Ep 7 - Jim Bowen - What’s the Secret to Success in Financial Services? - ROI Podcast

In this episode, Ryan is joined by Jim Bowen, CEO of First Trust for a discussion about the importance of intellectual freedom, service to others, and challenging the narrative…all key hallmarks of the firm he’s led for over 30 years.

📚Jim's book recommendation: Elon Musk by Walter Isaacson

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Chapters

• 1:45 Dedication of Financial Professionals
• 3:48 The Importance of Intellectual Freedom.
• 7:38 Outlook for Inflation and the Fed
• 10:06 If a recession is coming, what sort will it be?
• 11:14 How will irresponsible government budget deficits be resolved?
• 13:40 Jim’s take on the energy sector (renewables vs. fossil fuels)
• 20:44 American Exceptionalism and what lies ahead?
• 24:30 Social Media and critical thinking
• 27:35 What’s Jim reading?

Transcript

00:00:12:14-00:00:35:18

Ryan

Welcome to the first Trust Arrow podcast. I'm Ryan Issakainen an ETF strategist here at First Trust. Today I'm joined by Jim Bowen CEO. At first, trust Jim and I are going to talk about what makes First Trust different from other firms in the financial services industry. We're going to talk about the economy, politics, government, American exceptionalism, and some other topics.

00:00:36:00-00:00:47:10

Ryan

Thank you for joining us on the ROI podcast. Jim Bowen, CEO of First Trust, is with me today. Jim, thanks for joining us on the ROI podcast.

00:00:47:12-00:00:48:04

Jim

Glad to be here.

00:00:48:04-00:00:55:12

Ryan

Ryan to Jim, starting off, how long have you been doing this? How long have you been in the financial services industry?

00:00:55:12-00:00:56:09

Jim

About 42 years.

00:00:56:10-00:01:00:14

Ryan

42 years. I'm 46, so when I was four is when you started.

00:01:00:15-00:01:01:11

Jim

When we started the business,

00:01:01:11-00:01:08:21

Ryan

Okay, so the first trust is 32 years old. You started off with trust. Have you been the CEO the whole time?

00:01:08:23-00:01:35:16

Jim

I've been the CEO since 1994. I was co-CEO from 91 to 94, and we started the business. Five of us started the business. Our senior partner at the time was Bob Van Kampen, and we started by buying my old business at Clayton Brown. It was a lift-out. Think of it like that. There were 38 people we started with and 38 people we had under our complex, or 625 million.

00:01:35:18-00:01:41:20

Jim

And sitting here today, you know, we're a thousand people in 200,210 billion.

00:01:42:02-00:01:42:20

Ryan

Ish.

00:01:42:22-00:01:43:21

Jim

Ish.

00:01:43:22-00:02:11:01

Ryan

So one of the things that has distinguished first trust in my 23 and a half years here as I talk to others in our industry is really the focus on the way that we distribute investment solutions. It's really focused on financial professionals as opposed to, you know, the temptation to go and distribute directly to retail. And I've always been very, very much in favor of the financial professional.

00:02:11:02-00:02:18:22

Ryan

So what led you to that? Why do you think that's a better way to distribute investment solutions as opposed to just selling directly to investors?

00:02:19:00-00:02:48:03

Jim

We believe passionately that advisors are noble people. They live lives of service. They spend their entire lives tending. What I have kind of come to call the wealth of others So what does a financial advisor do? He guards the wealth of the most productive people on earth, people who rely on him or her to protect their wealth. They don't trust their wealth in their own hands.

00:02:48:05-00:03:24:07

Jim

So they serve decades, most often underappreciated when they're needed the most. When their clients, regular people, are afraid, who tends them? The financial advisor It is a life of service. We believe that because of the relationships they have with their clients, no one is better prepared or ready to serve them. We certainly can't have the relationship with an individual investor that a financial advisor can.

00:03:24:10-00:03:27:17

Jim

We serve them because they serve the real client.

00:03:27:17-00:03:35:08

Ryan

So what I'm hearing you say is that it's in the best interest of the end investor to have that guidance from a financial professional.

00:03:35:08-00:03:47:21

Jim

Without question, financial advisors are experts. And the idea that they're just salesmen is in movies. It's crazy.

00:03:47:23-00:04:07:09

Ryan

So another thing I think of as a hallmark of first trust is the ability to have what I would like to call intellectual freedom. I remember a few years ago when I was giving a presentation. You happened to be there afterwards. You asked me a few questions about it, and you said, You know what? I

with what you just said.

00:04:07:11-00:04:28:12

Ryan

And I was like, boy, Jim disagrees. But you said, But I want you to keep on saying it because you believe it. And I can't tell you how different that is from a lot of my peers in the industry. So why is that an important value for our firm? Why is intellectual freedom—the freedom to think what you want to think—so important?

00:04:28:14-00:04:53:21

Jim

Well, because line-thinking isn't good. I mean, I back it up, and I think, if you think of this country, what do we have? We have a functioning democracy. We have personal property rights and the rule of law. And that's woven into our Constitution. And then you start thinking about if you're going to build a business. Do you think you have all the great thoughts with a collection of people?

00:04:53:21-00:05:21:11

Jim

No, no. Many with bright ideas, with liberty and freedom to exchange those ideas and to win the argument with those ideas, make us far, far, far stronger. So we're not threatened. We have some of the best minds in the industry, and they don't always agree. Good. Iron sharpens iron. People throw it around like it doesn't mean anything.

00:05:21:11-00:05:49:18

Jim

No, it means a lot. So people who agree and people who agree to disagree are stronger for it. And you get a better result because many minds working on a problem will give you a better result. It's like that fabulous scene in Apollo 13 when he walks in and he throws all of the stuff that's actually on the ship, and he says, Build me.

00:05:49:18-00:05:57:19

Jim

And he holds up a carbon dioxide filter. Build me out of this. Mine's working the problem.

00:05:57:21-00:06:18:21

Ryan

But what is the implication that you read stories in the newspaper about different universities where there seems to be, you know, a lack of diversity of thought, where if you have a certain perspective, maybe protesters come and they don't let you talk about certain perspectives? What is the long-term implication of something like that, in your view?

00:06:18:23-00:06:46:23

Jim

Some of it's cyclical. It's so interesting to watch the pendulum swing. Okay. You know, in the 1960s, all of the protesters were on the left. They were the protesters because the man wouldn't let them speak, and they didn't like that. And it was tradition, and it was locked down. And today, you look at it, and the protesters have won the day in the academy.

00:06:46:23-00:07:15:01

Jim

The protesters are the elite, and now they don't want freedom of thought from the right. In some ways, it's a parody. I mean, it is ridiculous. You have to have freedom of thought. You have to have or move to China, Russia, or North Korea. No, no. Freedom of thought The ability to express yourself and the idea that you can be triggered because you don't like what he's saying are patently absurd.

00:07:15:03-00:07:38:11

Jim

It's freedom of speech, okay? Not freedom of speech that you like. No, it's freedom of speech. It's freedom of speech for somebody to say something you dislike. The idea of hate speech is very interesting. I hate hate speech when I don't like it. You can't do it. That's not how we were founded.

00:07:38:13-00:07:56:22

Ryan

So I want to get into some of your views on markets and the economy, and I think a good starting point would be on inflation, because this is one of the areas where there's probably some diversity of thought at first. Trust. Yeah. So, you know, take us through what your outlook is for inflation.

00:07:57:00-00:08:25:00

Jim

Many of us, I would say most of us, clearly lean more toward the supply side. We actually still revere Milton Friedman, and we believe that he has no corner on the truth, but he's got a good chunk of it. Okay. So when we look at what happened, we look at the explosion of M2, and we think that's where you find the seeds of the inflation.

00:08:25:02-00:08:50:04

Jim

Yeah. You can go back further, Brian, and talk eloquently about what happened under Bernanke and the changing of reserves and the method of using reserves. But nonetheless, let's go back to your question. So yeah, we have people at the top of intellectual capital. You know, Bob Stein, you know, he thinks we're going to be, you know, closer, closer to 3%, you know, by the end of the year, the end of next year.

00:08:50:06-00:09:15:13

Jim

And it'll run there for a while, you know. And Brian's a little higher. Brian thinks it's going to be, you know, four or five. Okay. I will not be shocked if it's just at five; I believe it's going to be higher longer. I believe that Fed presidents are, as are most people in Washington, subject to the polling of the political world.

00:09:15:19-00:09:36:03

Jim

And I believe next year, as unemployment goes up and as the economy slows, you're going to see Powell cut rates. And when you cut rates in that environment, you're locking in inflation. We're back. We're back to the stagflation of the 1970s. The government is so huge, it's just crazy.

00:09:36:04-00:09:42:22

Ryan

So the fact that next year is an election year, do you think that that has an influence on what the Fed decides to do next year?

00:09:42:23-00:09:47:15

Jim

I think the Fed is not immune to the reality of that.

00:09:47:17-00:09:57:23

Ryan

So in the seventies, we saw a surge of inflation, which came back down and went back up again. I mean, no one knows the future, right?

00:09:57:23-00:10:06:00

Jim

What no one knows is that we study the past to know what's coming. You know, the famous Twain line doesn't repeat itself, but it rhymes.

00:10:06:02-00:10:28:10

Ryan

Our view is that at least a lot of the folks at first trust that the Fed is going to, you know, maybe one or two more rate increases, likely to keep the policy rate higher for a longer period of time than most people expect. And that's likely to tip the economy into an end to a recession. So in your view, you know, what does that look like?

00:10:28:10-00:10:34:00

Ryan

What sort of recession do you think we're in for in the next few years?

00:10:34:02-00:10:56:14

Jim

I don't think it's going to be a soft landing. I think it's going to be a hard recession. I think that there's going to be unemployment. I think rates are not going to come down. They're going to cut rates. But mortgages are going to come down. It's just back to the 1970s. If you want to look at the seventies, then put it in context and look at the unrest that was going on in the seventies.

00:10:56:16-00:11:13:06

Jim

And that's kind of where we are. Look at all of our major cities, or most of our major cities. There's a level of unrest that we haven't seen in decades. And we're just kind of making the same mistakes in some of our opinions.

00:11:13:08-00:11:35:08

Ryan

The other thing that is happening right now is that we have massive, massive budget deficits. The government is spending a tremendous amount of money borrowing from our kids and grandkids. So where does that get resolved? Does that get resolved? I mean, are we going to just continue to build up these deficits and debts as far as the eye can see?

00:11:35:08-00:11:36:23

Ryan

How much do you think happens?

00:11:36:23-00:12:06:19

Jim

I love Bob Stein's view on this. His view on this is that once you start running massive deficits like we are, the public does get involved, and the public demands that there be some accountability. And he just looks at the eighties and nineties, and you see it. So the only way out is to slow spending's growth and create an economy that grows faster than spending, and then you grow your way out of it.

00:12:06:19-00:12:23:22

Jim

And we've done that. I mean, when you think about how we have basically loaded the wall with the shelf with debt and then for World War Two, and then we slowly, slowly, slowly paid it down, whined about it, paid it down, paid it down. And then LBJ came in, and he was going to create a great society.

00:12:23:22-00:12:45:02

Jim

And we loaded the shelf with that, and then we whined about it, and then we slowly paid it down. I paid it down. And then, remember, when Clinton left office, he had run surpluses, okay? Though the wall had come down, spending and defenses had lessened. We were running surpluses. I mean, he could have almost paid the debt off.

00:12:45:02-00:13:02:15

Jim

And now what have we done? We have put more debt on the shelf than has ever been there. And so, what are we going to do? We're going to whine and complain and slowly pay it down. Pay it down. Pay it down because that's what we do here. That's what we do. We don't default on our debt.

00:13:02:17-00:13:09:06

Jim

The Greeks do it. It's a fascinating thing.

00:13:09:08-00:13:19:12

Ryan

I guess this is somewhat of a political question, but do you think that the politicians will have the will to actually do that in the future? I mean, when does that happen?

00:13:19:12-00:13:39:00

Jim

It just seems like the politicians will have the will to do it when there's no other way out and when the people demand it. Yeah, when the people demand it, then they'll vote you out. If you vote for more spending, which requires higher taxes when you're going to be voted out, all of a sudden you get fiscal discipline.

00:13:39:06-00:14:05:02

Ryan

The other topic that I've heard you talk about for four years is particularly the energy sector and some of the trends that are happening, the transition to renewables, and conventional fossil fuels. For those that maybe aren't as familiar with your position on kind of where the opportunity is now, take us through where you think the opportunity is if you're comparing those two areas.

00:14:05:04-00:14:31:15

Jim

When you back up and think about who we are as a country and the resources we have, it's astounding. Yeah, we are. We were, before Biden came in, the largest energy producer in the world; we were exporting energy for the first time in approximately 40 years. We were completely energy-independent. We have the most natural gas reserves in the world.

00:14:31:17-00:15:09:02

Jim

Yeah, we don't really know how much oil we have because, through the whole shale revolution and fracking, we've unlocked unbelievable oceans of oil. If you think about the idea and if you look at the production, if you want to focus on CO2 or if you want whatever you want to focus on, okay, clean air. Okay. The United States is the one that has made the biggest movement towards clean air, towards reducing pollutes everywhere on Earth.

00:15:09:04-00:15:41:21

Jim

Get the data. Don't listen to the narrative. Okay? The idea that we shouldn't have people huddled in their homes because we're afraid to use natural gas is absurd. If you burn natural gas, you produce 52% less CO2 than if you burn coal. Okay. So there is clean coal. The idea that fossil fuels shouldn't exist is a narrative by activists that is patently absurd.

00:15:41:23-00:16:08:12

Jim

We could not exist without fossil fuels. And then McCarroll has a fabulous story that he finds. I can't remember if it was the prime minister of Uganda who said, Listen, you and the developed world, there's a billion, five of you, a billion, seven of you. There's over 5 to 5 and a half billion of us in the less developed world.

00:16:08:15-00:16:37:15

Jim

And if you think that we're going to not have energy to get out of being less developed, you know, using the same tools of energy that you used to become a developed nation, you're wrong. And, of course, it's absurd. Okay. And if you just back up with me, I know I'm off of the oil, but because I could go too long and too boring on oil, there isn't any reason we should be pulling back from it.

00:16:37:18-00:16:59:21

Jim

We always want everything to be constantly cleaner, cleaner, cleaner. Okay. We could go to hydrogen. Why in the world are we not rolling out nuclear energy? It is. It is a narrative from a movie in the 1970s. And everyone sees that narrative. When we had an incident at Three Mile Island where no one was killed, we put that industry on hold.

00:16:59:23-00:17:29:18

Jim

And yet, most of the climate activists who don't want any climate change because of CO2 production are against nuclear energy that produces zero. I mean, it's about control of people by people. It is elite people wanting control. And that's no conspiracy thing. You can just look at it.

00:17:29:20-00:17:50:11

Jim

Data versus narrative Look at the data. Listen to the narrative. Data shreds narrative. And when you know you're against an activist, when the data they ignore because they've turned it into religion, and it's not about data, it's about their faith, And it's just fascinating to watch.

00:17:50:15-00:18:15:21

Ryan

I was thinking about raising the standard of living for people in the developing world. We don't really care about, you know, the environment and things like that. If if you're living, you know, one meal to the next and you're burning logs to cook your food or something like that, the argument that you really need to raise the standard of living of people so they can care about each other is that they can have an outlook for more than a month or a week.

00:18:15:21-00:18:28:01

Ryan

That is really where we need to move. And you can't get there without fossil fuels or nuclear, but that doesn't mean that there's anything necessarily wrong with renewables, right? I mean, you're not anti.

00:18:28:01-00:19:00:11

Jim

I'm not terrible. I'm anti-subsidizing renewables. Yeah. Okay. If you want to have renewables that are cost-effective, who's not for that? But don't masquerade that solar or wind is cost-effective if you put all the costs into it; if you put the cost of building the plant, the windmills, and the cost of disposal of the windmill, then how are you going to cost?

00:19:00:12-00:19:23:00

Jim

How are you going to measure the cost of the bird death, which is astounding? Or should we talk about the whales that are being killed because of the production? But all of a sudden, people get quiet there. And if you want to talk solar, my word is the cost of the man of the mining, of the materials, and of the disposal.

00:19:23:02-00:19:44:21

Jim

No, no, don't give me that. Once I assemble it, it starts whirling. This is how much it cost. And then you want to talk about EVs. Okay, who's for? No one's against an EV that is actually not subsidized or that we're going to not compare apples to apples. Okay. You want to talk about the evils of this?

00:19:44:21-00:20:13:17

Jim

I'm going to say, When's the last time you watched lithium mining? It's astounding. Okay. What goes into a battery, the lifespan of that battery, and then the disposal of the battery—you're going to measure all of that. Then we're going to have a real data-to-data talk. We're not going to talk about narrative. We're going to get to the data, but we're going to put all the pieces together.

00:20:13:19-00:20:42:18

Jim

But there'll be a breakthrough somewhere; perhaps it'll be air use in supercomputers. Someone's going to figure out the physics, and we'll have a breakthrough, and the batteries are going to be fabulous. Okay, I'm all for that, but I'm not for locking in through subsidies, pretending that everything here is fine when we're just doing all the mining somewhere else, and acting like we're pristine.

00:20:42:20-00:21:10:00

Ryan

Jim One of the things that I wanted to ask you about was the idea of American exceptionalism. You know, that's something that we have talked about for years. This country is in a bit of flux. I would say there's protests; there's a lack of, I guess, coming together. Things seem to be getting more polarized. Should people be pessimistic or optimistic as they think about the idea of American exceptional wisdom and what lies ahead?

00:21:10:00-00:21:35:20

Jim

I think when you back up and think about it's countries built on the Constitution and what's in the constitution and the rule of law, and the writers of that constitution, the founders understood human nature very, very well, which is why we have three separate branches. And they were set up to protect their own turf from the other two.

00:21:35:22-00:22:01:05

Jim

It's fabulous. They understand the fallen nature of man. So they wrote to me the best document that's ever been written on government. And so now we're just operating it. Okay. And is it perfect? Absolutely not. Is it the most perfect one out there? Absolutely. And there will always be struggles, and the pendulum will always swing from one side of the political aisle to the other.

00:22:01:05-00:22:23:04

Jim

Okay. And when it does, the other side feels like it's never been like this before. It's unbelievable. These people are taking power now as the federal government has grown and as state and local governments have grown. They want to exert more control. And so if you're not engaged, it's easy to not think about it.

00:22:23:04-00:22:51:21

Jim

The low level of voter participation in the population honestly always kind of shocks me. When you start actually looking at the numbers, it's kind of astounding. Okay. And so if you don't vote, well, then shame on you. Okay. And if you live in a place where cash bail, like they just rolled out in Illinois, if you live in a place where you think that that's going to be a positive thing, well, then let's see.

00:22:52:03-00:23:16:18

Jim

Let's measure it. Let's watch what happens. I guess Illinois believes that they're going to be different than L.A. and New York, where it's been a dismal failure, but be as pessimistic now as America is. This is where every single morning we wake up, and we have the ability to adjust the knobs and make things better. And we do okay there.

00:23:16:18-00:23:43:06

Jim

It's in the DNA of this place. Okay. Do I want illegal immigration? Absolutely not. Do I want immigration? Absolutely. Okay. Do we want it, should we? Should we? How should we test it? Reagan had it best. Okay. White gates, high walls Okay. You have to come through the gates. Well, who do we let through? Well, maybe it's time to start saying we ought to do it by means of the tools that they have.

00:23:43:06-00:24:05:23

Jim

Not. Not that money. Okay. No. If we need a lot more software engineers, well, then if you're a software engineer, why wouldn't we want you here? If you're an expert in X, Y, or Z, Why wouldn't we want you here? Come in. You're an expert. We've got ourselves in our souls. We've got ourselves into this country. The idea that we're going to just sit in pockets

00:24:05:23-00:24:28:02

Jim

No, no, no. You're an American. You may be an Italian-American, an English-American, a French-American, but you're American. You keep your heritage, but you're now an American because that's what we are. Okay? But that's what we do. And at the end of the day, you see it. You see it in tragedy when we pull together and set aside our pettiness.

00:24:28:04-00:24:57:07

Jim

And one last thing: What has been so much of the current division is social media. Social media is extraordinary in its ability to project one view as if it were enormous. And when you pinprick through it, it is not okay. And then you stir, and I'm speaking about you stirring in all the bots; you stir in all the fake accounts you turn, and people buy it.

00:24:57:07-00:25:18:13

Jim

People like video more than they like the written word. It's not good or bad. It is just okay. Well, some people don't, and some people like the written word. Well, big deal. It's a video world. It's a video world. So you have to understand that, to a degree, everyone has to learn to use that. But you won't be used to that.

00:25:18:15-00:25:45:17

Jim

You remind you to critically think, Okay,  it's the phrase that my wife coined for me. She goes into critical thinking because we talk about it all the time: Why is this happening? Why is that? I mean, how can this person be doing that? Okay. How can the people in San Francisco be absolutely stunned by what's going on in their city?

00:25:45:19-00:26:05:10

Jim

Well, because you put policies in that said, if you stole anything less than, I believe, $900, it's just a misdemeanor, and we'll write you a ticket. And they're shocked, shocked at the theft. It's a lack of critical thinking. It's a lack of criticality.

00:26:05:12-00:26:26:21

Ryan

So one of the challenges, I think, when you're talking about social media and what people are fed and then they kind of make decisions and, you know, they behave in a certain way, all of that's curated. And so, people, it happens that you go down a path, and then the algorithm says this is the sort of person, and then they get more reinforcement.

00:26:26:21-00:26:31:02

Ryan

And that results in a lot of the polarization I'm talking about. Right?

00:26:31:04-00:26:31:19

Jim

Without question.

00:26:31:19-00:26:33:23

Ryan

So how do you break out of that narrative?

00:26:34:00-00:27:03:15

Jim

You've got to read widely. You've got to create multiple paths. Okay. You have to read. I mean, it's a practical thing for me. Real Clear Politics is a fabulous place to go because it gives you the best writing of the right and the left. You have to read widely. You can't find yourself just focused on one path, or it will lead you further and further and further down that path.

00:27:03:16-00:27:25:18

Jim

No, no, you. You have to consider everything. That's why many heads, that's why you want, you know, people want to talk about diversity, okay? It's a diversity of thought. It's diversity in our outlook. It's it's not just what color or behavior is diversity, you know? No, it's How do you think about things, and how do you interact with those things?

00:27:25:18-00:27:34:17

Jim

And do you have a curious mind, and do things make sense to you? And when they don't, do you pursue them? Do you understand why someone holds that position?

00:27:34:19-00:27:47:17

Ryan

You mentioned reading. Over the years, I've gotten a lot of great reading recommendations from you. What are you reading today? Is there anything that you've read recently that you'd recommend to our viewers?

00:27:47:18-00:28:14:06

Jim

Well, you know, I was just given Thursday. ISAACSON Walter Isaacson's new biography of Musk And so, you know, people, somebody said to me, Why would you read a biography of Guy still alive? Well, pretty talented guy. And written by a spectacular author. Okay, nobody's perfect. But Isaacson truly tries to capture the person.

00:28:14:06-00:28:35:08

Ryan

I try to read a decent amount of biographies. I'm sure you've probably read more broadly than I have in some of these biographies. But what strikes me is that you can be talking about the same person. There's two or three different authors, and they have a completely different story of that person. It all depends on the perspective of the author.

00:28:35:10-00:28:40:01

Jim

Actually. And my two favorite words Perspective. Context. Yeah.

00:28:40:03-00:28:57:16

Ryan

I think there's a lot to learn from all these different sides. Jim, it's always great talking with you. Thank you for joining us on the Troy podcast, and we really appreciate your leadership and trust in what you do in the financial industry. So thank you. Thank you. And thank you to all of you who have joined us on the podcast.

00:28:57:16-00:28:58:09

Ryan

We'll see you next time.