On March 1, William McNabb became president and director of Vanguard, succeeding John Brennan. Within a year, McNabb, 50, will also take the CEO reins from Brennan. No newcomer to the Valley Forge, Pennsylvania, investment management company, McNabb’s got big shoes to fill, but he’s the first to bestow accolades upon his predecessor. After all, McNabb–who’s held several senior management roles during his 22 years at Vanguard–says he’s “learned a ton” under Brennan’s tutelage over the years. “I look forward to continuing to learn from him,” McNabb says, as Brennan will remain chairman of the board and active with the leadership team, working on strategic issues and other important initiatives at Vanguard.
McNabb also plans to continue building Vanguard’s “deeply experienced leadership team,” which he helped Brennan to construct. McNabb also hopes he can maintain the intense drive that Brennan has always exhibited. Brennan is “the least complacent person in the universe,” McNabb says admirably. “He’s always looking for continuous ways to improve. I hope I will be able to maintain that intensity around continuing improvement.” Yet another admirable Brennan trait, McNabb says, is that he’s never “let us stray from our core values. I want to do my humblest best to continue that.”
Brennan has lots of faith in McNabb’s capabilities as well, as he said in a recent statement that, “Working in concert with our experienced senior management team and board, Bill is the ideal person to lead Vanguard into the future.”
McNabb talked with Washington Bureau Chief Melanie Waddell in a telephone conversation February 25 about his priorities for Vanguard as he takes on his new role, the economic and investing environment, and what’s on everyone’s mind as the Presidential election looms.
What’s your priority as you take on your new role as president and director–and eventually CEO–of Vanguard?
To continue delivering what we’ve become known for, which is high value to all of the clients that we serve, and figuring out exactly what that means for each of the client groups, will be one of the things that will continually challenge us, and we’ll always be thinking about new services and products. But the bottom line for us is really to make sure we’re seen as the highest provider of investment products and services anywhere in the world.
Retirement planning services is a big area for Vanguard. Do you have any specific plans there? Could you talk a bit about the new income mutual funds, called Managed Payout Funds, that Vanguard has in registration at the SEC? Retirement is one of the huge themes, especially in the 401(k) and IRA world. On the 401(k) side, I think you can expect to see us continue a lot of emphasis on so-called automated solutions. We have a program called One Step, which allows an employee [in a] 401(k) plan to automatically be enrolled, get automatic savings increases on an anniversary date, and if they don’t choose the investment options, we will default them to a highly diversified, typically a balanced fund, most often these days a target retirement fund. We will supplement that with a great Web site and great education to help them grow as investors. The Payout Funds, you could almost think of them as the back end of this automated retirement plan trend in that somebody who’s been saving for retirement for a long period of time, and have accumulated some capital, the thing that’s foremost on their mind when they retire is “How do I preserve capital and derive some level of income from it?”
Are these Payout Funds similar to target date funds?
The difference is that some of the competitor products that are out there I would almost call them reverse target funds–you pick a date and you’re going to withdraw money toward that date. Let’s say you retire today and you pick a 2030 fund and you end up depleting your capital. Our funds, which are still in registration, are going to be very different. The idea behind our funds is going to be much more along the lines of preserving capital and generating a sustainable income for as long as someone’s alive.
What do you make of the recent Supreme Court ruling that 401(k) plan participants can sue a plan sponsor?
Remember, this was a pretty narrow ruling. Based on our analysis, it was a very appropriate ruling. If you think about it in more macro terms, if a participant is harmed by an action–or inaction–they ought to be able to recover [any losses]. We’ll see what the facts are in this particular case as it plays out, but I think, again, the way we looked at the ruling, it made perfect sense to us.