By Dr. James M. Dahle, WCI Founder
I've been a huge fan of Vanguard for as long as I've been financially literate. Even though I'm an ardent capitalist, I still love the mutual ownership of Vanguard (the only mutual mutual fund company). Since the funds own Vanguard and I own the funds, I'm the owner, albeit in a very tiny, very indirect way. That's not to say Vanguard has not had its problems. It certainly has. However, every few years someone trots out an article about how Vanguard has “lost its way.” The criticisms are almost always valid, but I don't see them quite as pessimistically as most.
Has Vanguard Lost Its Way?
The most recent article on this topic, from John Rekenthaler at Morningstar, is similar to other articles (and dozens of Boglehead Forum posts) on the topic. Like most, it idealized the founding of Vanguard as being all about St. Jack helping out the little guy. I like Jack Bogle as much as the next person, but it's important to read his own words about the founding of Vanguard. It wasn't ALL about helping out the little guy. You can get all the details in his 2018 “Stay the Course,” but the bottom line is that Bogle had worked for the conservative Wellington Fund from 1951 when he came out of college until he became the executive vice president in 1965. In 1966, he merged with the “ARK funds of the 1960s,” called Thorndike, Doran, Paine & Lewis. Bogle became CEO of the merged company. It subsequently collapsed in the early 1970s, Wellington lost 3/4 of its assets, and the stock price of Wellington Management Company plunged by more than 90%. Unsurprisingly, Bogle was fired.
Bogle was a smart dude, though. As far as I know, we only have Bogle's side of the story, but part of the founding of Vanguard involves a management dispute and some legal wrangling (shenanigans?) over this firing. Basically, the only way he could stay in control was to have the funds own the management company. So, he did that, and voilà, Vanguard was founded. Yes, that had the awesome side effect of a mutual mutual fund company. And this idea of an index fund had been percolating around in his head for a while too and was soon implemented. But knowing the REAL story certainly takes a little luster off of the legend. I'm sure the story would be even less flattering if it were told by some of the other people involved rather than Jack.
My point in sharing this is not to denigrate Jack or his subsequent work in any way, shape, or form. It's simply to lower your expectations from Vanguard. Jack was human. Vanguard is just a company. And it probably never would have existed at all if Jack had not had to scramble to keep his place in it.
Problems at Vanguard
Some people trot out various “evidences” from time to time that Vanguard has lost its way.
#1 Active Management
Perhaps the funniest is when people realize that Vanguard not only offers actively managed mutual funds but actually promotes them both to the general public and its advisory clients. The critics think this is some kind of a new thing. It's not. Remember Wellington? Yeah, it's still there (and has been since before The Great Depression):
So is Wellesley. And Windsor. And PrimeCap. Vanguard is coming out with new actively managed funds all the time. Some do well. Some do poorly. The ones that do poorly are eventually closed and merged and swept under the rug, just like at all the other actively managed mutual fund companies. They've had “hedge fund-like” strategies, factor-based strategies, quantitative funds, private equity funds, and multiple manager strategies. Even Jack Bogle owned plenty of shares of actively managed mutual funds. Expect this to continue in the future. But don't lose faith in Vanguard because of it. Vanguard was never an index fund-only shop.
#2 Vanguard Is No Longer the Low-Cost Leader
After a few decades, the trend away from active management and toward passive management became very clear. The other “good guy” large mutual fund/discount brokerage firms, including privately owned Fidelity and publicly owned Charles Schwab, had to jump on board or get left in the dust. So they did. They started offering index funds, too. The funds weren't as large, maybe weren't quite as well run, and weren't benefiting from the patented fund/ETF structure that Vanguard had. But they could at least compete on price. They first dropped their expense ratios to be in the same neighborhood as Vanguard, and then they went even lower than Vanguard. For a few funds, they even went to 0%.
The real competition turned out to be other companies that beat Vanguard into the ETF space such as BlackRock (iShares) and SSGA (SPDRS). Low cost, passively managed, and an ETF package . . . what's not to like? Sure, there were lots of scammers entrepreneurs out there trotting out their high-cost index funds and bribing their way into 401(k)s, and Fidelity and Schwab certainly have plenty of investment offerings that aren't so good for investors. However, the big four or five companies that actually offer reasonable low-cost passive investments eventually rose to the top. Now their offerings are all basically the same. Does that mean Vanguard lost its way? Of course not. It means it forced the industry to change. This is what winning looks like! Imitation is the most sincere form of flattery. Just be glad you have more options for your 401(k) or HSA or for tax-loss harvesting or whatever.
#3 Vanguard Customer Support
Bogleheads have been complaining about this for years, and it's not just anecdotal. Vanguard apparently used to pick up within three rings. Now, you might be on hold literally for hours (make sure that your cell phone is charged and you have something else to do when you call). You can have a bad customer service experience at Fidelity or Schwab, but it's less likely. The good news? With the ETF revolution, you don't have to use Vanguard. You can own funds built by Fidelity, Schwab, or BlackRock, and you can hold Vanguard funds (usually the ETF version) at Fidelity, Schwab, or any other brokerage your heart desires. Vanguard funds and top-notch customer service, what's not to like? Let's be honest, people go to Vanguard for the low price, not the customer service. That's not all that new in my opinion. Vanguard customer service wasn't awesome in 2005 when I moved money there, and it still isn't. Rekenthaler speculates:
“To be sure, outsiders cannot know if Vanguard’s customer-service woes have occurred because the company lacked the assets to pay for the necessary upgrades, or through mismanagement, or because of a calculated business decision. Some organizations have opted against answering their telephones for routine calls, figuring that the cost savings outweigh the reputational harm. (Try to reach somebody at Uber. I dare you.) Perhaps Vanguard is among that group.”
However, I think this is a case of chalking something up to malfeasance that is better explained by incompetence. This is simply growing pains. Vanguard is the third-largest mutual fund company in the world by assets under management (BlackRock and Charles Schwab are slightly ahead). BlackRock doesn't offer individual accounts like Vanguard. Vanguard got to that level very quickly. Scaling a business is a lot harder than it looks, especially when you're trying to run the business at cost. Schwab adopted a lot of what worked well at Vanguard. It's time for Vanguard to do the same!
#4 Offering Advice
Vanguard is also frequently criticized for offering advice, despite the fact that it does so at a 70% discount to the industry standard fee of 1% of Assets Under Management (AUM). My beef with the Vanguard advisory service isn't the price or even the fact that it now has some funds only available to its advisory clients. It's the fact that you simply cannot provide high-quality, personalized financial planning and investment management for 0.3% of a $100,000 portfolio. People have way too high expectations of what they should get for their $300 a year. What you get at Vanguard is to make sure you don't have a stupid portfolio and that your portfolio gets rebalanced periodically. Anything useful you get above and beyond that should be considered icing on the cake. This is a product for the masses designed to compete with the robo-advisors, not a serious contender for a real financial advisor.
Southern Utah mountain biking is never a debacle!
#5 Vanguard Target Retirement Funds Debacle
I have discussed the royal tax screw-up with the Vanguard Target Retirement Funds in detail elsewhere. I was not surprised to see the initiation of a class-action lawsuit about it. Those who held these funds in a taxable account (despite everyone I know advising against doing so) really paid an unexpected price for something Vanguard did. Whether knowingly or unknowingly, the pain was very real. Perhaps worse than the actual tax hit was the sense of betrayal by Vanguard, that it put institutional investors ahead of individual investors. I was as disappointed as anyone else, but again, I think this was probably better explained by incompetence rather than by malfeasance. I don't expect it to happen again, and even though I'll have to pay (as one of the owners of Vanguard) to defend against the lawsuit, it should be a good reminder to Vanguard execs about the importance of thinking about unforeseen consequences.
As of now, I have the following accounts at the following firms:
- Vanguard: Trust brokerage account, Roth IRAs for everyone in the family, four UTMAs, DAF (Vanguard Charitable)
- Fidelity: WCI 401(k), HSA, and a credit card
- Schwab: Partnership 401(k) and Cash Balance Plan
- Thrift Savings Plan: Military 401(k)
- Utah 529: Four 529s
- Various real estate companies: Numerous private funds and syndications
Obviously, I still invest at Vanguard, but I confess it probably has at least as much to do with inertia as low costs and appreciation for Jack Bogle and mutual ownership. However, I am well aware that there are many product lines that Vanguard does about the same as others or worse. It wouldn't break my heart to have to move everything over to Fidelity or Schwab. I'm not sure it would bother Vanguard either!
What do you think? Has Vanguard lost its way? Why or why not? Have you had any surprisingly bad or good experiences with Vanguard? Comment below!
I started investing with Vanguard in 1984. I advised my children and many colleagues to invest there. However due to markedly deteriorating customer service, I moved all my funds to Schwab. I waited an hour or more on hold many times over the last 3 years. They have no computer chat option. Their web site is substandard.
I recently moved both my retirement accounts and my wife’s retirement account away from Vanguard. They’re platform is too cumbersome for diy investors. I moved to a platform that offers fractional shares of ETFs and allows me to set my desired percentage of my portfolio I want each ETF to be and it automatically invests new money to match that percentage goal and has a button you can click to rebalance back to your set point at any time.
From the website for Fidelity below regarding Vanguard advisor class mutual funds:
It can rollover in kind as long as it is not a proprietary fund, such as an advisor fund that is only held with Vanguard. Everything else, such as ETFs and stocks, will be fine.
https://usefidelity.com/t/transfer-from-vanguard-to-fidelity-everything-you-need-to-know/28
It seems to me, that most of the folks who are saying that they are not having any problems have the funds sitting there and never needed to change anything or take it out. Of course, that would be the case. What if they need to change something and Vanguard messes it up like they have with others? What if they need the money quickly and can not get it out? Does one want to wait until then?
Their website and app are my biggest issues. As a hands on investor, I just need things to work correctly. Last time I tax loss harvested 3 of the 4 orders went through. The one that didn’t wasn’t found anywhere online so I selected the same shares and placed it again. Next day, both the first, and now the second went though for the same amounts, but when the second set went through and the tax lot I selected wasn’t there, they just pulled them from my oldest shares. Instead of a 5 figure loss, I now had an almost 6 figure gain.
I called right away, just like the statement said to if something was wrong, and they couldn’t/wouldn’t do anything. When I asked how could I sell the same shares twice on the website, they didn’t know and that’s where it ended.
In the end I have enough losses over the years to offset it, it was more of an annoyance and the principle of it bothered me more than anything. It was like any other large company where you call with an issue they have some reasonability for and they shrug and transfer you until you hang up or get disconnected.
My Vanguard account has a six-figure debit balance that is incorrect. I cannot find anyone there to work with me on straightening it out. I have filed a complaint with FINRA. Has anyone here had a similar experience? How did you solve it?
Never had that experience, but if I had I would keep asking to talk to a supervisor until I found someone that could fix it. If they didn’t (and it was truly an error), I guess I’d file suit. Should be able to find someone to take it for 1/3 of a 6 figure amount.
Have you sent in something in writing? That might work better than calling the overwhelmed help line folks.
I have notified FINRA . I am hoping to hear back soon. I have a case# with Vanguard & FINRA. I would like to connect with others with incorrect cash balances. I am just flabbergasted that management would not insist on accurate recordkeeping
Follow up. The definition of insanity I repeating an action and expecting a different result. My wife is near tears over this problem. Your suggestion of a lawyer is our next step if FINRA lets us down.
Sorry to hear that. How much money are we talking about?
Finally heard from a knowledgeable person! Lets C where it goes.
There is no excuse for frequent bookkeeping errors in customer asset statements. This must be addressed soon or FINRA will step in.
In Aug 2022 Vanguard forced my IRAs into a brokerage acct. When I asked why, the harried rep said something about a more efficient platform. The rest of her reply sounded like gobbledygook. They only sent an Aug report showing zero balances for the “former” accts, no 3Q rpt yet. I never traded brokerage with Vanguard, though I always trusted them. But these posts concern me. Does anyone know if the change will cost me? Thank you.
It’s no big deal. Most of us made that change 5-6 years ago. You’ll be fine. No additional costs and actually a few benefits to the change.
I found this exchange googling about VG complaints, because there is NO ONE or NO WAY to complain to Vanguard directly about horrific customer service. We’ve invested with Vanguard for years without issue, albeit some clunky processes on the website and a few call hassles. But, I always had full confidence that my requests or issues would be resolved and that I was a valued client. No longer. Not after the target fund tax surprise debacle, security issues with the website, and complete lack of caring or follow-up to any of my inquiries. This, after repeated phone calls and wait times in the HOURS ( every time, starting with awful, poor connections to overseas uninformed reps) once you do get through. I just need to work out the details to move our assets to Fidelity or Schwab. The service downfall goes way beyond the Covid effect. It’s the poorest customer service I’ve received from any company, ever. I delightedly filled out their latest cust. sat survey with 1s, and said “yes” please have someone contact me, which assuredly is never going to happen. Except to pitch me advisory services. So pathetic, as it seems as recently as a year or two ago, I was giving them 8s and 9s, and wholeheartedly recommending them. For those here who have said they’ve had no reason to contact customer service, be warned.
I’m dealing with Vanguard for the first time as POA for my sister who has become incapacitated. It has been nothing short of a nightmare since day one. I send off the forms I think they need, and I hear nothing back. I call to check on things, only to be told, “Oh no, you need to send ‘this.'” So I send that. Still no word. I call back again. “I don’t know who told you that, but you need to send ‘this.'” So I send that.
Then I get an email saying they received something, but they’re missing information. Hey, at least the email is an improvement! I call the number they say to call, and spend 10 minutes on hold, only to be disconnected. I call back, wait on hold another 15 minutes, and the guy tells me I have to talk to an account specialist. Back on hold I go. My estimated wait time is 16 to 24 minutes. After about 7 minutes, I went out to the kitchen to do something, and my call dropped.
I could just cry.
I concur with all the negative complaints, problems , and frustrations expressed above and at the below link.
https://topratedfirms.com/brokers/customer/vanguard-review.aspx
I have had the displeasure of trying to deal with Vanguard as an individual investor, as POA for an incapacitated adult, and as a successor trustee for a trust. I am throughly exhausted and disgusted with dealing with Vanguard these last two and a half years and I will be gone as soon as feasible.
They are trying to force me into a brokerage account, mainly for their own benefit, to change their image. Evidently mutual fund only can’t compete. There are no benefits for me. When I called to get details using the phone number they provided in their email about the change, I got someone who had no clue what I was asking about. Transferred to another person who looking thru all my exchanges to see when I had last taken an RMD. Wrong place to look. I asked when I had to make my next RMD and they said the end of the year even though I had set up an earlier date. The email about the brokerage account said mutual funds not changed to brokerage would not have SIPC insurance but brokerage funds would. What???? This can’t be right.
I am losing confidence in them and think their customer service is lacking. Previously I found they had used a very old address for some form that was issued. When I contacted them, there was a long wait for an answer. Then they told me it didn’t matter because I was doing everything online! Wow. How many people had confidential investing information sent to a 10 year old address in another state?
With this experience, I am now concerned that when my beneficiaries tried to claim inheritance of funds, it will not go smoothly.
I actually prefer the brokerage account I was “forced into” years ago. What don’t you like about it?