Leadership in Finance: Vanguard’s Tom Higgins

Financial reporting never stops for the CFO of the investment firm's funds group.

How do your job responsibilities differ from Carpenter’s?

He is more of a classic CFO. He helps out with business planning, budgeting, financing and capital needs, paying bills, procurement, and those kinds of things. On the Fund Financial Services side, I’ve got probably 25 or 30 business units that essentially keep the books and records of the mutual funds and interact with all the investment managers for all the funds. We’re a bit unique in that some of our funds are managed in-house. Some are index funds, some are money market funds, and some are shorter-term bond funds.

We also use approximately 25 outside money managers. As those investment advisors are making transactions, buying and selling those bonds and securities, and money market instruments, they’ve got to communicate to my group so we can record it on the funds’ books.

Then what happens?

The Investment Company Act of 1940 dictates a lot of what we have to do on a day-to-day basis in order to account for the funds. My group calculates the NAVs [net asset value] of each fund you see in the paper or online every day. Commercial CFOs close their books four times a year when they release their quarterly earnings. And they release their quarterly earnings about two weeks after the end of the quarter.

But when you compare that to mutual funds, the 1940 act says you have to keep your books on a liquidation basis in order to be fair to all the shareholders who are coming in and out of the funds every day. For those 150 mutual funds, some of them offer more than one share class, so essentially we have 350 different shareholder classes that we have to keep the books for.

So instead of one company, we have 350 different companies. We don’t close our books four times a year, we close our books 260 times a year, which is the number of business days in a year. We can’t wait until two weeks after the end of the quarter— we have to be ready by 6:00 that day. It’s 350 funds every day and we have be done in an hour and 45 minutes so we can get it out to the online services and the other record-keepers who are selling our funds.

Also, the funds are required to prepare annual reports twice a year and mail those to the shareholders. The funds have different year-ends, thank God, or we would be sending 25 million shareholder reports out with a December year-end. The year-ends of our funds vary between August and January; that spreads the workload around. Just when we’re done with the year-end auditing season, PricewaterhouseCoopers audits each one of our funds separately. Then we have to begin doing semiannual reports.

What other financial reporting do you have to do?

We have to personally certify the financial statements of each one of the 150 funds under Sarbanes-Oxley. [President and CEO] Bill McNabb and I meet about 20 times a year to discuss the financial statements of these funds. The funds’ treasurer takes us through the financial statements and points out things we need to talk about before we sign the certifications that get filed with the SEC.


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