The Secretive Family Behind a $13 Trillion Financial Empire

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0:58Morning decisions. How about a creamy mocha frappuccino drink? Or a sweet vanilla? Smooth caramel, maybe. Or a white chocolate mocha. Whichever you choose, delicious coffee awaits. Find Starbucks frappuccino drinks wherever you buy your groceries. What is the central triumph to me is the pivot. You're sitting there, all mutual funds all the time. That's your copper wire. The world's going wireless. You can sit in the copper wire and end up losing your business. Say the word mutual fund. I feel it's dying, and I think it's getting replaced. I think a relic. You say mutual fund, I think of Museum of Natural History.

1:33That's where it's going. It seems that way. It seems, though, even if they can level the playing field between mutual funds and ETFs with respect to tax benefit. But still, I think it's people like ETFs a lot. I think we prefer that mutual funds. You're a much more generous journalist than most. You're supposed to be more cynical and say, this thing is dead. Welcome to Open Book. I am your host, Anthony Scaramucci. Joining us today is Justin Baer. He is an award-winning journalist. He's also deputy markets editor for The Wall Street Journal. and he's got a great new book out. It's called House of Fidelity, The Rise of the Johnson Dynasty and the Company that Changed American Investing.

2:19And you and I had actually talked about Diana Enriquez's book, which I guess is almost three decades old now. So a lot has changed at Fidelity. But congratulations on this. It's an amazing story. And it's an amazing story about one big thing, Justin, is do one thing, do one thing with great excellence and stay doing one thing. And you, too, can have$13 trillion, right? I mean, that's basically the story. So it's great to have you on. Tell us a little bit about your background first. Thanks so much. And how long have you been at the Journal? What drew you into reporting? Yes. Yeah, that's a different story.

3:00Yeah, I've been in the journal, I guess, coming up 15 years at this point. I had worked at a few other outlets before that, Financial Times here in New York and Bloomberg News, also in New York. And then I got my start at a newspaper, daily newspaper in Indiana called the Journal Gazette. And, you know, I had kind of a late bloomer in terms of my interest in journalism. I was not one of those people that, you know, wrote a newspaper, you know, a newspaper on their neighborhood or their like fifth grade class, like like a lot of people kind of came to it late, discovered it very late when I was in college.

3:44and knew I was interested in finding a role where I could do a lot of writing. Didn't think I was cut out for or interested in getting the news business and ended up, you know, sort of luck, working at an internship at a newspaper. Just really loved the idea of, you know, showing up and going to interview people and then going back to the paper and writing about it and then seeing your name and seeing the article the next day. But it took me a few more years after that to get going, and I worked in a different related field, went back to school, and that really began my life as a reporter as I was getting into my mid-20s.

4:34This is just an existential question before I get into the book. So journalists, let's talk about journalists for a second. You go into journalism because you're trying to find the truth. You go into the journalism because you're fascinated by human stories or human stories connected to business. And I find journalists, appropriately so, by the way, I'm just wondering if this is you, cynical. They look at things a little bit of a jaundiced eye. either trying to figure out if they're getting bullshitted by somebody or if what they're actually seeing is what you get. So is that you? I mean, to a certain extent, yeah.

5:14I mean, I think all of the above, I think wanting, um, enjoying, um, uh, learning new things and, um, being able to gather that information and share it, you know, maybe for the first time with the broader world. That's very exciting. Uh, That's a big part of the allure. You know, the cynicism. I also think there is also, I've always found almost like the reverse of that at times. Going into reporting a story with a certain naivete and openness to find out where the truth is and where the real story is. And it's difficult to do that if you're cynical all the time. So I find a lot of reporters, I've always strived to look at things the same way, that to be open to making the wrong, to be open to the fact that your gut instinct or your notion of what a thing might be is off base, right?

6:24So I don't know. But yeah, I mean, you have to be, you have to look at things critical and critically and as you're. I'm starting there, if you don't mind, Justin, because this is the this is what makes this book so interesting. There's been more than one book written about Goldman Sachs. You cover Goldman Sachs has been more than one book written about J.P. Morgan. As far as I can tell, there's really been one book, Diana's book, three decades ago. And this is, to me, one of the most private, it's one of the most influential financial institutions in America, but it's also one of these things that is incredibly private and it's so hard to understand.

7:08And so something drew you to this. What drew you to it? And then I want you to tell us about what you discovered, which I think this is one of the more fascinating stories for me because this is a monarchical story. where that's somebody that's supposed to succeed and they don't believe in the person. It turns out that that was the right person, right? I mean, that's basically, I've read the book. But anyway, go ahead. Yeah, yeah. I was drawn to that story for all those reasons, right? The challenges in learning. You know, in Fidelity, like a lot of, you know, they're essentially what consumer companies, right?

7:49they appeal to and their customers are consumers and they reach out to them directly. So they do have and always have had for decades this massive sort of marketing machine where people know the existence of a lot of their services. And yet at the same time, the inner workings of the place and, of course, the family that has controlled it for eight years, far more elusive, right? And so that was, you know, as I was covering them, you know, the journal, you know, I kept discovering things and talking to people who had worked there over the years that I didn't know and I didn't think really was known broadly.

8:34Right. And, you know, and Diana's book was. It was really good. It was it was written at it, you know, as you as you point out 30 years ago, a much different point in history of fidelity and even finance in general. It was the sort of peak of the mutual fund, where people couldn't get enough mutual funds, couldn't get enough stories and books about them. And the world's a much different place today. And again, Fidelity is a much different place today. And, you know, as I was covering them and the industry that they're in, even people that were part of that business did not have a real current feel for what was happening at Fidelity.

9:24You know, this is going back maybe years ago or so. And it was a point at which there was this massive shift of money into index funds. And it appeared as though those that were the sort of kings of stock picking and bond picking funds were really struggling with this trend. And yet at the same time, we're in kind of denial that it was happening. And people sort of through, you know, again, these are people that work at either competitors or wealth managers who know Fidelity very well. you know, kind of viewed them as sort of being a little bit listless and not really adapting or certainly at least at the very least not really talking about how they were adapting to this new world.

10:20And so, you know, as I got to know the company and got to understand better what was happening under the surface, it seemed like this was outdated. So all the more reason to think like, well, there's a really great story here. And then what happened after COVID is they just went through this massive growth surge that really kind of continues to this day. Not only did the number of people that were signing up for accounts and the amount of money they were managing was skyrocketing, but also at our like 18 or so months, they They had increased their workforce, global workforce, by like 50%, which for like a company that at that point was 75 years old, that was pretty unusual.

11:05So all these things were pointing to in the direction that there is a really good story. And then, of course, what I had known that sort of some of the contours of was this very sort of dramatic moment in time where the family's hold on this company and its future seemed to slip a little bit. And I knew there was a lot more to say about what exactly happened and what were people's motivations in that saga. And so I was a sort of for me from day one, it was a no doubter. This is a great, great story. As you said, it then became up to me, like it was more of a shift toward like, am I going to be able to pull this off and to pull this all together in a way that really does this justice?

12:04So just as I tried to do. Guys, thank you so much for listening and subscribing to Open Book. You know we've had 200 authors on this show. It's been a lot of fun for me, but I'm also an author now too. And I've got All the Wrong Moves available. Go to scaramucci.net backslash all the wrong moves. You can buy your copy today. It's a lot of fun and lots of commentary about what's gone on in the U.S. over the last three decades. You did that, okay? So the book is The Crown Meets Succession. That's what the book is. and in it it's a true story it's a true story about a three-generational family uh the you know she reminds me the way you write about her and i'd like to get your reaction to this she reminds me of katherine graham in a way um and what do i mean by that she's a reluctant warrior uh she doesn't seem to have the skill set to replace the legendary father or even some of the Peter Lynch's, but she does have that skill set.

13:09She's actually a pretty brilliant visionary and she's doggedly determined. And I think the stuff on Bitcoin is fascinating. Obviously, I'm a Bitcoiner. You just imagine she's a private company, so she overrules everybody and says, we're going to be putting up some mining rigs. And oh, by the way, people can deposit their Bitcoin here at Fidelity. And I do have Bitcoin at Fidelity, be fully disclosed. So tell us a little bit about her personality. And of course, this is Abigail Johnson, who runs Fidelity and is the daughter of Ned Johnson. Yeah. I mean, you almost have to go back to her father's rise and his, the moment in which he takes over to offer sort of the context of her experiences because he, like her, did face a lot of skeptics as it became clear that he was going to succeed his father.

14:09But also, Ned ended up, you know, he was a very different guy, and he ends up being, in his differences in what made him such an unusual thinker and builder of businesses, Um, he, it ends up being the perfect skillset for that moment in time, you know, which was sort of get through the seventies when the only thing that they sold, which was stock mutual funds, no one wants, right. It goes on for almost a decade. So, um, let's find all these other things, um, uh, that we need to do. Abby, uh, much different in that respect. But Fidelity is a much different place when she's making her way through the organization.

14:58And it's her focus on operations and making the play, making these, at this point, are these massive platforms, investing platforms, whether it's a 4K record-keeping business or the brokerage retail business or the custody business, making them run as efficiently as possible. role, you know, lowering unit costs, improving customer service, all these sort of big, you know, weighty challenges that these kinds of business, you know, the certain companies where you think of like Amazon or Walmart or others have been, made them so successful and sort of applying to a lot of those, the discipline and those rules to just fidelity.

15:48It's something that they really needed at that point in time as we get into the 21st century. You know, personality-wise, yeah, she has always been very introverted. And, you know, beyond that, just very uncomfortable with the notion that, you know, she's successful because she's part of this family. You know, as far back, you know, when I talk to lots of people as far back as when she was in college, you know, she goes to a college that's not in that sort of, you know, narrow corridor of, you know, leafy colleges and universities around New England. She goes a little bit further afield and no one, you know, and doesn't really tell you so that even close friends of hers don't realize that her father is the chairman of Fidelity, which by that point, you know, when they're getting into the 80s and the height of the Peter Lynch era is the most famous investment firm in the world.

16:58And that really continues. You know, each stage of her life and career, she starts working. Her first job is at a consulting firm in New York. Is painfully shy there. Kind of goes to business school. Again, you were there. So you know, like, the level of networking and striving that was in place. I mean, she would never remember this, but I took a course in 1987 called New Financial Instruments at the Harvard Business School when I was at Harvard Wall School. She was in the class with us. And remember, it was class participation. And so, you know, I've got a good memory and pretty observing guy and knew who she was.

17:48She was very well prepared. And when she was called on, she answered the questions well. Not a flamboyant person. you could definitely see she had levels of of introversion in her personality and i think the cool thing about her and there was a book about this introverts win or something like that you know she's she's an introvert that's one and you know you you talk about the weight of being a seon and a family right and so there's a weight to this and this is something you know i didn't know my dad was a crane operator so i didn't feel that way but the flip side is uh he didn't know anybody at the country club to help me out to get my career started.

18:23Right. So, so, you know, it's just one of these things you're always in that tug of war, but I think what you've done a beautiful job in the book is you've explained how she has triumphed and you've explained how fidelity has triumphed and what is the central triumph to me is the pivot. You know, you're hitting there, you know, all mutual funds all the time. That's your copper, that's your copper wire. The world's going wireless. You can send it in the copper wire and end up losing your business. You know, Mike Novogratz and I are good friends. We work a lot together. And we always say if Skybridge or Galaxy, Skybridge or Galaxy are the same business that I have right now three years from now, not going to be in business.

19:07I got to move the business to where the puck is going. And I admire her for doing that. what other elements do you think are going to make the company continually successful? And she's in her 60s now. So who replaces her? So that is a big question. You have to look back at, okay, well, what was the state of play when her father was in that same age group, right? And it was still relatively early in Abby's career. and you could squint, you know, if you work there and just assume that, oh yeah, she's probably going to run the company someday, but it wasn't really, you know, it was probably equally likely to people that she was not going to stay, right?

19:59And that she would want to do something else or that this was something that she wanted to spend more time with her children or whatever it would be. It was only, you know, it was too early to say definitively she is, she's making her way up this organization with the goal to take over. And her father was, you know, was a lot, he was also extremely reluctant to signal that that was preordained in any way and would tell people, so he's, you know, surrounded him, you know, I don't know if she's going to, you know, ever be ready to do this or I don't know when it's going to happen. And so it was, so I think we're kind of in a similar situation, similar part of the timeline now with her being in her 60s, having been in charge for 10 years.

20:58You know, there are members of the next generation of the Johnsons. So we're talking, you know, Ned had three children, Abby being the oldest, and Abby has a younger brother and younger sister. And so there are some of the kids who are in their, you know, oldest of whom are probably just three at this point or so, that, you know, where they are and where they might be is, you know, in the organization long term is still probably too early to determine. So, you know, I think that's the expectation was that they were going to keep it in the family. But, you know, things happen, right? And people, and I think, you think it'll go public, Jocelyn?

21:56I mean, that would, you know, if they were to pursue that, that would be a reversal of their long time. They've really enjoyed being a private company and not just because it, for the family reasons, they have seen it as critical for them to be able to invest in long-term ideas. And that if they were beholden to all these sort of outside constituents, including shareholders, it would make it much harder for them to try things out, right? And which has proven to be so successful for them. Obviously, not always. And lots of times it didn't work. But it was, it's sort of culturally, it's a big part of who they are.

22:45I think the most fascinating part of the story to me is the consistency. I think these great companies, you know, I mean, Henriquez, Diana told the story of them literally taking the motif from Procter & Gamble, the branding, the idea that you were going to sell mutual fund investing the way Procter & Gamble sold soap or the way McDonald's sold french fries. and you were going to create a consumer brand around the idea of investing. And of course, with the introduction of the 401k, it became very exciting and very well placed. And now, you know, she's part of the future. She's one of the big first movers in digital finance.

23:31And she sort of morphed that business into something that is ready for the next decade, if not the next quarter century. So, yeah. Yeah. So I guess where I'm getting at as a journalist, when you started your research on this, sometimes we have presuppositions in our mind. Maybe you didn't, but I usually do. What were your presuppositions? Then you did your research, Justin, and did your presuppositions, were they confirmed by your research or was something different come out related to your research? Yeah, I guess maybe there's some very specific things that, so we talked a little bit about the challenges around succession from Ned to Abby and this moment in time where things seemed to go sideways between them.

24:28And that was known, you know, I'd written a little bit about it, a colleague of mine had written about it, about what, you know, this essentially what looked like a coup attempt by Abby, I guess her father. And I sort of began this process thinking, okay, well, one of the things I have to do is I have to figure out why this happened, right? what came between them in this moment that would lead to these very dramatic things that happened in very quick succession. One, Abby's removed from her role, very big job in running the mutual fund business, which at the time was the flagship. And then a few months later, this what looked like a boardroom coup that was thwarted at the last minute.

25:21And so I had to figure out like what was her motivation and what was, what was going on. And, and I, so, so I said about doing that and, and learned that there was a lot going on and including the, the consideration for the first time, you know, in at least her lifetime that, that her father was, was open to maybe selling the company. Right. and to me that was i did not necessarily expect that that twist uh you know and as i pull you know pulled everything together and filled in the in the blanks talking to lots of folks it all made sense but that was something that i was did not um did not see that necessarily that that twist coming um i would say uh i was surprised to um to learn uh a lot that what i guess ned ended up emerging as a much more complicated and fascinating figure than i thought um he very you know even even throughout his career very high profile you know there are lots of magazine covers with him on it.

26:33And yet, just learning a lot about his life from his upbringing and some of the learning disabilities he had from an early age and overcame to the very interesting way in which he solved problems and what he was, you know, with infidelity as someone who would sort of move from one very narrow problem that needed to be fixed to the other and what he wasn't he was not this sort of you know command and control uh big picture uh strategy guy right that uh he was someone that was remained for his whole life a tinkerer someone who would you would look for things and then devote 110 % of his time until he fixed it.

27:29Like the time he looked at the website that launched in the 90s and it didn't look right. So he spent like three weeks sitting next to the developer, like figuring out, oh, that should be blue. No, that should be green and all that stuff. And so that level, it was just a much more interesting, fascinating person that I expect it is when I started. So we're, we're at the point in the podcast where I, you know, we, my producer and I, we took five words out of your book. I'm going to read the word. I want you to tell me what first comes to mind. And, you know, from the lens of the book, so, because there's a way of investing here that they think about.

28:10So if I say the word investing, Justin, you say what? I say, gosh, I would say, I mean, the first comes to mind, I guess, is picking stocks, right? Yeah, that's exactly what I think. Peter Lynch, these are hardcore stock pickers. They've morphed the business. But if you went up there right now, there are people that have individual stocks in their portfolios, guaranteed. Yep. Right? Okay, so I would say, and if I say Johnson, and I don't mean Johnson and Johnson, I mean Ned and Abigail Johnson, the Johnson family that runs Fidelity. I guess I would say New England. I would say Boston. I mean, to me, they just invite so many ways embody that region and history.

29:00And not only with Fidelity, but the other previous family business they ran, which was a department store right downtown. I would say, but the Johnsons are, you know, are a twist, right? They were, they, each of them were, were mesmerized by the market, right? In a way that a lot of their, their, their peers in that, in that, you know, Brahmin or however you want to define that, that community up there of well-to-do families, they were, they were pulled into this market and the excitement and the potential. And that is, you know, to me, that's something that is kind of really sets them apart. And what even other members of the family apart from, say, Abby, Ed, Ed's father.

30:01The word fidelity, what a great word, right? Well, I always thought like one of the best names for an asset management company ever, right? If I say the word fidelity, what does it mean to you? I mean, I know the backstory, which was it was that was not, you know, the name did not come from the Johnsons, you know, Edward Johnson II bought out the guy who ran the originally Fidelity Fund. So that takes me back to this post period after the crash and the origins of that fund firm and Edward Johnson's takeover. of it. So I, I, but you know, but yeah, I mean, finality now, like it's, it's, um, it's the financial, uh, it's often, you know, the financial services company that, uh, is the first one you deal with, right.

31:01As you, as you enter your, you know, your professional life, right. Your first day of work. Yeah. You filled out the thing and then they said, okay, what do you want to do with your investments. And guess what? Your firm, my firm, fully disclosed, my IRA, my 401ks are all affidality. Yeah. And you're often defaulted into them, right? So you show up your first day, oh, this is your account and your money. It's zero right now, but every paycheck it's going to accumulate and it's going into this target day fund. And for someone who's like 22 years old, You probably have a bank account, but most people, this is their introduction to finance, right?

31:46Right, exactly. So I think it's different. Again, I think back to the old days. All right, so two last words. Okay, one is mutual fund. I say the word mutual fund. Yeah, I feel it's maybe dying, right? I mean, I think it's a relic. Relic, yeah. You say mutual fund. I think of Museum of Natural History. That's where it's going. Am I wrong? It seems that way. It seems, though, even if they can level the playing field between mutual funds and ETFs with respect to tax benefits. But still, I think it's people like ETFs a lot. I think they prefer that. You know, and I think that arguments for mutual funds.

32:41You're a much more generous journalist than most. You're supposed to be more cynical and say, this thing is dead. But, you know, you're like too nice of a guy. Are you sure? You're like the night-by journalist or what? I mean, too nice of a guy. No, not at all. No, I just think, I just know that that's a big reason, right? Where you've seen such a... All right, so the last word is tied to mutual fund, And then I'll give you the last word. And that's ETFs. Yeah. I mean, I think they're taking over. They are helping to save the active management industry. Right. I think, you know, they're the success that firms have had in active ETFs.