From CEO to Startups: Masters in Business with Former Vanguard CEO Bill McNabb

29:37And he said, look, he goes, somewhere in that 10 to 12-year range, if you've done a decent job, people stop pushing you and they stop questioning you because you've been right more than you've been wrong. And he goes, that's not healthy. And the ability to reinvent the firm or to really push for innovation gets harder because you really need a collective wisdom to do that. And, you know, that's where the art is, Barry. But I felt like the team was really strong. I was seeing signs, you know, we'd had a lot of success. So I was seeing some of those signs and it was, okay, time to let a new generation see what they can do and, you know, leave the place in a good spot and then go.

30:18Did you set up like a detailed plan as to your retirement or was it just evolving organically? So at a detailed plan as to how, you know, how we were going to do the transition at Vanguard. And we worked really closely with our board on that. And, you know, there were steps. In terms of my own thing, I was like, I didn't want to think about it. I thought I'd wait until I was out. I had a year where I was board chair still. And I'd originally said I would do that for as long as three years. But after a year, it became clear, like, the firm's really doing great. Like, there's no need for this. But that year, I did a ton of travel for us, all around the world, seeing clients, regulators, whomever.

31:05And I also did a lot down in DC, because there was a lot of regulatory stuff going on. And so I had a lot of travel time. So that's when I started to think about, okay, what am I going to do this next phase? And I described this phase is sort of the there's like three parts to it you know there's family and fun um there's governance and then there's i'll call it i call it pay it forward but mentoring and you know helping develop a new cadre of leaders and so forth and you know i've been pretty i won't say systematic but i i've tried to be careful i've probably over committed it a couple times in different things but you know you try to feel your way through that and um the family and fun stuff are the passion things the the governance for me um you know we uh i had a opportunity to co-write a book on governance um with uh ramshan and you know we we did that we did the book and we talked to everybody like it was it was so much fun you know talking to warren buffett about you know how does he think about governance um just incredible and uh dennis carrie was the third co-author by the way and we so i did that and that led to you know leading the co-leading the nacd's blue ribbon commission on the future of the american boardroom and i do work with cecp which is ceos for corporate purpose um you know daryl brewster's organization which does incredible work on governance as well.

32:42So I had this whole sort of academic thing around governance going on and then got the opportunity to serve on two very large public boards where you're on the other side. So let's talk about those boards. IBM and United Health Group, two giant companies, so different and each going through very different transformations. How do you shift from being a CEO to being a director? And what can a board actually accomplish other than just responding to crises as they come along? You know, I think the board, I think there's sort of three broad categories that the board has to lean in on. You know, the hardest thing being an ex-CEO is you're used to like running things and you can't do that.

33:37Like, there's a line between management and governance for a reason. And so, you know, you try to be very aware of that. But I think where you can lean in is if you think about at the highest level what you're doing is you're allocating capital. And you're allocating financial capital and human capital. So for us, the way we phrased it, and we did this in our book, by the way, we said, look, focus on talent, focus on strategy, focus on risk. And from a governance standpoint, it all sort of boils up to those three things. And how do you help the company think through talent and culture? Do you have the right people to execute the strategy?

34:28Most boards want to go right to strategy. But, you know, I think you've got to really help the CEO and the C-suite team think about that culture and think about talent. You know, the best companies do this really well. You know, strategy has really evolved. It used to be, you know, I can remember doing this with the Vanguard board early in my career. You do a strategic plan, a five-year plan, and it's all written down. Okay, this is what we're going to do. I mean, you've got to be so much more agile now. That's the great Mike Tyson quote. Everybody has a strategy until they're punched in the nose.

35:09It's got to be applicable to big corporations as well. So in talking about my Vanguard experience, I got it firsthand in 2008. Because we had a plan, and that plan, we just threw it out. And that plan was one of the coolest sets of objectives and things we were going to do different completely off. The world totally changed. The world changed. And so I've tried to bring that mentality in the boardroom. And again, I'm very lucky that the two boards I serve on think that way. You know, I think, you know, IBM has gone through a lot of transformation. You know, our current CEO, Arvin, you know, he's really brought a strategic agility into the company.

35:58And, you know, if you look at the progress the firm has made since he became CEO, it's really very gratifying. Look, we had a, you know, we had a big sell-off last week or two, but we'll talk about what's happening in the markets. I think in the long run, what we're doing strategically makes a ton of sense. And again, we're trying to remain very agile. So let's stay with IBM, which has gone through, they began as a typewriter company, right? People don't realize how often IBM has one of the few companies that has successfully pivoted time and again to mainframes, to PCs. So now the pivot is to hybrid, cloud, AI, when you think about all the different things they're doing.

36:47How do you help oversee this giant business model that's being rebuilt from the ground up? Look, you try to bring what experiences you have and you try to ask really good questions. And our board has got a breadth. I mean, when you look at the breadth in the board, different people bring different perspectives. So I think when I first came on the board, it was the idea was, oh, you're going to bring a shareholder perspective, like just the shareholder voice in the room. And that's true. But I'm also doing all this work now in the venture world. And so I'm living the AI life big time. I'm seeing the pluses and minuses and everything else.

37:28So you try to bring some of that experience. We've got other people who are, you know, deep, deep, deep in, you know, different elements of technology. We've got other people who are really deep in terms of, you know, financial services, which is a huge part of our customer base. We've got some people who are, you know, who will push on the science. You know, we have a former president of a major university, but her whole background was computer science. And so when we start talking quantum, like her eyes light up and I mean, she can go toe to toe with, you know, the research team on the quantum stuff.

38:08We're never going to know as much as the management team and the people on the ground. But if you can ask the right questions, you know, I think that becomes really important. Let's talk about your other big company board seat, United Health. Really, I don't know any company that's gone through a rougher stretch due to outside forces. The CEO gets murdered. Then there was the guidance issue. Big leadership change. The former CEO comes back, Steve Helmsley. And now they're in the midst of a turnaround. What is the board's job in an environment where it's just one crisis after another and nothing that the company has necessarily done?

38:51It seems to be almost all random externalities. So you have to – this is, again, going back to that agility thing. A lot of business writers have talked about the need for management teams to have a more venture, more startup mentality, be quick to pivot. Boards now have to be quicker to pivot. So we've had to pivot. We've had to think about leadership differently. You know, Steve coming back, huge blessing for us that he's ready and able and willing to do that. One of the greatest CEOs of our time. You know, most people don't know his name, but his ability to see around corners and make hard decisions and then go and execute.

39:35It's incredible. But, you know, so we but we, you know, that wasn't in the plan, Barry. We had to adjust pretty quickly. And, you know, again, what you try to do is you try to ask the right questions. You try to probe. You try to be supportive where you need to be supportive. You try to be challenging where you need to be challenging. So it's so fascinating to me that you're on these two giant publicly traded companies' boards. Vanguard is mutual. They have no outside shareholders. All their mutual fund investors are effectively the owners. There's no stock price to worry about. How different is it stepping into this world of public company directors?

40:22It seems like, you know, such a giant shift. Yeah, it is. And look, I think there are people who, in a lot of ways, are way more qualified than I am. And, you know, you try to play, you try to be as helpful as you can be. I think the one thing that Vanguard actually really trained me well for was to think long term. And yet at the same time, you know, our performance was measured every day, every week, every month. So we had this ability to do both. And, you know, again, Jack Brennan, Jack Bogle really drilled that into us. And I think our team did it exceptionally well. When you're, you know, the biggest aha is like the pressure on the quarter, right?

41:09Like, you know, you're giving guidance, you're, you're, you're, you know, really thinking hard about your earnings calls and so forth. That was a new thing for me because, again, I never had to do that. But the analogy is, you know, we were very, you know, long-term performance is made up of a lot of short-term performance. So I paid a lot of attention to short-term performance. I didn't obsess over it. I paid a lot of attention to it because it led to, you know, cumulatively it leads to long-term. So I've had to bring that same mentality. I've had to learn that here. It's a little bit different, but how to be very focused on quarter by quarter by quarter and what we're doing and executing.

41:50But also, the one part I do try to push is let's not forget the long term. So I don't know anybody that's either on a board or is an investor that is remotely enthusiastic about let's stop reporting quarterly numbers. It seems kind of absurd. But at the same time, there's an increasing number of companies that say, we don't know the future. We're not going to give you guidance. That's your job as an analyst. Our job is to run the company. Reconcile those two with us. So I think the move away from quarterly reporting is, frankly, it's a false move. It does not accomplish anything. I know they tried it in the UK and it did nothing.

42:39It did nothing. Could you simplify reporting? Sure. There's things we do that don't add any value to the investment community and simplify it. I actually think quarterly reporting is very important. I think transparency about what's happening is incredibly critical. So if the government were really, you know, the regulators were really serious about the issue, the guidance is where they would go. They would say, okay, we're not going to allow guidance. You know, what's interesting is, and I would have been in that camp 10 years ago. You know, if someone, when I was, I went into probably 100 boardrooms my last couple of years at Vanguard because we were the largest shareholder.

43:23And people would ask, you know, should we give guidance or not? And I'd say, no, you don't need to give guidance. What you do see, though, is there are situations where the street gets it so wrong that you're giving guidance to actually protect yourself from the street getting it so wrong. And that's the part that I've had to sort of balance in my own head because I never really understood that until I was in the boardroom. And then you see the conclusions some of the sell side in particular comes to, and you're like, whoa, that's not even remotely true. And then you have to guide them. But look, to me, the single biggest thing we could do would be, whether you give guidance or not, would be to really hold companies accountable for providing long -term outlook.

44:17So what if you took one earnings call a year? I'm making this up, but we've talked about this at CECP quite a bit. And you devote, you know, you report on the quarter, but you devote it to here's where we are against our five-year aspirations or our 10-year aspirations, whatever the right time frame is. Here's how we're doing. Here's, by the way, you know, we told you last year that five years from now we want to do X. The world's changed a little bit. We've got to pivot. So we're not going to do X. We're going to do two X. That, to me, would be a lot more productive in terms of getting people to think long term.

44:52Really interesting. Last question on the boardroom. Are you ever in a meeting where somebody that's on the board realizes, oh, my God, this is the former CEO of Vanguard? Hey, Bill, I got a question on my 401k. How often does that come up? Actually, it happened a couple times. And, you know, a couple of my colleagues in different boards were actually big 401k clients. So we did have good chats about that. But most of these guys are pretty sophisticated. Yeah, I can imagine. They don't need my help. Coming up, we continue our conversation with Bill McNabb, former CEO and chairman of the Vanguard Group, talking about startups and the future of advice.

45:37I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio.

45:52This is the Bloomberg Tech Minute brought to you by ChatGPT. Now with ChatGPT Work. I'm Carol Masser. Social media posts on sleep outnumber those on exercise by 3 to 1 and those on diet by 5 to 1, according to consumer researcher Rila Global Consulting. And so it may come as no surprise that there are seemingly no limits to what we will do to get a good night's sleep. People are spending on everything from pricey sleep trackers, AI-powered scent therapy machines, to$3 ,000 body temperature-regulating Manosphere-endorsed mattress covers, and couples outfitting totally separate bedrooms. As Bloomberg's Dina Shanker reports, it all adds up to a sleep support industry that's a$300 million business, with growth coming from functional beverages and sleep powders, even as some experts warn that these products may not be effective and can even be harmful.

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47:24Wrap up your workday with the Bloomberg Businessweek Daily Podcast. We bring you deeper dives into the story shaping your world. from the evolution of AI to the shifting priorities of global business. Plus, Silicon Valley power players and the latest tech trends. Catch up on the conversations you miss during the day. Subscribe to the Bloomberg Businessweek Daily Podcast on Apple, Spotify, or anywhere you listen. I'm Barry Ritholtz. You're listening to Masters in Business on Bloomberg Radio. My extra special guest this week is Bill McNabb, former CEO and chairman at the Vanguard Group, now sitting on a few boards and advising private equity, venture capital, and startup firms, which is really quite the pivot from a mutual fund guy to a VC and PE sort of guy.

48:15What attracted you to those fields and some of the younger companies that you're advising? So, you know, two things I would say. You know, one, I had no experience in the private markets. Private markets are growing dramatically. And I just felt like I need to understand this better. And, you know, for me, that was, you know, the chance to learn something new and hopefully help while you're doing it. But, you know, selfishly, I thought I was going to learn a lot. And I've been overwhelmed by how much I've learned. and how much more I have to learn. Second, during my last couple years of Vanguard, we established a research group that, you know, and we began to talk about doing some venture investing ourselves, less, not about making money or on behalf of our clients, but more just being in the ecosystem.

49:10And that all came about because we did a trip to Silicon Valley, took the whole leadership team, met with every large VC there, a bunch of their portfolio companies. And we walked away blown away by what we didn't know about our own business and what the future might look like. And so to me, no matter where you are in the investment arc, if you will, understanding what goes on in the startup world is, I think, just important to understanding the bigger picture. And then the last thing I'd say, this is just a passion play, like, Like, you know, our mission, you know, if you boiled everything down at Vanguard, we wanted to make the world a better place for investors like that.

49:53I mean, we got up every morning and afternoon. I'm lucky I get to do that. And the startups I'm working with, I believe very deeply that they have the potential to make the world a better place for investors. And if I can keep doing that for the next 20 years, I'm going to be really happy. So you're a senior advisor to Venrock. are you helping them vet startups or ideas or founders? Like what's your role with a fairly well-known venture firm like that? So, you know, the partner with whom I work the most is a guy named Nick Byme. He's incredible. He just sees around corners. He's got 25 years of experience doing this.

50:35Like I learn something every time I talk to him. so um nick nick will get approached by a lot of different people he will meet a lot of different people when he gets something that's interesting you know i i often get a call and it's like hey would you talk to these guys and see what you think and so you and i both have uh good connections with uh jason wank at altruist and that's how my recent full disclosure by the way not to only a recent guest, Rittles Wealth Management uses Altruist as a custodian. The firm's venture arm is an investor in it. I personally am an investor in it. I always like to get those disclosures out so nobody misunderstands what we're talking about.

51:19And I'm an investor there too. So yes.

51:24But Nick calls me after we first met and he says, there's this guy I want you to meet and just tell me what you think. He goes, we've invested. So Venrock had actually already invested in this case. So I meet Jason and I'm like, he had me on hello, right? Super impressive. Incredibly impressive. So the early days, it was Nick, Jason, and me in the boardroom. And I would say my role there was really twofold. One was just, Jason was a student of Vanguard and what did we get right? What did we not get right? How did we think about scaling? So I tried to bring that to, you know, to the discussions in the boardroom.

52:05And then very importantly, over time, you know, Jason particularly asked me, like, can you, like, just talk to some of my senior team on a regular basis? And so I do. And, you know, that's the mentoring part. And I think that's a big part of what, in a sense, I'm there for is, you know, I've made a lot of mistakes, I've, you know, sort of lived a lot of different movies that they're going to, they're going to now watch and live through and live through and um you know where is it relevant where is it not relevant um there are um situations where um new ideas get presented and then i will be part of the vetting process as well so um you know vanilla which is a software um product um help with estate planning.

52:56Basically, there's Steve Lockshin, who you know, personally, incredibly brilliant planner around all this. And it's like, let's take his brain and codify it. Turn it into software. Turn it into software. And I got a chance to interact. And we knew Steve a little bit from Vanguard and serving him through the investment side, we started an RIA from scratch. So I don't know if we'll ever be able to compete with you. We're still under$10 billion, which I have to explain to family members is walking around cash. It's not real money. It's real money. You guys have done a great job. But what if you had a blank sheet of paper and could create a firm from scratch?

53:46So we're going to do that. And we're in the process. It's called ARCA. You may have seen some of the press releases on it. I got a chance to work with two co-founders. There are three co-founders of the firm Finney. And again, you know Finney. Finney is a little different because what Finney is trying to do is really help firms do a better job matching prospects and turning prospects, the right prospects, into the right clients. this is a huge problem in the RIA space. People don't understand how important fit is. And we've been fortunate to build that into our process because it's disruptive for someone to come in, they're the wrong fit, they transfer everything in.

54:33It's so much time and effort. It's such a lift. And then six months later, everybody realizes, oh, we've made a mistake. And then it's a divorce and it's disruptive on the way out. You know, we actually were really strict on client selection in my time at Vanguard. And so when I met the, you know, two of the co-founders in particular, I talked to a lot and they're describing this to me. I'm like, oh my God, I love this stuff. Like, this is exactly how, you know, it's one of the most important things you learn in terms of building a great business is that fit. And they were doing, they were thinking about things from a technology standpoint that were way beyond me.

55:11I mean, they're a bunch of AI engineers. They didn't exist 15 years ago, 10 years ago even. And so watching that, watching their thinking on that. But very importantly, one of the cool things, and again, I'm getting tactical here with Finney, but it's just interesting to me because they developed a way, they're going to price this in a way that aligns outcomes much more structurally sound. So at Vanguard, one of the cool things we did was where we had active equity, for example, every active equity manager was on an incentive scheme where if they outperformed over a long period of time, we would actually pay more.

55:58And the expense ratio would go up. And we were happy with that. And by the way, if they didn't, they want it the other way. But we're the only firm who did that across every active equity portfolio. And we did that very early. You know, Finney is doing a similar concept, an analogous concept with like, you know, we're not going to be your traditional SaaS company where we charge these really big seat licenses and, you know, we're negotiating on who's using what. We're going to do it all on success. Like if you get the right clients, we're going to, we'll earn more money. And if you don't, that's on us.

56:34It's a really cool concept. And so, again, I got the tactical there, but it makes a point that what you're really looking for, if they get it right, it changes the industry in a really positive way. Altruist gets it right, it changes the industry in a really positive way. So let's dive down into that a little deeper for each of those. Yeah. I had always been told, hey, custody is razor-thin margins. There's nothing you can do there. And besides Schwab and Fidelity, the giants in that space, no one's going to take them on. You have to be a little, you know, crazy to say I'm going to take on the two behemoths.

57:16But they've become – Altruist has become the third largest custodian for RIAs, at least if we're going by advisor served. I don't know what it looks like by dollar amount. um what did you see when you first started talking to jason wank about what has always been such a challenging low margin business you know jason had this vision that um that the legacy players you know do a fine job you know at a level but in a sense these businesses had become you know i hate the term cash cow but you know there there's not a lot of innovation, not a lot of new technology being brought to bear. I want to say two years ago, and I hope I'm not getting this wrong, I think it was Schwab was generating 57 % of their revenue just from the cash sweep that they're paying a few bips on but earning for 3%, 4 % on.

58:14Spreads everything there. That's exactly right. So, you know, he had this path and he had been an advisor. And so he's like, what do I really want? And so the way we thought about it was, yes, there's custody and we can digitize it and we can make it much more efficient. We can make it much better, lower cost, frankly, for the advisor so they can pass on value to the client. You can, though, actually make it a platform that's more than just custody. So we introduced Hazel, which is this great tax planning capability, as you know, AI-driven, and it's taken the end of it. Everybody in my firm loves it.

58:58And P.S., Jason was more than an advisor. He's an engineer. So he brings sort of that coder mentality to how can we use technology to make this faster, better, cheaper? So the way I always envisioned the direction we go was this is going to be the platform of the future for advisors. And we will make it so much easier for them to do what they need to do. And Jason's got that engineering mentality. He's got that drive. He's incredibly passionate. If you look at the Altruist flywheel, it looks a lot like the Vanguard flywheel did. In terms of just this, if it works, this self-reinforcing perpetual improvement, perpetual driver of good outcomes has been created.

59:53What's the old line? I think this was Jeff Bezos. Your margin is my opportunity. That seems to be what's happening there. Tell us a little more about Vanilla. What are they doing and where is the disruptive opportunity there? So with vanilla, if you think about at the high net worth and ultra high net worth, which is a significant amount of assets in the industry, we talk about asset allocation. We talk about cost. And at Vanguard, we really talk about cost a lot. The single biggest opportunity for value add is in estate planning. I mean, you can save people millions of dollars where there's no other category that can do that.

1:00:37and vanilla changes the experience dramatically for the advisor providing that estate planning rather than whiteboards and stickies and flow diagrams hand-drawn it just gives you this incredible automated output so and i got a chance to be kind of an early pilot because vanguard was actually an investor in vanilla vanguard itself oh really yep and And they were running pilots. So I raised my hand and said, the best conversation I've ever had with the advice team that does our family. Wow. By far. Because we got, I mean, it built this whole balance sheet in one place. All the family trees, if you will, were all right there.

1:01:32All done in an automated fashion. And vanilla is a product that is not necessarily the end investor, but the advisor in between. Yeah. It's a little complex for the average person to just log on on their own. Yeah. The whole estate planning process. It really is a business. It's really being sold to advisors. So you're seeing wealth management firms adopt it. So, you know, the vanguards of the world and, you know, other big firms you would know well bringing it in and saying this is going to be the platform where we do estate planning. So I'm hearing a very consistent theme, which is all of the disruptive fintech that you're involved with, Finny, Altruist, Vanilla, seems to be all marketed to the advisor, which is so different from what you're doing on the board seats.

1:02:25Any other startups or other technologies you're looking at, either to the advisory community or anywhere else? You know, yeah. So I've been involved in a couple of others. You know, one, there's a company called Moment, which is some ex-Citadel guys who really are reinventing the way fixed income gets traded. And I'm not an investor there, but I like to think of myself as a friend of the firm. And Venrock is an investor there. And so, you know, I have those conversations. Again, the theme is not dissimilar in that you're making the world better because they're doing things with fixed income trading that have been done on the equity side for years.

1:03:14Fractional trading of bonds, they make it like that. And they're really having a pretty significant impact. There's one that we're involved in. Again, I'm not an investor in this one either. but I talk to him a lot around litigation. So that's a little bit different. It's my one non sort of investment oriented thing. What's the name of that firm? Cillow. Okay. And again, what's really cool about them is it's a marriage of incredible legal talent with engineering mindset. So imagine the Jason Wank of litigation lawyers. Like, you know, people who write code but have deep litigation experience. There have been a handful of funds over the past few years that literally are making investments based on litigation outcomes, class action outcomes.

1:04:10And they're truly non-correlated because the outcomes have nothing to do with the market or the economy. It's a really interesting space. Yeah. And, you know, this this company will do things that will this is going to disrupt this industry as much as anything we've talked about. So, you know, for me, you know, the fun part is all these entrepreneurs, you know, it's like you're getting a chance to work with some of the brightest minds in the country. They're all super passionate about what they do. and they're incredibly talented. And you're not going to get it all right. Some of them are going to be more successful than others.

1:04:54But if you can sort of help them along a little bit with lessons learned and whatnot, it's incredibly gratifying. You give them the best chance for future success. So the future of advice going forward, you've mentioned some of the robo-advisors like Betterment and Wealthfront. And in fact, the robo-advisor that Vanguard set up under your leadership quickly scaled up to$100 billion plus and then kept going, now the biggest, by far, the biggest robo in the world. But it doesn't sound like you think that the future of advice is just going to be automated or technology, what is the future of advice look like for both the average mom and pop investor who needs some help planning their retirement or paying for kids college or the higher net worth that's thinking about what am I going to do with this extra capital in terms of philanthropy or generational wealth straight up to, you know, of the multifamily offices and big numbers.

1:06:05So look, I think there's going to be a spectrum. I do think there will be people who go the automated way, fully automated, the original Wealthfront model, if you will. But increasingly, I'm pretty convinced that the bulk of the people, investors, are going to go with advisors where there's a human touch. I think that human touch is incredibly important. And so all the technological advances that we're seeing, whether it's vanilla software planning, whether it's the platform that Altros is developing, whether it's Finney's ability to help you, you know, grow your business more effectively and organically, those things free up the advisor to do the personal stuff.

1:06:54And so, you know, I don't know at Ritholtz what your average number of clients per advisor is, but let's just say it's 100, which is in the industry kind of a norm. I see no reason why somebody can't serve 300 more effectively than they serve the 100 today with the technology that's coming. And the reason I think it's important to have that person is I think that the really thoughtful advisor can really prevent you from getting off the reservation. You know, the automated programs are great, but people can opt out of them pretty quickly. Right, right. And we do see that. And again, you said the last six months are always indicative.

1:07:37You know, one of the things that we didn't talk about, but it's incredibly troubling to me, is the over-gamification of investing that's going on right now and the amount of day trading. We're back to day trading. Sure. I started in the 90s when that was – I remember the E-Trade commercials and the tow truck driver who owned an island. He just likes to help people who get flat tires. So he's still doing it. Like that was – and it's full circle between the prediction markets and then all the gambling apps. We're right back to where – And you actually see it in trading volumes. end of day options single day options it's you know it's not all being done by algos and hedge funds like there's a retail element now that's incredible and you know you again you take an s &p 100 stock that might have traded you know 10 million shares a day now it's trading 50 60 70 million shares a day and what what it becomes a self-perpetuating thing the more volatility there is, the more the day traders come in, the more they come in, the more volatility there is.

1:08:48And at the end of the day, you know that only the house wins there. The house will win. Same is true with the prediction markets. There's a tiny percentage of consistent winners and 90 something percent of people are making donations. That's right. So that's why I think the person remains incredibly important. So it was interesting. In a venture capital conference I was at, somebody asked a question. They said, do you think that all the AI and all the technology that's coming is going to replace humans or enable humans? And I think there are places where you can say it's replacement. Could be both.

1:09:27Yeah, it could be both. I think here, the majority of it's going to be enabled. So just to share a little bit of what we've been seeing, um it's not that we're creating new information we're finding ways to take notes and and keep a running dialogue of of everything that's going on with ai but then access it and use it in a way that is just enormously helpful to to clients and very often And if you're having a conversation with a client that's an hour, you're doing a year-end review, or maybe it's a quarterly review or anything like that, lots of stuff goes by that you may not pick up in that moment.

1:10:13But if you have a tool taking notes and reviewing it and summarizing it and remembering that two years ago they said, we'd really like to buy a vacation property now that the kids are out of the house, but we're not sure what we can afford. Hey, if you can access that and not forget it, if you have a permanent memory, not only can you successfully manage more clients, but you're going to do a much better job of it. And so the fear of all this job loss, I mean, it's certainly not showing up in much of the data yet. You still have relatively low unemployment and relatively low unemployment for people under 25, which usually runs about double the traditional U3 unemployment.

1:11:00So I'm fascinated by this. do you recall in in the mid 2010s the assumption was oh these robo-advisors they're going to put all the humans out of business is this just an ongoing luddite fear that every new technology leads to i think so because look there is disruption i mean there will you know and and and certain jobs are going to go away right and when you're in the middle of that like it's overwhelming. But I do believe that the creation of new categories of jobs, you know, we can't even imagine is going to continue. I do think there are areas where the technology just allows you to do more, like you described.

1:11:47You know, it's interesting. We had an interesting thought experiment. So when the the robo started, our idea was to take the best of Wealthfront technologically, but to have a certified financial planner at the end of the telephone or video screen to interface with the client. And my chief of staff, who was a 20-something software engineer at the time said, like, no, like, who needs a person? And I said, well, how much, you know, so we formed a little, we got a little focus group. This is completely unscientific. This is, again, sometimes how I like to do things. And so we sat around and we said, so I give you$25 ,000, but you want a little bit of advice.

1:12:39They all wanted Robo. Like, I don't want to talk to somebody. I said it's$150 ,000, which for them at the time was probably equal to a year's pay. Four or five out of the six were like, I got to have a person. Technology can be helpful, but I need to be able to talk to somebody for that amount of money. And it really stuck with me. There is a comfort. And again, you've done a lot with Morgan Housel over the years. The psychology of that and that need for human interaction, I think, is very powerful. So I always hated the idea. Listen, I'm a middle class kid from the suburbia. I didn't grow up with any money or any thoughts of an inheritance or anything like that.

1:13:26The idea of having a$10 million or even a$1 million minimum, I was never comfortable with. So we set up two digital platforms, one driven by Betterment, which is under a quarter million dollars. And there is a group of advisors that come along with that. So if you're a 50 or 100 or$5 ,000, it doesn't matter. There's no minimum. If you're up to a quarter million dollars, the whole platform is digital, everything from the onboard to the allocation. but there is a live human being there if you want to talk to somebody. And then the platform that we built from a quarter million to a million was based on buying BlackRock's future advisor, which they figured out, oh, this isn't the future of ETFs.

1:14:16We don't need to own this. And so we ended up purchasing that from them. Not only is that$250 to a million, but it comes also with a specific advisor. And as much as people say, I love the digital platform. I don't need to deal with anybody. I just want to log on to the website or app and deal with it. As soon as there's any volatility, they just want someone to talk them off the ledge and say, hey, it'll be fine. We go through a 10 % drawdown, two out of every three. I want to say it's three times every two years, something like that. So this is normal. And, you know, if you look at here's how many drawdowns we've had over the past 20 years, they may not know that.

1:15:03They may not have access to that. But if a person says, hey, we can't guarantee you that the market's going to keep going up forever, but here's what the history looks like, it's just a huge comfort for people. And they could stay out of their own way. Absolutely. So, you know, I think it's really powerful. And again, thematically, certainly everything we're working on in a lot of our startup land is exactly taking that concept. Using the technology to make it faster, better, cheaper, but making sure a person is in the loop for that comfort level. Faster, better, cheaper, way more personalized.

1:15:38Way more personalized. So we've covered so much stuff. Before I get to my favorite questions, is there anything we haven't covered yet? I think we're good. We touched a lot of stuff. So let's jump to those questions. And I've asked you these 10 years ago, but I want to circle back to them. See if I'm consistent. Right. Well, we'll see what's changed over the past decade. So I'm going to assume your mentors are all fairly much the same. Tell us who Jack Brennan, clearly one of those people. Who were the mentors who shaped your career? So Jack Brennan certainly, and I talked about that earlier, but lead by example and the power of we versus I.

1:16:22I had a rowing coach post-college. And his big thing to me when I was thinking about leaving New York and going to Vanguard was find a place that matches your values and you'll be happy. And I dedicated my last annual report at Vanguard, Vanguard Funds to him. you know, a section of it to him because that advice actually was what put me over the top in terms of I got to go to Vanguard. You know, there were so many other mentors. One I'll mention, though, we had a great board early in my career and Charlie Ellis, who, you know, the great author of Winning the Losers Game, Charlie was on our board.

1:17:08and Charlie was actually a real mentor to me because when he was at Greenwich and he would come and present to us how we did competitively in the 401k market and I was running that business. So we developed a pretty good bond. Then when he came on the board, he just was always there to sort of push and prod a little bit and help shape me. And again, the way he thought about investing just absolutely resonated, obviously, with what we were doing. He just wrote a new book, just dropped a few months ago. He's still active in his 80s. It's incredible. It's incredible. Speaking of books, what are some of your favorites?

1:17:48What are you reading currently? So right now, I'm reading Jim Collins' What to Make of a Life, which is very different for him. It's not a business-oriented book. As I mentioned to you in other times, Good to Great and Built to Last, Jim Collins Classics, they're the first business books I go to. But what he does is he takes lives of people we know in sort of pairs. And he just, like, what were the key events that made them do what they do? So he uses, like, two football players from when I was growing up. Carl Eller and Alan Page, Minnesota Vikings. One of them went on to have a real drug problem and then become an incredible champion of rehabilitation and did so much for his community.

1:18:45The other one went on to be a Supreme Court justice in Minnesota. Wow. And what were the key decisions? What allowed them to go from this great football career to a second act? So anyway, I'm reading that. I'm partway through it. It's phenomenal. And I always have a fun book or two I'm reading, too. So it's still a big science fiction collection. So The Strength of the Many and The Strength of the Few, it's two parts. There's a third one coming. Imagine Ancient Rome meets The Matrix. That's all I'm going to say. Wow. Only a weird brain like mine could find that fascinating. That's intriguing. I watched and read Project Hail Mary, written by the same author as The Martian.

1:19:31Andy Weir. Really fascinating book. He's such a great writer. He's phenomenal. One of my favorites. Speaking of movies and or videos or podcasts, what are you streaming, listening to, watching these days? You know, not a ton. The most recent podcast was the Acquired podcast. They did a huge thing on Vanguard, mostly on Jack Bogle. It was great. It was really, really worth doing. Ben Gilbert and his partner, they just did a fantastic job. You know, most of the other things, the streaming, I just rewatched. Netflix did this three-year series on the Tour de France. I'm fascinated by sports called Unchained, and it's really good.

1:20:22So that was sort of a fun one. Our final two questions. What sort of advice would you give to a recent college grad interested in a career in either financial advice, wealth management, or fintech startups? Well, so on the latter, there's never been a better time to start a company. You know, with technology being as ubiquitous as it is and cheap, frankly, you can take an idea and you can build something pretty quickly without a ton of money. And then if it's a really cool idea, you know, there are people ready to help you. And write a check. And write a check. And so I'm encouraging people who have that entrepreneurial itch, this is a great time to scratch it.

1:21:10Like, don't wait. but you know think about what you're trying to do don't do it just because you you want to quote unquote get rich do it because you have an idea that really matters and something i always apply this um it's a jim collins phrase the hedgehog concept what are you passionate about what can you be great at and i mean great and then how does it drive your the economic engine And so you want to have a passion. You want something that you truly believe you can be world class at. And it's got to economically, there's got to be an engine that it drives. And if you, you know, today, it's just a great time to be doing that.

1:21:53If you're going into the asset management investment world, I think the two places that are going to be the most interesting, you know, I continue to think the venture world It's really interesting because this, you know, whatever anybody's politics are, whatever all the stuff. It's cutting edge. It's the latest and greatest. You know, there are so many cool things going on right now. And, you know, the chance to actually go explore that and invest in that is kind of fun. But I think wealth management, you know, I think the idea, you know, I think this advice thing has got a long way to run. And if I were a young grad, rather than going into a traditional asset management, I would be thinking much more about individual wealth and how to start my own advisory firm or how to be part of a Ritholtz's wealth or something like that.

1:22:50Our final question, what do you know about the world of investing today that might have been useful back in 1986 when you first joined Vanguard? Oh, so much. You know, the long term really is the way to think about things. I think even though I joined a firm that was famous for it, I don't think my own brain was set around long term. And the ability to sustain your beliefs and your discipline over the long run is a singular differentiator. And, you know, I've had the privilege of being inside of a lot of different firms. And it's amazing how many people don't actually still get that. So I think that and it took me a while before I got there.

1:23:40So I wish I'd had it right away. You know, second for me is really pay a lot of attention to things that nobody's talking about. So, you know, and this is much harder. So as you know, when you started The Big Picture, I actually started every morning with reading The Big Picture because you did a really good job curating what was out there and getting rid of a lot of stuff. There's a long history, which we'll discuss offline, but when Brandon said to me, hey, I've been a reader of your stuff, when I first met him at some, you know, large conference room of lunch 20 years ago, my head exploded.

1:24:29I might have been one of the people who pushed it that way. But, you know, to me, it was a really important thing. And, you know, I think like today, people aren't talking about leverage that much. And like, I worry about leverage. Like you when you look at what the hyperscalers are doing in terms of the bond market right now. And, you know, a couple of them are not net cash flow positive because of all the infrastructure that they're building. The leverage in the system, you know, private credit had its moment, you know, a year ago or whatever, six months ago. And, you know, that was one you could see coming.

1:25:09I worry a lot about leverage. No one's talking about it. So it's like I didn't really, you know, When I first started out, that way of thinking, that contrariness was not part of how I had been trained or brought up. But again, this is where a Jack Bogle, a Jack Brennan, John Neff, the great value investor, they were really impactful. I was going through an old piece I was writing and never finished. and I found some notes and I can't figure out whose line this is. It feels like I'm stealing it from somebody. Equity crises, bruise, debt crises, maim. And I've been unable to track that down and it doesn't sound like something I would have written.

1:25:56But anytime I use something from someone, I'm usually very, very fastidious about making sure the quote is attributed correctly. but it's just reminds us of you know leverage kills look look what's going on in korea with their 3x and 5x funds as those unwind man they've had a great run and they've given a ton of it back because of the leverage bill i could talk to you for two more hours thank you for being so generous with your time this has been utterly fascinating we have been speaking with bill mcnab former chairman and CEO of the Vanguard Group, board member at IBM and UnitedHealth, senior advisor to Venrock, as well as board member and advisor to so many startups.

1:26:48If you enjoy this conversation, well, check out any of the 654 we've done over the past 12 years. You can find those at Apple Podcasts, Spotify, YouTube, Bloomberg, wherever you get your favorite podcast from. I would be remiss if I didn't thank the crack team that helps with these conversations together each week. My audio engineer is Alexis Noriega. 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.

1:27:59Thank you. on Apple, Spotify, or anywhere else you listen.