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Not like the others As the manager of the second-largest mutual fund in America, Vanguard Group would have made penny-pinching Benjamin Franklin proud. Holding to the maxim that money saved is just as good as money earned, Vanguard religiously sticks to a no-frills business model that sees it spend virtually no money on marketing, choosing rather to pass along savings to investors in its funds. This is no corporate philosophy mumbo jumbo - Vanguard is unlike any other mutual fund firm. It spends about $8 million annually on advertising, which, as Forbes magazine points out, is the half the amount that General Mills will spend on advertising to launch Sunrise cereal in 1999. U.S. mutual funds spend on average 1.24 percent of their assets annually; Vanguard spends 0.28 percent. Vanguard's cost-cutting can be attributed in part to a unique ownership structure. Unlike all other mutual fund companies, which, whether public or private, have shareholders who look to earn money that is not distributed to those invested in the funds, Vanguard is run like a mutual insurance company. Under this structure, the funds themselves (and their investors) own the parent company. Investors apparently are sold on Vanguard's model. The firm is the fastest-growing mutual fund company, and analysts are predicting that it will surpass industry leader Fidelity Investments in the next several years. Not always on top Vanguard was founded by John C. Bogle in 1974 after Bogle was fired as CEO of Wellington Management. Bogle had written a senior thesis at Princeton that described his theory about mutual funds that the investment vehicles should be run with low overhead and no sales commission. The idea didn't take immediately. Once a moribund financial services firm relying on old-fashioned research, fund manager intuition and penny-pinching, Vanguard watched as Fidelity Investments, manager of the nation's largest mutual fund, stole away its investors. In 1992, however, Vanguard embarked on a four-year program to update its database and computer technology. Today, says a manager for an aggressive Vanguard growth fund, "We can analyze 3000 stocks in fifteen seconds." The upgrades worked, and Vanguard upgraded its own mutual fund profile. By 1997, Vanguard's funds were outperforming the overall market. The index funds In 1976, Vanguard launched the first index fund, a fund designed to mimic the Standard and Poor's 500, called the Vanguard 500 Index Fund. Unlike other funds that are based on idea and research-heavy management, index funds take no oversight stock-picking prowess from human managers. As with the firm itself, the index funds did not immediately take off. Now, however, these funds are the keys to the firm's rapid growth. In 1998, 66 percent of the new money invested into Vanguard's stock funds went into index funds - 19 percent went into the 500 fund. The Vanguard 500 Index fund is expected to surpass Fidelity's massive Magellan fund as the single largest fund in 1999. Not just the funds Working off the success of its mutual funds, Vanguard is currently expanding into new businesses. In the past couple of years, the firm has gone on a hiring spree of brokers, financial planners, and bankers, with the goal of bulking up its advisory services. And in 1998, the firm quietly launched an online trading service. As one firm official told the Philadelphia Inquirer, "We're not thinking of ourselves just as a provider of a lineup of mutual funds, but as a focal point for financial services for our clients." Industry analysts, however, are skeptical of Vanguard's ability to push its way into brokerage and other service businesses, as they require a sales culture anathema to the firm's Spartan sensibility.
Vanguard lists job openings at its web site, www.vanguard.com, for those who wish to become Vanguard "crew members" (the firm's admittedly corny name for employees). The firm allows applicants to submit resumes through an online form, as well as by e-mail, fax, and snail mail. Vanguard also posts its recruiting schedule at its web site; the firm primarily visits schools near its Valley Forge headquarters. Insiders tell us: "Right now, we're scouring college campuses and job pools to fill new buildings and new offices in Arizona and North Carolina. Many, many positions are available." Says another insider: "We're growing at such an incredible pace so there are always openings," reports one insider. As for the interviewing process itself, "you'll probably interview with at least six to eight people," says one insider.
Snobby? Go to Wall Street Vanguard employees say living in a sleepy Philadelphia suburb definitely has its drawbacks, but add that Vanguard is much more laid-back and less uppity than a Wall Street firm and more ethical to boot. One insider reports that while "the top brass all went to Harvard, Wharton, etc... Vanguard is made up mostly of people who are from the area and went to so-so to pretty-good schools." Continues that contact: "People don't come at you with a 'we're better than you' attitude. Most people at Vanguard like to believe that everyone is good, down-to-earth, would never lie, will of course give a big chunk of their paycheck to United Way and bring in canned goods for every food drive." Another insider agrees. "Vanguard does place a lot of emphasis on being a caring person. That can get kind of corny on a corporate level, but it's better than just trashing the whole human thing," adds another. Says yet another: "Vanguard has about as much integrity as you'll ever find in the corporate world." At a company where top executives join customer service folk in fielding phone calls, it is not surprising that employees describe their managers as "fair, understanding, and very supportive." The firm gives rewards for excellent input on how to improve operations. Even the president and CEO are "outgoing and friendly, setting the tone for the whole company." Not a melting pot Largely because of its suburban Pennsylvania location, insiders say, Vanguard is a bit behind the times when it comes to diversity. "The racial profile is not quite as homogeneous as it was a few years ago," reports one insider, "but the reality is that we are located in a rich white suburb, so the increased diversity is the result of stilted, artificial effort." "The company is very much a patriarchy, although there are two women in upper management. Management culture is extremely male, as it is in the entire financial services industry." The dress code at the firm isn't the most modern, either. Reports one insider: "Dress code is more formal than you'd hope - no jeans, even on casual days, which are infrequent." Says another: "We get business casual days before holidays and occasional other days." (There is no set policy concerning casual days.) Getting younger, but still stuffy Although the company is still conservative in many ways, with groups of college graduates hired constantly, the firm "is getting larger and younger every month." Vanguard is said to be "upscale" but "less stuffy every year." Says one insider: "It's a relatively conservative company, but the average age is in the early 30s, making it a fun place to work, depending on what area you're in." Still, "there is just as much political maneuvering and pettiness as in most places," reports one contact. "Dilbert jokes are frequently on-target among our cubicles." Benefits? How about great job security? Insiders praise Vanguard's technologically advanced and tastefully decorated new corporate offices, which includes a great on-site gym. The site itself is said to be "green and park-like," similar to "a college campus." Amenities include a "great company cafeteria" [which would seem to differentiate Vanguard from most college campuses], a gift shop and a fitness center. But it is the job security and other lifestyle benefits that insiders are most concerned with. Hours at Vanguard are generally more humane than at other financial services firms, though they may include one or two days of overtime. "The benefits are excellent and the job security is the best you'll find," reports one Vanguard insider. In fact, even during extended bear markets, Vanguard has never resorted to large-scale layoffs. (In contrast, Fidelity laid off employees in both 1997 and 1998.) "No need to worry about job security here," reports one content insider. To sum up, one insider describes the company thusly: "Vanguard is definitely a company with a heart, even if its soul is totally unaware of what it is to live without a two-car garage or central air."
The Vanguard Group Attn: W99VGIWEB1 P.O. Box 876 Valley Forge PA 19482 610-669-2722
Mutual funds;Brokerage
Alliance Capital Management;Charles Schwab;Fidelity;Franklin Resources;Merrill Lynch;Prudential Securities;T. Rowe Price;Zurich Kemper Scudder More Company Profiles For more career information, go to Vault.com ©2000, Vault.com Inc
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