so you’ve got broker-dealers, independent registered investment advisors, RIAs and bank wealth advisors. And you know, we have a team that serves those advisors in the home offices of those advisors, talking about Vanguard’s product and educating about product. We also do a lot of education around advice in behavioral finance and coaching, and all these things to help advisors drive great outcomes for their clients.

RITHOLTZ: We’ll talk a little bit about Advisor’s Alpha in a bit.

RAMPULLA: Okay.

RITHOLTZ: But you mentioned broker-dealers, I did not realize they were part of this group because I recall back in the day, they used to charge for shelf space like supermarkets do for cereals. How does Vanguard operate and not advertise, not pay shelf space?

RAMPULLA: Yeah. We still don’t do that. We like the transparency of an explicit fee. But I think the move to fee-based advice in a broker-dealer community really helped drive that. So adviser charges for the advice that they provide to clients and that pays the bills. And so we don’t do the payment for distribution. Now, it’s pretty limited to ETFs with our broker-dealer relationships, not exclusively. So the model around ETFs is a little different. There is that same payment for distribution service, the mutual funds. That’s right, Barry.

RITHOLTZ: Really interesting. And let’s talk a little bit about the research and education that you provide. Is this aimed at the advisor community? Is it aimed at the investor public within your group? Who’s your focus?

RAMPULLA: It’s both. You know, we do the typical stuff, market economic outlooks and research there, product research. But importantly, helping advisors work with their clients, coaching them through tough times like this. So we do have materials and research targeted at the adviser, but we also help them out and target their end client. You know, Vanguard deals with tens of millions of individual investors, and we know how to speak to them very clearly and very candidly and very openly. So we leverage that expertise and we help advisors speak to their clients about, you name it, market, savings, all the things that they’re talking about.

RITHOLTZ: So I think was Fran Kinniry at Vanguard came up with the concept of Advisor’s Alpha. Tell us a little bit about that.

RAMPULLA: Yeah. Advisor’s Alpha, we all know and believe very strongly today that advisors help clients. In fact, that Vanguard, which is a big shift from many years ago, we think most investors would be well served with using a financial advisor. And they bring a lot of value, right? So there’s the, “Hey, I’ll work with you and we’ll develop goals and a plan how to get there.” They’ll construct the portfolio. They’ll do tax planning, right? So the harvest losses to offset future gains. We’ll do estate planning and other complex financial planning.

And so what Fran and his team did, they did research and said, how much Alpha does an advisor add through the services they provide? And you know, it’s hard to pin that down exactly, Barry, but we’ve come up with about 300 basis points or 3 percentage points of alpha working with an advisor. And if you think about that, you know, you pay an advisor 50 basis points, 100 basis points, whatever, they’re providing on average, annually, 3%, so really good value there. And a lot of that comes from, believe it or not, the behavioral coaching,

RITHOLTZ: To say the very least that —

RAMPULLA: Yeah.

RITHOLTZ: – the was a study done not too long ago, that showed when people panic out of the market, something like 30% of them never return back to equities.

RAMPULLA: Yeah.

RITHOLTZ: That leaves a mark when it comes time to — you add in tax loss harvesting, and just helping with having a financial plan. I’m a believer, hey, that that’s my day job.

RAMPULLA: That’s right.

RITHOLTZ: But I’m always curious to hear how you guys came up with that phrase, which is so funny because when I think of Vanguard, I think of beta. I don’t think of alpha, developing a way to obtain alpha seems sort of contrary.

RAMPULLA: That’s right. You can obtain alpha even if you use all beta as underlying investments. The real value is the behavioral coaching, the tax management, again, the more complex value-add around financial planning.

So you mentioned transparency and low fees. Price, obviously, has a big impact on long-term returns. How can Vanguard keep lowering its fees? At what point do you just run out of runway?

RAMPULLA: Yeah. Our fee cuts are not a pricing marketing strategy, Barry. It’s a function of the corporate structure of Vanguard. So we’re really a mutual-mutual fund company. What I mean by that is if you’re an investor in one of our funds, you own a little pro rata piece of Vanguard. And if you think about that from a leadership perspective, a management perspective, you focus on one constituent, you the investor and that’s it. I don’t have to worry about my shareholders on Wall Street. I don’t have to worry about some family or family office that owns me. It’s all about you.

So as we grow, become more efficient, we get scale, we sort of make a profit. And we take that profit, and we do two things with it. One, we invest in the business to better serve you, right, so better digital experience, if you’re a retail investor, more services for advisors. We also take that profit and drive down expense ratios. And really, that’s what we’re all about, delivering value back to those investors in our funds who own the company. And as we grow and grow, that scale helps us drive down the expense ratio.

RITHOLTZ: So when I think of owning a financial, I think of three things. First, I control, I get to vote my shares in a proxy. Second, if there’s a dividend distribution, I capture some of that. And third, if it’s ever sold, I participate in the equity.

RAMPULLA: Right.

RITHOLTZ: When it’s a mutual, those things all kind of roll into one.

RAMPULLA: They do. Yeah, we — I mean, we could pay a dividend, but it’s actually more tax efficient if we lower your fees,

RITHOLTZ: Right. So that’s really — that’s really quite fascinating. We talked about research and education. Let’s talk a little bit about portfolio analytics, financial planning tools. I didn’t know you guys have a healthcare calculator. Tell us about some of the software and other analytical tools you guys have made available.

RAMPULLA: Yeah. So I think one of the unique things about Vanguard is we serve a lot of different markets, right? So we serve financial advisors. We serve retail investors. We actually have an advice business of our own. And through that advice business, we’ve developed a lot of capabilities, whether it’s the thought leadership, Advisor’s Alpha that we talked about before, or some technology capabilities for our advisors to use. And what we’ve done is taken some of those capabilities and deliver them to the FAS clients, the Financial Advisor Services client, to help them drive better outcomes for their clients.

So healthcare cost estimator is a really great example. We partnered with a firm in this space and developed a module to help with health care costs and determining health care costs in retirement. And we offer that module and a lot of materials around it and client materials to advisors to help them talk about healthcare with their clients. It’s typically the largest expense people have. They have trouble getting their head around it. And it’s a really valuable tool, just an example of one of the things we do.

RITHOLTZ: Quite interesting. So one of the other giants in the space is BlackRock. They have a risk management technology. How do you guys think about risk management? What does that mean to advisors who are trying to serve their clients in a somewhat volatile environment?

RAMPULLA: Yeah. We have a really good risk management tool as well. It’s through our portfolio and analytics and consulting service. And you know, you run a portfolio through it, and it will give you all your risk exposures. We can consult with you on “Hey, you might be overexposed here underexposed. Did you know that? Oh, you didn’t. Do you want to do something about it? We can help you with that.” So we provide a similar service to our clients. They deemed it really, really valuable. It’s interesting I get — every day I get net promoter scores from clients and client and this service in particular,

I can’t remember a time when it hasn’t been like a 9 out of 10, or a 10 out of 10. They see it as incredibly valuable. And one thing they cite verbatim all the time is objectivity. You know, hey, it really feels like Vanguard is trying to help me out, not trying to necessarily sell me a product. And so we distributed through that through thousands of advisors, I mean, thousands of those engagements a year.

RITHOLTZ: Quite interesting. So there’s a quote I really love and I want to get your feedback on it, there has never been a better time to be a retail investor than right now. True or False?

RAMPULLA: True.

RITHOLTZ: Why is that? Why is now so great to be able to invest.

RAMPULLA: I’m an optimistic guy, Barry, but seriously, I think if you think about the markets and market structure, you think about this, you can get exposure to the entire stock market in ETF for 2.5 or 3 basis points. That’s pretty powerful.

RITHOLTZ: Pennies, pennies.

RAMPULLA: Think about trading, I’m buying industry —

RITHOLTZ: It’s free.

WOMAN: It’s free, right? Advice, more accessible now than ever. I can decide to do it digitally. I can go hybrid and have digital and an advisor with me, or I can see my adviser down the street and go in person. So there’s so many services there. There’s so many tools for investors, so many tools for advisors to help investors. I think it’s a fabulous time.

RITHOLTZ: Yeah. No, I totally agree. And I wasn’t referring to what’s going on in the market. I just mean generally, and you have a long term perspective. It’s cheap. It’s easy. It’s transparent. You know, you go back to the early days of Jack Bogle and we’ll talk about that a little bit, about how hard it was to simply try and come up with an execution for here’s the whole market or here’s the S&P 500.

RAMPULLA: That’s right.

RITHOLTZ: You couldn’t do that. 30, 40, 50 years ago. It was practically impossible.

RAMPULLA: That’s right. It was tough. The technology wasn’t there. The cost, the frictional costs were high. You know, in trading, it’s really come in favor of retail investors.

RITHOLTZ: Quite interesting.

(COMMERCIAL BREAK)

RITHOLTZ: So when you began at Vanguard back in 1988, Jack Bogle was the CEO, Jack Brennan followed him, Bill McNabb. Now, it’s Tim Buckley. That’s kind of an A-list of CEOs. Tell us about the way the CEOs you work with impact how the firm operates.

RAMPULLA: Yeah, I was fortunate to work with all four CEOs of Vanguard. I worked with Jack Bogle for about eight years before he retired. And you know, Jack was the visionary, the guy that would get really motivated that we’re doing something special. We were small at that time. People that were a little quirky were out in Pennsylvania, you know, far away from Wall Street. But he was such a motivator and instilled this sense of purpose. You know, you’re part of something bigger than yourself, which was really exciting. And you know, Jack, his words, he could give a speech like nobody else, and what he wrote in the press and on interviews, he was just so inspirational. So the perfect guy to get us really going.

And then Jack Brennan took over after Jack Bogle retired, handpicked successor. We started to grow a little bit there, and I think Jack Brennan was the right guy at that time as well. And there’s a common theme here you’ll hear from me about the right guy at the right time, Jack was helping us grow up and mature. So we’re growing like crazy. And you know, we’re financial services firm, so growth is good, but you have to have control on processes and quality. You know, you got to make sure you can handle the volumes, both from an investment perspective, but also importantly, from a processing and client service perspective.

And Jack was great at that, he brought in, you know, the old total quality management programs and centers for excellence, and really matured us as an operator. He retired. And in 2008, Bill McNabb took over. We all know what happened in 2008.

RITHOLTZ: Yeah.

RAMPULLA: But, again, I think Bill was the right guy at the right time. There was such turmoil. And you know Bill, he’s a calm guy and really, you know, harness the power of the team to get us through that tough environment, leaned really hard into leadership development. We had a bunch of really great technical experts. But as you grow and mature, you want to have a strong leadership team and Bill really invested in that and leaned on that, and that’s a big part of his legacy. He also looked outside of the U.S. to grow a little bit more aggressively there, and again, right guy at the right time.

Bill retires, Tim Buckley takes over. Tim is a fabulous CEO. You think about his background in today’s environment.

RITHOLTZ: Very interesting.

RAMPULLA: He was chief information officer, head of all IT at Vanguard, and then chief investment officer. Think about the trends in our industry today, the intersection of investments advice and technology, and Tim got that intersection in his portfolio of experience which is pretty incredible. And he’s a really smart guy, very disciplined, very creative. And I think the way we think about the world now has changed under Tim. I think we’re much more focused on outcomes and driving great outcomes for clients. We’re much more nimble than we ever were, through some new management systems of pushing decision-making down and being more nimble. And it’s been really nice to be a big organization yet pretty responsive.

RITHOLTZ: That’s really quite interesting. You were in London in ’08, ’09, is that right?

RAMPULLA: Yeah.

RITHOLTZ: So there’s a story, I’m curious if you saw or witnessed this from your perch in the U.K. at that time, Bill McNabb tells the story about — I guess it’s just part of regular quality control. They audit customer service reps on the phone with Vanguard investors and there’s a pretty clear freak-out going on as the market melts down in ’08. And this eventually reaches McNabb, or maybe he was listening on one of these calls, and does an all hands-on deck conversation and says, “Listen, we’re growing like a weed. There are going to be no layoffs. We’re hiring. Stop worrying about your jobs and serve the client and make everybody comfortable.” What was your view of that from across the pond?

RAMPULLA: Yeah. I think, look, we ask our employees to be loyal to us and I think, you know, they deserve loyalty as well. And there was a lot of uncertainty. People were worried about their jobs. I mean, the market takes such a big hit, you know.

RITHOLTZ: Sure.

RAMPULLA: They paid off of assets under management. They all of a sudden declined by a significant amount, so a lot of people were worried. And I think Bill’s leadership got us through that, saying, “Hey, well, phones have slowed down, lots have slow down, we got plenty of work for you to do.” And I think the team really appreciated that, and I think it allowed them to serve clients better and more calmly.

From my vantage point, honestly, I was employee number one in London, as I mentioned, so I had my head down. You know, another thing Bill did that I thought was really great at that time is when London sky is falling, everybody is laying off. Bill said, “No, no, no, we’re going to keep investing. Just go with your business plan.” I was able to get great people that were dislodged or not dislodged, but wanted stability, wanted a great brand and came to Vanguard.

So we hired great people. We were able to buy advertising really cheap. I mean, we were able to really lean in. And that’s the beauty of Vanguards corporate structure, we can really focus on the long term. And hence, Bill can say that to employees, “Hey, we’re in this for the long term. We’re committed to you. I don’t have to worry about the quarterly earnings call.”

RITHOLTZ: So let’s talk about that brand a little bit, what makes it so unique? What makes that culture so special and different from what we typically see in the world of finance?

RAMPULLA: Yeah. I think people feel in the Vanguard brand, a sense of trust. And you know, they get that they’re owners, they’re what’s most important. All decisions are around doing what’s best for them, and I think that just permeates. And the brand, we’re known as a really trusted brand. And financial services, that’s a really good thing obviously when you have people’s money.

And then it creates a culture of, again, being part of something bigger than yourself. You know, it’s not just a business. It’s a cause, it’s a purpose. We’re trying to make people’s lives better by helping them save for retirement, fund college, buy a home. Whatever their financial dreams are, we’re there to help them, and they know that. People understand that and it’s all about them, and permeates both the brand and the whole within Vanguard.

RITHOLTZ: So given that framework of brand and culture, obviously lots of things have changed since the days of Jack Bogle. He wasn’t a big fan of ETFs. He wasn’t a big fan of international investing. There are probably half a dozen different initiatives that Vanguard has come up with, that Jack isn’t a fan of. How has that culture persisted even as the company itself has gone through pretty substantial changes, not just growth, but the products you’re offering?

RAMPULLA: Yeah. So it’s funny Jack had a lot of things that were off limits. I think I mentioned earlier, we weren’t allowed to say sell. We weren’t allowed to call products, products. We had to call them programs for some reason. He couldn’t stand ETFs, wasn’t interested in international, didn’t think we had to do it either business or investing. He wasn’t a big fan of advice. You know, Jack didn’t —

RITHOLTZ: Really?

RAMPULLA: Oh, yeah, Jack was “You don’t need advisor. Total stock market, total bond market, total international thrown together, that’s all you need.”

RITHOLTZ: Isn’t that advice in and of itself? Wasn’t he just acting as an advisor by providing that portfolio and telling people when to buy it and how long to hold it for?

RAMPULLA: Yeah. I mean, he was an advisor. He didn’t like advice. He didn’t like selling. And there’s a funny story, true story, Barry. I know Jack very, very well. You know, worked with him a long time, actually spent some time one summer with him and his family. We happen to be vacationing up at Lake Placid and my family and I went visit him, and spent a day on the boats, know them really, really well. And I got on a plane to go to Boston and there was Jack in coach, of course. And my seat was right next to him.

RITHOLTZ: And he’s tall.

RAMPULLA: He was.

RITHOLTZ: He was back in the day, anyway.

RAMPULLA: Yeah, he got a little smaller as he aged. But, yeah, so he’s sitting there and he would never fly anything but coach. But my seat was right next to his and I hadn’t really hung out with Jack a whole lot. He was, you know, off doing the research and testifying to Congress, and doing other things not involved in the company at all. “Hey, Tom, you know, glad that we’re sitting next to each other. So what are you doing these days?” So Jack hates ETFs, doesn’t like advisors, and he hates sales. And I had to tell him that I was the head of Sales, selling ETFs to financial advisors. And Barry, I’m not kidding. He folded his arms and look straight ahead, didn’t talk to me the rest of the flight.

RITHOLTZ: Come on.

RAMPULLA: True story.

RITHOLTZ: That’s hilarious.

RAMPULLA: Absolutely true story.

RITHOLTZ: Oh, my God.

RAMPULLA: So, yeah, we’ve come a long way since then. I mean, you know, I think Jack’s distaste for ETFs is he worried that they would be used incorrectly, that it would just —

RITHOLTZ: It’s a fair worry.

RAMPULLA: It is a fair worry.

RITHOLTZ: But it’s pretty clear that those fears were mostly unfounded.

RAMPULLA: They are mostly unfounded. And you know, you think about what ETFs, it made indexing so much more accessible. You know, financial advisors could now really use indexing in a big way through ETFs. It just became so much more accessible to public and helped indexing, which we know is a good thing for investors to grow and grow and grow. So Gus Sauter who was our chief investment officer at that time —

RITHOLTZ: Sure. I know Gus. Yeah.

RAMPULLA: — was a big component of ETFs, and felt that they may be disruptive and be the new way to index, and I think he was spot on there. And so we lean into them and Jack didn’t love it. But you know, we did it and we’re happy we did it. Providing advice, if you think about driving investor outcomes, we have great low cost product. What else can you do to help investors get better outcomes? And it’s financial advice. So we have our own financial advice, but also importantly, working with my clients, working with those financial advisors to help them do better for their clients, really important to the mission. So I would say some of the execution has changed a little bit, but the mission is absolutely there. Low cost, broadly diversified, driving great outcomes, helping investors get the best chance for investment success.

RITHOLTZ: So there’s a crazy stat that I’ve never been able to validate. You’re probably the right person to ask. I read somewhere that something like 97% of certified financial planners in the state of Pennsylvania work for Vanguard. Is that remotely true?

RAMPULLA: I can’t verify that, but I would guess it’s probably pretty close.

RITHOLTZ: Really?

RAMPULLA: Yeah.

RITHOLTZ: That’s just astonishing.

RAMPULLA: Yeah.

RITHOLTZ: So let’s talk a little bit about the Vanguard effect. My friends, Eric Balchunas, who is a Bloomberg Intelligence analyst, wrote a column a couple of years ago called “The Vanguard Effect,” and eventually turned that into a book, “The Bogle Effect,” where he points out not only has Vanguard driven down costs for their own clients, if that was the end of the story, all right, it’d be an interesting little tale. But what’s happened is through market forces and competition, everybody else in the financial services has been forced to follow suit. And Balchunas calculates its hundreds of billions, soon to be a trillion dollars in cost savings. Tell us a little bit about “The Vanguard Effect.”

RAMPULLA: Yeah. I think it’s true. I agree with Eric that Vanguard are set up structurally to drive costs lower, became very competitive. Investors want to low cost, came to Vanguard in droves. Competitors had to respond or not grow, and so they cut price, which we all know that compounds over long periods of time and it’s a good thing for investors. And we saw that as we started to really grow in the U.S., that took effect in a big way. But I’ll tell you that the first time I heard the headline, “The Vanguard Effect,” is I went to London in 2008. We launched our first set of funds in the U.K. in June of 2009. And right before that, a couple of our competitors before us were actually officially out. They cut their price. And there was an article in EFT and it talked about “The Vanguard Effect.” We didn’t even launch yet. We weren’t even growing. We didn’t know if we’re going to be successful.

RITHOLTZ: Just the thread of moving into a space.

RAMPULLA: Right.

RITHOLTZ: So how does Vanguard think about competitors? A, do even think about competitors, or do you just focus on doing your own thing? At a certain point, you have to be aware of what’s going on at places like State Street, or Blackrock, or WisdomTree.

RAMPULLA: Yeah. But we’re certainly aware of the competition. But we’ve always said do what’s right and customers will follow. And so, for us, it’s very, very easy to do what’s right. We just don’t have any conflicts of interest in any decision-making we have. It’s all about the end investor. So you only offer them quality products. You don’t go to fads, so they don’t get burned. You communicate very clearly and candidly about the risks. You know, you talked about return, but talk about the risks as well to manage expectations. And when you do what’s right, you get a lot of trust built up and you grow.

RITHOLTZ: So should I not hold my breath waiting for the Vanguard crypto ETF? Is that a —

RAMPULLA: It’s unlikely we’ll have a crypto ETF, Barry. You know, the way we look at crypto is it doesn’t really have an intrinsic value. It’s more of a supply-demand thing. So that feels more like speculation than investing.

RITHOLTZ: More like a model even.

RAMPULLA: Yeah, but —

RITHOLTZ: An investable asset then.

RAMPULLA: Exactly. But the technology behind crypto is pretty interesting.

RITHOLTZ: Yeah, no doubt about that.

RAMPULLA: Blockchain and there’s some great, great use cases for that and we think that’s the future in many aspects of financial services market.

RITHOLTZ: Really interesting. All right. So we mentioned Balchunas’ book, let’s talk about Robin Wigglesworth’s book, Trillions.”

RAMPULLA: Yeah.

RITHOLTZ: You know, we all sometimes feel like the area we work in, our space, oh, I know the history of that. I’m really knowledgeable about that. But as I read that, I was genuinely shocked as to the history of both the industry and what took place in passive investing and indexing. Tell us a little bit about how “Trillions” resonated over at Vanguard.

RAMPULLA: Yeah. I thought it was really well written. You know, I lived part of that revolution, if you will, of indexing. But there’s certainly things that I learned from that book. Some of the other characters that were involved, some of the really early days and the characters around that as well. So it resonated really well. It was interesting for me because I helped start our ETF business back in the early 2000s. And a lot of those folks I knew and we’re trying to get these things going. And it was a really interesting time.

Once again, you kind of felt like you were doing something disruptive and really exciting. But I thought it was a fascinating history. I would recommend that book to anybody that’s interested in investing at all. I think it just got a great history of something that was a super disruptive, but maybe a little bit more of a slower burn than people might think.

RITHOLTZ: Yeah. No. Absolutely. It was definitely a slow burn, and then it exploded. And I think to some degree, I think the inherent advantages of ETFs over mutual funds are part of that. I know some people like the ability to just buy when they want to buy and not have to wait till the end of the day and get mutual fund pricing. But, to me, the single biggest advantage of ETFs seems to be an enormous tax benefit of not paying for somebody else who’s selling.

RAMPULLA: That’s right.

RITHOLTZ: Explain, first off, if mutual funds were introduced today, would they even be approved if it was a new product? Wait, this is much worse than ETFs, why would we want to approve that? How do you think about the differences between the two products?

RAMPULLA: Yeah. Look, I think mutual funds are still a very good product. You know, they may not go away in the too short term. It’s a really good product. I think there’s some benefits to mutual funds. If you think about 401(k) plans, they —

RITHOLTZ: That grows.

RAMPULLA: Yeah, yeah.

RITHOLTZ: You read my mind. They certainly work well in any qualified retirement.

RAMPULLA: That’s right.

RITHOLTZ: You don’t need an ETF.

RAMPULLA: You don’t. You know, you only need to strike an NAV once a day. So there’s that aspect of it. Index mutual funds are pretty tax efficient as well, not quite as tax efficient for most as the ETF.

RITHOLTZ: You still have that changeover. And I recall when something like Tesla was added, it had a big disruptive impact. So if that’s a mutual fund, that’s not in a qualified account. There could be ramifications versus the straight-up ETF.

RAMPULLA: That’s right. That’s absolutely right. And then if you go to active strategies, you know, ETFs right now, most of the growth is in transparent ETFs. Non-transparent are starting to come along. That’s only for equity funds. Right now, equity asset is not fixed income. So to the extent you’ve got an active manager that feels that they’re not very comfortable disclosing holdings on a daily basis, they’re going to want to keep that in mutual fund till the technology advances there. There’s also — Barry, there’s a lot of embedded gains in some of these mutual funds.

RITHOLTZ: Right.

RAMPULLA: So you don’t necessarily want to jump ship. You might shift to ETFs, but selling out your old low cost basis holdings doesn’t make a lot of sense. So maybe that’s some of the reasons as well.

RITHOLTZ: It makes a lot of sense. Let’s talk about another product. Can we use the word product?

RAMPULLA: Yeah.

RITHOLTZ: Custom indexing, you guys also are direct indexing. You call it personalized indexing.

RAMPULLA: Yeah.

RITHOLTZ: I was skeptical about this 10 years ago. Over the past few years, I’ve come to embrace it. Tell us a little bit about why Vanguard does direct indexing and what makes your product unique to Vanguard.

RAMPULLA: Sure. So first of all, just quick education, personalized indexing, custom indexing, direct indexing, they’re all the same thing. It’s a little different structure than your ETF. And by the way, ETFs are super tax efficient and great in many ways. But in ETF, you buy VTI, you own a share of VTI, not the underlying holdings.

RITHOLTZ: Right.

RAMPULLA: In direct indexing or personalized indexing, you actually hold the basket of underlying securities individually.

RITHOLTZ: So all 500 S&P 500 stocks, all —

RAMPULLA: All 500.

RITHOLTZ: What is VTI, 2,000 something?

RAMPULLA: Yes.

RITHOLTZ: 2,300?

RAMPULLA: Something like that. It’s large.

RITHOLTZ: I hate end of month report.

RAMPULLA: I know. Lot to page through, for sure. You own the underlying securities. And it’s basically a separate account, but very scalable. And I’ll talk about that in a second. And what you can do with individual securities, it allows you to do two things pretty well. One, be very tax efficient. So since you’re holding 500 securities instead of one, you can look at losses and individual securities, harvest those losses, and you can allocate them to go against future gains. So it’s very tax efficient, and that’s probably the biggest use case with. So that tax efficiency and it adds quite a bit alpha. You know, go back to Advisor’s Alpha doing that, well, you can add a substantial amount of alpha.

RITHOLTZ: What sort of numbers are you looking at? Because I know 2020 was just an outrageously unusual year.

RAMPULLA: Yeah. You know, it can be pretty substantial. I mean, it could be a couple of percent at times. So it’s very, very valuable. Now, it doesn’t — it’s not for everybody, obviously. You know, your average investor may not benefit as much, and then their tax efficient ETF might be the way to go. So it’s a great use case. Another use case is investors being able to express views on the market.

RITHOLTZ: Meaning their personal values along the lines of ESG.

RAMPULLA: That’s right.

RITHOLTZ: But without buying an ESG fund, you can really customize it.

RAMPULLA: That’s right. So you could say, “Hey, I” — you know, one of the challenges with ESG products is everybody got a different right definition of what ESG is. So, “Hey, I want to exclude X, Y, or Z. But I don’t want to exclude A, B and C.” You can do that in this structure.

RITHOLTZ: We’ve had clients who say, “We don’t want cigarettes or vice stocks.” We’ve had other people say, “No, no, I’m fine with an index. I just don’t want any gun stocks.”

RAMPULLA: That’s right.

RITHOLTZ: And we’ve had other people say, “Hey, I don’t want anybody associated with abortion providers.”

RAMPULLA: Right.

RITHOLTZ: It’s not a left or a right thing. It’s you pick what your values are and you can express that in your portfolio. It doesn’t differ appreciably from the index other than that narrow group, the exception being if you say, “Hey, I don’t want any energy, any oil, any carbon,” well, that will differ dramatically. But most of the other tweaks seem to be around the edges.

RAMPULLA: That’s right. What you do with direct indexing is you optimize around something. So if you exclude five stocks, you optimize and overweight the others, and minimize tracking error versus the index. So you’re right, it tends not to be too much unless you exclude something like energy, which would be a big chunk.

RITHOLTZ: Really, really quite intriguing. Jack Bogle once said, “The first time Vanguard’s mission has created a better world for the investor will be when our market share begins to erode.” Has that not happened yet? You guys don’t seem to be losing market share.

RAMPULLA: No. In fact, we’re gaining market share in just about all businesses. There’s a lot of opportunity still out there. I mean, in my business, we’ve got maybe a 20% share or something like that, lots to go there. Even on the on the retail side, tons to go there. You think about the advice market and the retirement market, and then international, geez, there’s a tremendous amount of opportunity there. So we still have to bring the mission to many millions more people.

RITHOLTZ: So if you’re still taking share, at what point do you become the biggest investing firm in the world?

RAMPULLA: I don’t know. I’ve read some articles recently that are making projections on that. But, again, I’ve got Jack Bogle’s voice in my head from 1989 saying that growth doesn’t matter, just do what’s right for investors. So we don’t think about that too much.

RITHOLTZ: So I promised we would talk about the state of the world today. 2022 has been just a very challenging environment. I don’t think we’ve seen both stocks and bonds in double digits since 1980, ‘81, something like that. So that’s 40 plus years. What’s it like working with asset managers during a stressful time like this?

RAMPULLA: Yeah. It’s — you know, assets are down 20% and you get paid off assets in this business, which tends to be a good thing because stocks and bonds tend to go up over time. But, yeah, so it’s a bit stressful. Clients are stressed. You spend a lot of time talking to your clients, trying to bring perspective, the long-term perspective, not depend — that Advisor’s Alpha, even if you’re not an advisor and you’re talking to somebody on the phone, you’re trying to say, “Hey, calm down, put this in perspective.”

RITHOLTZ: Talk to them off the ledge.

RAMPULLA: You talk to them off the ledge. My clients, the advisors are really earning their fees right now, and providing a tremendous amount of value. So there’s a lot of phone volume, a lot of digital volume, so we’re very, very, very busy. And you know, it’s all about calming people down, we’ll get through this, you look at the long term. Things tend to work out. We — you know, our investing philosophy is, first of all, get an objective, put a plan together, make sure it’s a low cost plan.

And the other thing is be disciplined, right. Stick to your plan, just get rid of the noise. This is big noise. This isn’t just some little blip. This is big noise, but you know, get rid of noise and be disciplined. Most times that’s around rebalancing. This time, stocks and bonds are both going down, so you’re not rebalancing so much. But you know, March of 2020 was a great opportunity to rebalance and add some value. So it’s really sticking to that long-term approach and that discipline is what we really recommend.

RITHOLTZ: So you sit in a unique perch, you’re not only watching what’s going on at Vanguard from the inside, but you’re looking out at the world of advisors. And as we’ve seen over the past 20 years, fiduciary fee-based advisors have been capturing share at the expense of transactional brokerage. From your perch, tell us what you see of the world of finance looking out over the next decade. How are things going to continue? What’s going to change? What do you think about when you think about the future of finance?

RAMPULLA: I think financial services for a long time had been a bit stodgy, right. So you focused on returns and you provided good returns, you got some flows and you might do some advertising a brand. But client expectations have increased incredibly, so they’re not comparing Vanguard to Fidelity anymore. They’re comparing Vanguard to my experience with Uber. And so, you know, I think you have to have great products. You have to be innovative there. You have to keep fees low. But the client experience is it’s happening now. But I think that’s a huge next frontier for financial services, really nailing the client experience like some of the other industries have done. And we’re on a journey that we’re getting better with it, but there’s a lot of opportunity there.

I think advice is going to continue to grow. Do it yourself is a lot tougher than Jack Bogle said it was. There’s a lot to it. And again, we think most investors are better served by some sort of advice. So we see the growth in that. We see the intersection of advice and investments and technology to bring mass customization. And if you think about what we just talked about, direct indexing and personalized indexing, that’s customization. The technology allows you to do that in mass now and scale that. So that mass customization is going to be really important.

(COMMERCIAL BREAK)

RITHOLTZ: I only have you for a limited amount of time, so let me jump to my favorite questions that we ask all of our guests, starting with, you have a bunch of kids, what were you doing to keep them busy during the pandemic? Tell us what you were watching on either Netflix or Amazon.

RAMPULLA: Yeah. So all my kids were either in — or in college during the pandemic. I got to out now.

RITHOLTZ: Were they at school, or did they come back home?

RAMPULLA: They were at school.

RITHOLTZ: Oh, really?

RAMPULLA: But they did come home. So my wife and I were empty nesters for a few months, celebrating that, and then also —

RITHOLTZ: It’s so quiet, delightful, and that’s something —

RAMPULLA: It’s so quiet, us and the two dogs. And you know, just life was very, very chill and then, you know, pandemic hits and I’m doing — I’m like a commando coming to get my son out of Manhattan and bring him home. And so they all came home and it was fabulous. You know, we actually looked at it as a little bit of a gift because they were gone and they came back for a few months. So we did a lot of cooking. They started a garden. My one daughter bought some chickens, some crazy things like that, did a lot of streaming. I don’t remember what we were watching at that time, silly things like the “Tiger King.” I don’t know if you saw that on Netflix, a crazy show, documentary. We did a lot of streaming together, played a lot of games too, like went back old school.

RITHOLTZ: Right.

RAMPULLA: You know, cards and backgammon, and things like that. So it was really, really good quality family time.

RITHOLTZ: That sounds like fun. Tell us about some of your early mentors who helped shape your career.

RAMPULLA: Yeah. When I first came to Vanguard in ‘88, I was in a business where we were providing administrative and accounting services for actually competitors. And the guy that ran the division was a guy called (Bill Destardis). And we hit it off really well from my first day there, and he was a great mentor. You know, I’m 22, not right out of school, but at a school year. And he really helped me develop some confidence, believed in me, talked about how to — you know, really helped me build relationships, taught me how to write well, to be honest with you.

RITHOLTZ: Oh, really?

RAMPULLA: So really good early mentor. And then Bill McNabb and I first intersected, I think it was around 1993, 1994. I actually applied for a job in his group and didn’t get it, but we connected through that. And in my entire career, Bill was a great mentor for me and gave me a lot of opportunities to grow and develop. So I really appreciate that. There was also a guy, when I worked in our fixed income group, he passed away unfortunately, a number of years ago, but (Mike Pulaski), he taught me about the fixed income market and how to be an analyst, and how to manage portfolios. And you know, that was tremendous. And then taking that to all my other positions, having that investment, that hands-on investment knowledge was just gold for me the rest of my career. So that’s a few of the early days, the folks who mentored me.

RITHOLTZ: I’ve heard the name, for sure. Let’s talk about books. What are some of your favorites and what are you reading right now?

RAMPULLA: It’s a little embarrassing, but if you think about the theme of a couple of these books, a couple of my favorites, I love Bonfire of the Vanities. You know, it —

RITHOLTZ: I wouldn’t say that’s embarrassing. I mean, that’s a highly regarded —

RAMPULLA: Yeah. It was cool because it was, you know, kind of a story about New York in the late ‘80s —

RITHOLTZ: And financing.

RAMPULLA: — Wall Street and then kind of doing something wrong and losing everything. So it always scared me, you know, scared me straight, if you will. And then, you know, around the same time, maybe a couple years later, it was Liar’s Poker, which I just found fascinating, Michael Lewis’ book.

RITHOLTZ: Just had its 30th anniversary reissue recently.

RAMPULLA: Yeah.

RITHOLTZ: And I got to tell you it holds up pretty well.

WOMAN: The great part about that book is he wrote it to talk people out to going to Wall Street and I think it inspired millions to do it. You know, so two of my old favorite books. Right now, I’m reading a book, did you grew up in the Tri-state area?

RITHOLTZ: Yeah.

RAMPULLA: So you remember Crazy Eddie?

RITHOLTZ: Sure, of course, Eddie Antar.

RAMPULLA: And what were his prices?

RITHOLTZ: They were insane.

RAMPULLA: That’s right. They were. There’s a book right now called Retail Gangster.

RITHOLTZ: Oh, really?

RAMPULLA: I don’t know, but it’s a new book, just came out in the last couple of months.

RITHOLTZ: Oh, I’m a buyer.

RAMPULLA: And it is the story of Eddie Antar. And yeah, I’m about a third of the way through it and it’s fascinating. He was a character and a criminal, but really —

RITHOLTZ: Who wrote Retail? That wasn’t his brother-in-law who wrote it, who was the accountant, who went to jail and that’s one who turned up.

RAMPULLA: No. But he is prominently featured in the book.

RITHOLTZ: Yeah, he’s a fascinating guy.

RAMPULLA: Yeah. He didn’t write about it. I don’t remember who the author is, but it’s been good so far.

RITHOLTZ: When I was in college, I worked at the local Lafayette, if you’re in New York region.

RAMPULLA: Yeah.

RITHOLTZ: So you remember Lafayette a million years ago. And they had this — Crazy Eddie had this wonderful scam they would do. When they were out of stock on something, they would cut the price in half. And then once it came back in stock, it went back to regular price. So you’re selling it for 200 bucks, Crazy Eddie has it for $99. So you call up Crazy Eddie, “Hey, I want to buy three of these. We’re out of stock.” You should go get at Crazy Eddie’s, they don’t have it. When it’s in stock, it’s $200. When it’s out of stock, it’s —

RAMPULLA: That’s insane. Yeah.

RITHOLTZ: People wouldn’t believe you. It’s insane. Their prices are literally insane. That people used to think the guy on the commercial is Crazy Eddie.

RAMPULLA: Oh, I know. Not.

RITHOLTZ: And that was just an actor.

RAMPULLA: Just an actor. And you know what I did when I — I read about the book I think in the journal or in Bloomberg, or something like that, and I was like, oh, this is interesting. So —

RITHOLTZ: Yeah.

RAMPULLA: And then I went on YouTube and looked at a bunch of the old commercials and brought back childhood memories.

RITHOLTZ: Oh, for sure.

RAMPULLA: And that guy, you know, he was — he was something. He would have the Santa Claus hat on during the Christmas.

RITHOLTZ: That’s right. That’s right. I forgot about that.

RAMPULLA: Yeah, yeah.

RITHOLTZ: They were ubiquitous, both the ads and Crazy Eddie.

RAMPULLA: Yeah.

RITHOLTZ: At one point in time, there were like a couple of dozen stores and they blew up spectacularly.

RAMPULLA: Yeah, they did. They did.

RITHOLTZ: Quite interesting. So our last two questions starting with what sort of advice would you give to a recent college grad who is interested in a career in either investments, ETFs, mutual funds, financial advice, what would you tell a recent college grad?

RAMPULLA: Well, I have a couple of recent college grads. My twins graduated about a year ago. And what I told them was — and it’s not necessarily specific to finance, but it certainly applies, and that is pick a company, not a job. And what I meant by that is find a company that aligns with your values, and do something that you’re interested in there. Don’t worry about your job, your first job, your second job, your third, whatever. But if you align with a company, you could be there forever. You can have a career there.

And obviously I’m biased, I’ve been at Vanguard 34 years. I stumbled on to Vanguard and having to find a company that aligns with my values. I got lucky, they grew tremendously. But I think it’s really important. Yeah, money is nice. But being happy or being satisfied, and having an organization that aligns with what you care about I think is more important than anything. And you’ll have a lot more longevity and happiness in your career if you do that.

RITHOLTZ: And our final question, what do you know about the world of investing today that you wish you knew back in 1988 or so when you were first getting started?

RAMPULLA: Yeah. A couple things and it was just Jack Bogle principles. And of course, I listened to him, but I may have — I may have strayed a little bit here and there. But, first of all, it’s really hard to consistently pick winners, hence, the appeal of indexing. But, yeah, you might get a winner, you might get a few winners, but it’s hard to do that over time. And sort of as a corollary to that is stay away from fads. I did get caught up personally in the dot-com era a little bit. You know, I had my long-term 401(k) investments in all probably diversified Vanguard funds, but I had a brokerage account and made some mistakes on companies like Verticalnet.

RITHOLTZ: I was going to say JDSU and Nortel. I remember that, you know.

RAMPULLA: Yeah. And so, look, be careful to fads. And given my children’s age and their interest in investing, you know, growing up in investing house, they told me I was old and stodgy, you know, not being excited about crypto or some of the meme stocks.

RITHOLTZ: Are your kids Apes? Are they NFT fans or —

RAMPULLA: No. They’re all, well, compliant. They all have to invest at Vanguard. So they’re broadly diversified and low cost funds, as you would imagine, but they’re really interesting — and of course, all their friends, “Oh, I made so much money on this and that.”

RITHOLTZ: Until they gave it all that.

RAMPULLA: Until they didn’t. Yeah.

RITHOLTZ: Right, right.

RAMPULLA: So stay away from the trends, just focus on the long term, have some discipline. The other thing is I was fortunate to get this advice. I showed up at my first day at Vanguard in 1988, did my onboarding. They said, “Oh, we got this 401(k) plan.” I’m like, “Not really sure what that is.” Like, “Oh, just max out your contribution. That’s what everybody does. And we’ll match up to 10% or 11%,” whatever it is. And I just did it.

RITHOLTZ: Right.

RAMPULLA: And that was 34 years ago, that adds up.

RITHOLTZ: Oh, for sure.

RAMPULLA: So one of the last things —

RITHOLTZ: So it was that match and growing tax deferred.

RAMPULLA: That’s right. Growing tax deferred. So, hey, just — you know, time is on your side with investing, so start young, even if it’s a little bit and it adds up over time.

RITHOLTZ: I am genuinely shocked when we sit down with a potential client and one of the things that comes up is, “Why are you throwing away free money? If your firm is going to match up to, you know, 4%, or 5%, 6% is pretty standard these days.

RAMPULLA: That’s right.

RITHOLTZ: If the firm is going to give you 5% of your salary to put into your 401(k), why would you say no to that? I understand that there are bubbles we all want, but it’s not like —

RAMPULLA: Yeah.

RITHOLTZ: You know, you don’t even feel it.

RAMPULLA: Yeah.

RITHOLTZ: It’s not like it’s that big a chunk of cash.

RAMPULLA: That’s right. Yup.

RITHOLTZ: And free money. And yet, you know, whenever people talk about rational investors, why do people say no to free money? That seems to be somewhat irrational.

RAMPULLA: Absolutely right. So my daughter tried to say no, she’s in New York and say it’s really expensive. I said I’ll match it. So you put it in and I’ll match it.

RITHOLTZ: Now, it’s triple.

RAMPULLA: And so we did that for a year and weaned her off, and she realized that she could do it. So —

RITHOLTZ: That’s fantastic. Hey, Tom, thank you for being so generous with your time. We have been speaking with Tom Rampulla. He is the managing director of Vanguard’s Financial Advisor Services Division. If you enjoy this conversation, well, be sure and check out on any of the previous, I don’t know, 430 we’ve had over the past eight years. You can find those at iTunes, Spotify, and now YouTube, or wherever you get your podcasts from.

We love your comments, feedback and suggestions. You can write to us at mibpodcast@bloomberg.net. Sign up for my daily reading list at ritholtz.com. Follow me on Twitter @ritholtz. I would be remiss if I did not thank the crack staff that helps these conversations get put together each and every week, starting with my producer is Paris Wald. My head of Research is Sean Russo. Sebastian Escobar is our audio engineer. Atika Valbrun is my project manager.

I’m Barry Ritholtz. You’ve been listening to Masters in Business on Bloomberg Radio.

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