Could Vanguard’s antiquated systems make it the high-cost low-service provider, and seal its fate as the Eastern Airlines of financial services? Historically speaking, changing an industry for the better doesn’t assure survival.
For a few years now, I’ve been hearing incidents of Vanguard customer service nightmares from my clients that have caused some to give up on moving accounts to Vanguard altogether. Last year,
As a long-time Vanguard client who feels he owes his financial independence to Vanguard and its late founder, John C. Bogle, I really wanted things to improve. Unfortunately, not only didn’t they improve for my clients, but also they got far worse for me as well.
Vanguard doesn’t want my money and they didn’t get it
Maybe it's not literally true that they didn’t want my money, but that’s the message I heard loud and clear. On December 16 of last year, I mailed a sizable check (for me) in an amount more than $135,000, along with a deposit slip, to Vanguard.
When I didn’t see the money deposited to my account over the next ten days, I naturally got quite worried. I’ve managed to keep a Flagship representative and though I’m on my third over the past year, all have been very good and my current rep is outstanding. We both spent quite a bit of time looking for the deposit and concluded, falsely, that the U.S. Postal Service was to blame.
Three weeks later, however, just before having the check cancelled, it shows up in my mail accompanied with a form letter, not even on Vanguard letterhead, that the check couldn’t be deposited. The form letter listed a possible reason for the rejection of a check being that it was sent “without a deposit form.” This reason did not apply as the completed deposit slip was returned in the same envelope.
You may ask why I didn’t deposit the funds electronically with the Vanguard mobile app. The answer is Vanguard systems won’t allow me. I apparently have too many accounts since I have view access to some client accounts and the mobile app can’t handle it. But I have the same access with more accounts at Fidelity and their app works brilliantly.
I suspect the reason it was rejected was that the deposit slip didn’t print out with an account number, which I think is yet another systems error as, in their web interface, I deposited it into a specific fund in a specific account. Needless to say, I wasn’t about to send the check back to them so the funds went to another financial institution.
A Vanguard spokesperson looked into the matter and stated, “Unfortunately, Vanguard returned the correctly submitted purchase order and check due to a manual processing error. We sincerely regret the inconvenience, and after thorough review, have initiated training and feedback to our teams.” They declined to answer my questions as to why no account number was printed on the deposit form and whether the bar code that printed on the form gave them this information. In fact, though my next deposit didn’t go much better, it was eventually found and Vanguard responded “the purchase was delayed as a result of a processing issue.”
Will Vanguard become the high-cost and low-service provider?
I could go on and on about my experiences and those of my clients but the bottom line is things seem to take many times longer with much more effort to accomplish at Vanguard than with other firms to which I send clients such as Fidelity and Schwab. I also have small personal accounts with those firms and their systems appear to work seamlessly and be far more intuitive. What took five minutes to accomplish at Fidelity took me and my Vanguard reps many hours over a month to accomplish at Vanguard.
Now, to be clear, the Vanguard people I’ve been dealing with couldn’t be more responsive. But they can’t seem to overcome the antiquated systems that prevent good customer service. Thus the Vanguard crew (employees) spend so much more time than competitors to resolve issues. If this continues, it will make them the high-cost, low-service provider. Not a formula for success.
How widespread is this problem? An online forum of investors at
Vanguard's service has really deteriorated to the point of causing me to want to leave. I've been at Vanguard for close to 30 years and have virtually all my assets there (IRAs, after tax, etc.) for me, my wife and our joint accounts.
Vanguard Responds
I shared these concerns with Vanguard and a spokesperson responded:
As you know, over the last few years, we have accelerated our efforts and significantly increased investments to improve and enhance our clients’ experience. We are driving agility and expediting enhancements by leveraging cloud capabilities to quickly evolve and implement new technologies and services. The cloud is a catalyst for innovation, enabling us to modernize our infrastructure, increase efficiencies, lower operational costs, and ultimately create a better experience for our clients. Through these efforts, we have been updating our digital platforms and pathways, and are piloting a redesigned mobile app. We have introduced new and improved online resources, designed to assist clients who overwhelmingly prefer to transact online. We’ve also redeployed and reorganized our client service teams, to create more impactful, seamless, and consistent experiences for our clients. While we have made progress, we recognize there is more to do. We are committed to continuing to evolve, and meeting the changing needs of our clients.
The data is mixed
Can I extrapolate the experiences I’ve had personally, along with those of several clients, to understand overall customer service levels? Maybe.
Winging it during the pandemic, advisors came up with new ways to connect with clients and prospects. The best hacks are here to stay.
And
The Vanguard spokesperson referred me to the firm’s
Will Vanguard become the Eastern Airlines of fund companies?
I’d count myself as one of those intensely loyal Vanguard promoters. While Fidelity and Schwab have offered thousands of dollars for me to move my money from Vanguard, my loyalty is strong for what Vanguard has done for me over the past nearly quarter century that I’ve been a client. I was able to find a very clunky work-around solution to deposit checks electronically by simultaneously using the mobile app and laptop, admittedly with about one out of four attempts going through.
I’m grateful to Vanguard for bringing low-cost diversified investing to me and my clients. Vanguard still captured the largest fund flows in 2020, though it barely bested iShares. And, of course, Vanguard funds (especially ETFs) can easily be purchased and held at non-Vanguard custodians. That may be the best of both for clients.
Yet just because Vanguard changed the financial services industry for the better, doesn’t assure that it will remain dominant or even still in business in a couple of decades. Eastern and Pan American airlines changed the transportation industry for the better and once were dominant. Look where they are today. (Nowhere.)
I’ll continue to recommend Vanguard to my clients but I’ll have to manage expectations on customer service. I still trust Vanguard more in large part due to the culture John C. Bogle nurtured and the lack of a profit motive, since Vanguard clients own the company. That said, I sincerely hope Vanguard recognizes it’s behind the eight-ball on systems compared to lower-cost competitors.
