Buckley’s exit exposes Vanguard wounds

The CEO change raises questions about Vanguard’s leadership and direction

Jeff Benjamin

Tim Buckley

If investors outside Vanguard's inner circle were not already questioning the direction of the world’s second-largest asset manager, that all changed when Tim Buckley stepped down as chairman and CEO.

Last Thursday, Vanguard announced Buckley would be retiring at the end of the year after a 33-year stint at the firm including the last six as CEO.

The move has drawn attention to the challenges facing the $9trn asset management behemoth.

“What surprises me most is they announced Buckley’s retirement without naming a successor,” Jeff DeMaso, editor of The Independent Vanguard Advisor, said.

“Why not wait three months, find a successor and make just one announcement?”

“Customer service is their Achilles heal,” Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, added.

Balchunas, who published a book on Vanguard and its founder John Bogle called The Bogle Effect in 2022, said Buckley’s eventual replacement should focus on technology and customer service shortcomings.

“Everyone is happy with where the fees are, so take all that new money and spend it on service,” he said.

“They also need to find a way to translate the Vanguard story to younger investors because right now the meme stock people do not want anything to do with 60/40 even if it is cheap. But at some point, those younger people will get more money.”

No spot bitcoin ETFs

To be sure, Vanguard has grown to become an asset management behemoth under Buckley. With over $2.4trn across 86 US-listed ETFs, it is second only to BlackRock.

Under his leadership, the firm's client base climbed to more than 50 million investors worldwide and assets surged by more than 80% to over $9trn across the firm’s asset management business.

Vanguard did not make Buckley or anyone else from the company available to comment for this story.

The announcement of Buckley’s departure included the promotion of CIO Greg Davis to the additional role of president.

Still, Vanguard has ruffled some feathers among younger investors by refusing to offer access to the new spot bitcoin ETFs that started trading in January.

That issue alone is not considered to be a driving force behind Buckley’s departure, but more representative of Vanguard’s direction.

Rick Ferri, founder of Ferri Investment Solutions, and a longtime subscriber to the Vanguard style of low-cost passive investing, views Buckley’s eventual departure as progress.

“My initial thought was, good,” he said. “Tim was very Ivy League and he kind of turned people the wrong way, and I do not think he was very forthcoming on a lot of problems Vanguard was having.”

Ferri is a past president and current member of The John C. Bogle Center for Financial Literacy, a non-profit organisation established in 2010 with the support of John Bogle, who died in 2019.

Members of the worldwide organization affectionately call themselves Bogleheads.

Ferri said some of Buckley’s efforts such as offering access to private equity investments moved against the grain of what retail investors need. But the technology and service glitches were the bigger issue.

“Many Bogleheads have moved their accounts to Fidelity, but they kept their money in Vanguard funds,” Ferri said. “What direction is Vanguard going here? Are they upholding Jack Bogle’s beliefs or are they going off in some other direction? Vanguard needs to get back to Jack Bogle’s beliefs.”

DeMaso of The Independent Vanguard Advisor has also seen blowback from loyal Vanguard investors as the result of technology and service issues.

“I hear about Vanguard’s tech and service problems fairly regularly,” he said. “I have even had subscribers to my newsletter cancelling their subscription because they say they are leaving Vanguard.”

Search for a new CEO

The announcement also said the search for Buckley’s replacement would look both inside and outside Vanguard. To this point, all four CEOs, beginning with company founder Jack Bogle in 1975, have come from within the company.

For that reason, the smart money is on Davis graduating to the CEO position.

“Davis would be my best guess about who will eventually take over,” Daniel Sotiroff, manager research senior analyst at Morningstar, said.

“In the background, Vanguard has always moved executives around to different parts of the business so that they have people ready when needed,” he added. “I believe they have other executives who are ready to lead.”

At about six years, Buckley’s tenure as CEO is the shortest of the four executives that have led Vanguard in its 49-year history.

Bill McNabb, whom Buckley replaced, was the CEO for 10 years. Before that, John Brennan was CEO for 11 years and founder Bogle was CEO for 21 years.

Buckley’s first job at Vanguard was working directly with Bogle and the next Vanguard CEO will likely be the first to not have worked with the founder.

“We have not had an opportunity to talk with them yet, but it does not seem like Buckley is being forced out because he did anything bad or stupid,” Sotiroff said. “That shows he is still in very good standing with the company.”

Balchunas also admitted to being surprised by the Buckley announcement and said the successor will have “big shoes to fill”.

“Buckley oversaw around $4trn worth of asset growth, and they won the asset flow crown for the last four or five years in a row because they leaned into ETFs,” he said. “Buckley’s legacy will also include building up the personal advisory service, which saw assets triple.”

Added to that, Buckley guided Vanguard away from a China funds joint venture and out of the controversial Net Zero Asset Managers climate accord.

Balchunas said, “He has a lot to be proud of,” Balchunas added.

Echoing his views, Stan Gregor, CEO of Summit Financial, recognised Buckley for “continuing Jack’s legacy with an unwavering commitment to excellence for advisers that Vanguard serves”.

A huge challenge

Amid the speculation on why Buckley is leaving, some observers noted the overwhelming challenge of leading a company the size of Vanguard, which has $2.5trn ETF AUM.

“Tim is a rare leader who was able to maintain the founding DNA of Vanguard and dramatically expand the company’s size and reach at the same time. That is not an easy feat,” Chris Shuba, founder and CEO of Helios, said.

Nate Geraci, founder of The ETF Store, also looked past the potholes and gave Buckley credit for presiding over “one of the most prolific runs any fund company has ever had or will have in terms of asset growth”.

“Tim accomplished that largely by sticking to the firm’s knitting and letting their low-cost fund lineup do the heavy lifting,” he added.

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