"The letters I've gotten are pitiful," Daniel P. Wiener, the New York-based editor of the Independent Adviser for Vanguard investors newsletter, owner of a fund advisory business specializing in Vanguard funds, and a Vanguard-watcher for the past 25 years.
Vanguard funds are the most popular in the business -- the company has been adding more than $200 billion a year in assets for the past three years, while most fund groups lost accounts. Some employees have told us the company is challenged to provide quality service while keeping costs down, as assets approach $4 trillion.
Other financial companies (Wells Fargo) have had their share of customer service troubles. You can't prove much through a single case. But Wiener writes in this column he's lately been collecting too many bad examples to ignore:
VANGUARD SUCCESS HAS ITS LIMITS - WHEN SYSTEMS AND PEOPLE CAN'T KEEP UP
By Daniel P. Wiener, Independent Advisor for Vanguard Investors
Vanguard reports it received $305 billion in new money during 2016.
Congratulations, Vanguard, that's quite a haul. But success in attracting other people's money is one thing. Handling it properly is another.
Forget the fact that Vanguard erred and deposited a check of mine twice. Forget that after being informed of the issue they still hadn't corrected it more than a week later.
Don't ask me. Ask my subscribers if Vanguard is experiencing technology and service problems. I did and the outpouring of complaints was both surprising and substantive. I did get a couple of notes saying things were fine, but it's the problems that matter to me.
Maybe a few notes will give you a sense of what's happening in Malvern.
Now, two caveats. The first is that I'm simply reporting what a number of subscribers told me. I haven't called Vanguard to verify these accounts but, then again, Vanguard won't talk to me, or anyone else about issues with individual shareholders.
That said, what's I'm hearing jibes with what I've been hearing all year long. The second caveat is that my newsletter goes out to about 40,000 Vanguard investors. Vanguard has millions, so if this is what I'm hearing from a small percentage of their clients, what do you think is happening company-wide?
The following notes are a sampling from the emails and calls received in just the past couple of weeks.
• David writes that his online summary page shows $100,000 less than his account balances add up to on another page. He also writes that he can't get Vanguard to allocate money from distributions properly.
• Kermit, whose wife died in June, says Vanguard can't seem to accomplish moving money from his wife's trust account into his daughter, Mary's name. Mary is the trustee. They've been battling this for some time.
• John says that after requesting that a $5,000 portion of his IRA's RMD be sent to a charity rather than to him, Vanguard instead took an additional $5,000 out and distributed it to him, adding to his tax bill. His letter to chairman Bill McNabb has gone unanswered.
• Susheel writes that he's had two separate incidences with Vanguard brokerage messing up exchanges of stocks and funds that were instigated by "corporate actions," not by him, and that Vanguard has admitted they have a system flaw that is causing a problem which they can't over-ride.
• Ann, who tells me she is 72 and in poor health, says she's had four errors in her account this year. The latest, she's told by Vanguard's Resolutions Department, will be looked at in about a month. When she asked why an online transaction couldn't immediately be reviewed online she says she was told that they are understaffed and that the company is busy hiring and training. The suggestion she got was to simply do her transactions by phone, rather than online, which of course just takes up more of the reps' time.
• Ray writes that Vanguard almost missed making a scheduled $9,000 distribution from his wife's IRA. It was only because he called, he says, that they were able to meet the year-end deadline.
• Henry writes that bad information from a Vanguard rep caused him to miss out on $300 in gains from Selected Value's distribution in his IRA because his shares were sold and the RMD was taken out before the fund's mistakenly-delayed capital gains distribution was made. Even after taking it up to the rep's supervisor Vanguard said they would do nothing about it, despite, it appears, admitting it was their mistake.
• Wilma, who opened a brokerage account to rollover an IRA says that when the mutual funds were transferred they simply disappeared from the mutual fund IRA account but never appeared in the brokerage account. She tells me the Vanguard rep she spoke with said it would be several days before the money reappeared.
So, why might Vanguard be having issues with customer service?
Mike (I've changed his name to protect his son's identify) wrote in to tell me that his son works in the Flagship group at Vanguard; the group that caters to Vanguard's highest net-worth investors.
According to his son, Vanguard does a good job of training but retention is an issue, losing staff to higher paying jobs, including positions at Fidelity, because of low starting wages and small annual increases. Mike writes that one-third of the trainees in his son's "class" have left Vanguard after just five years.
And on a slightly different note, you may recall that Vanguard mistakenly forgot to pay out the capital gains distribution for Selected Value at the same time as it paid out the income distribution on Dec. 23. They corrected that error by paying out the capital gains on the 30th.
[UPDATE: I removed a paragraph in Wiener's piece where he estimated possible total losses from Selected Value, after it was challenged by readers who explained why they believed any losses would have been smaller.]
Low costs are great when you don't experience problems and your money is where you think it should be, when you think it should be there. But if low costs means cutting corners on services, or on technology, then it's not a good thing and certainly not up to the standards that I would think Jack Bogle would want for the company he founded.
Bogle would be shocked to learn that many of my correspondents are asking if they should transfer their assets to Fidelity, where computer systems and customer service are better. I'd give it some serious thought!
-- Daniel P. Wiener, Independent Adviser for Vanguard Investors