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Why There Is No Betterment Without Bogle

Without Jack Bogle, Betterment probably wouldn’t have ever been. He leaves a legacy of customer-centricity to live up to.

Articles by Jon
By Jon Stein Founder, Betterment Published Jan. 16, 2019
Published Jan. 16, 2019
7 min read

I learned tonight with great sadness that Jack Bogle passed away. We have lost the leading voice for the customer in the financial services industry.

Jack has had as much influence on my professional life as anyone. Betterment would not exist without the example he set. I don’t say this lightly, I mean it seriously: None of the impact we’ve had on the financial industry—and I hope we’re just getting started—would have happened without him. I’m sad that I didn’t get a chance to say goodbye, though I did tell him, a number of times, how important he was to me.

Jack and I first met when I was a student at Columbia Business School in 2009.

He was there to give a talk. I was a devoted customer and a super-fan; I might have called him my idol. No doubt he was the person I most wanted to emulate in business. I had read everything I could find about him.

I knew that he put his customers, and even his team, before himself. So much so that he’d never “cashed in” and become wealthy with the growth of his firm, Vanguard. Unlike any other financial titan—anyone who has had the level of financial industry success that Jack obtained—Jack was not only not flashy, he wasn’t rich to begin with. He didn’t need money to be happy. And that resonated with me. He was a man of the people.

“The Man in the Ring,” he called himself, fighting beside his customers for what was right for them.

He was on campus to promote his book, “Enough.” I stood in line for 20 minutes after his talk, to shake his hand and have my copy signed. As he wrote a note inside the cover to me, I gave him my best 30-second pitch for Betterment, voice breaking with excitement. At that time, Betterment was just an idea to build an easier way for anyone to invest, combining the efficiency of Vanguard with the ease-of-use of an online bank. And that simplicity was expressed with a simple slider you could move, between a stock portfolio and a bond portfolio, to move your asset allocation along the efficient frontier. Jack listened intently, and then asked me questions about my idea, holding up the line behind me, and said, “You’re going to help a lot of people.” He added to the inscription, “Stay the course!” The man was flawlessly, consistently on-message.

I next met Jack in 2013 at a luncheon at the Yale Club. This time the room was smaller, maybe 80 people at 10 round wood tables, overstuffed leather chairs, and antique collegiate paraphernalia enveloping every surface. The salads were about as fresh as the decor. The lunch was for the Institute for the Fiduciary Standard, to honor Jack for his role as a fiduciary, and several industry luminaries spoke about what a great man Bogle was, with personal touches. Jack set the standard for what it meant to be a champion for the customer. To build a truly customer-centric financial services firm. And the room, filled with industry leaders, had come together to recognize that he was an exception to the norm for the industry. Cliff Asness, founder of AQR capital, one of the most successful and largest hedge funds, spoke about what a good friend, visionary, and example Bogle was for him.

I was in awe that I’d been invited to that room. I snuck photos on my phone, to have evidence of how close I was to Jack – just a few tables away! I went over to him afterward, as the room emptied, and shared with him an update on the business. I couldn’t believe he didn’t scurry out. We’d launched; we’d found a few thousand customers. We were getting early traction, but not enough to be on his radar. I was astonished when he said that he remembered me. I told him none of our early success would have been possible but for his example.

“I’m happy you’re pursuing this dream,” Jack said.

It wasn’t long then before we were on the radar of many financial firms. Some of them were scared of us and the impact our customer-centric model might have on their bottom lines but not Jack. Jack always wanted what was best for the customer, even if it came from a competitor; he didn’t care.

In December 2014, he emailed me and invited me to come to his office: “Fact is, I’m most interested in what Betterment is doing and would be pleased to chat with you. At 85, my interest in travel is, dare I say, diminished, so if you’re interested in meeting, perhaps you could visit us here. That said, I have no clout to decide how we might work together, so perhaps you could meet some of our “deciders” on the same visit.” In March 2015, I arrived at the Vanguard mega-campus in Valley Forge, PA, by train and taxi, and I remember after passing through security we circled for 15 minutes through this vast corporate park, looking for the building number 100. We found his office, and his assistant escorted us to an office on the ground floor, in the back. Then, from around a partition, I heard his voice: “Come on in, Jon!”

I will never forget his office. I entered what might look like a professorial grandparent’s study—he had magazines, books, and papers stacked on every surface.
His assistant was there, and apologized for being present, but explained that he would help track any follow-ups or next steps.

I said that I was so grateful and honored that Jack had time to meet with me, and he replied, “Well, what else would I be doing?” I said he must be busy, and he said he still replied to every customer email. He didn’t always get back to them right away, but he got to them all eventually. Every time we emailed since then, he always got back to me right away; I was often the one dragging the dialogue out. Every customer email. I was struggling to keep up with email from 100,000 customers in 2015; he was doing it with tens of millions of customers. He was a worthy idol.

Vanguard’s business model is a marvel. They are an exception in the fund industry—a firm owned by its customers. That it ever got off the ground is impressive, an exception that proves the rule of how hard it is to pull off. That genius is what I wanted to ask Jack about: the early days and how he knew it was time to pull the trigger and mutualize. How did he get his partners and investors to agree to that?

I remember that he told me he had little choice. They were in trouble. Mutualizing the business might have been the only way to keep the firm alive at that time.

He also shared with me a printout of how the firm had grown over the years. In the first column were years, 1975-2015. In the next column were assets under management. And in the third column, ‘% passive.’ That’s it. Two things stood out to me:

  1. The firm grew slowly until the mid 1990s. I think of Vanguard as a colossus, the largest asset manager in the world, old as hills, all powerful. But they were well under $100 billion in assets until the late 1990s. They’re an upstart! What I took away is that scale takes time, and patience – and that a little firm like Betterment could become a great big firm like Vanguard, in time. Not all at once, but little by little, and then suddenly it might feel like we appeared on the scene all at once.
  2. The firm was mostly in active management for most of its history. Only in the 2000’s did passive management become the majority of the firm’s business. It was a reminder of how new this thing we were working on was. And how important it is to continue this thing that Jack had started—to take the next steps in making it accessible for people. What’s more, firms (and people) change. The thing that he’s known for—the thing that made him a legend—passive investing – wasn’t the work that got him to the point where he could have that outsize impact. His mission, his passion, was always there, I’m sure. But the way it came out evolved with the times.

Jack had a whole stack of articles, reviews, and analysis on Betterment. He was eager to talk about us. Meanwhile, I wanted to find a way to partner and work more closely with Vanguard, this company I admired so much. I noted that, for a typical customer, 70 cents out of every dollar we manage might end up in Vanguard funds, not because we preferred Vanguard, rather because in selecting the best funds for our clients, very often they were Vanguard funds.

He listened, and he said he appreciated everything that we do for clients, and that Vanguard was watching us closely—that they “could learn a lot from us”—and I was eager for his feedback. “Well,” he said, “I don’t understand why you use ETFs, rather than mutual funds.” The thing that really got him was the international exposure we had in the portfolio. “The S&P 500 gives you plenty of exposure to international,” he said. “Most of these companies are multinational, they all have people or sales overseas. Why do you need more than that?” I said he had a point, but that most academics agree that global diversification leads to better outcomes, and we agreed to disagree. He’s a fan of home bias. He was a champion of Americans, and of American companies. He was a pleasure to debate with.

He told me about how he would still visit all his employees, walking the floor. He’d show up at their office parties on the campus—a man of the people—and he threw shade at the other Vanguard executives who never left their offices. I loved this, and told him so, because I still go to every happy hour, every event with my team, and I love nothing more than walking the floor.

It’s the love of a founder for his baby, his company, his people—the love of the team, the investment in their lives, the gratitude for the sacrifices they make in pursuit of the company’s goals.

The next day I received an email, “Your visit yesterday made my day. Will refrain from gilding the lily in this note, but have written inscriptions in the two books I’m now sending that express my positive impressions of you, your company, and your crusade.”

The last time I saw Jack in 2016, he and I were being honored together at the inaugural Icons and Innovators Awards by Investment News. He was an ‘Icon,’ and I was recognized as an ‘Innovator.’ We sat next to each other at the table of honor. Charles Schwab, the other ‘Icon,’ had someone else represent him. But Jack was there in person, and spoke.

He told personal stories; he made us all laugh. Attendees said to me afterward, “it’s amazing how relatable and real he is, how genuine.” And even though I hardly knew him, even though we are generations apart, I could reply, without hesitation, “That’s just Jack.”

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Original content by Betterment

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