Some Vanguard loyalists decry lost checks and poor service as the Pa. giant hits $8 trillion in assets

Garrett O’Hara wanted to keep his retirement money at Vanguard.

But after a series of technical glitches — trouble accessing the Vanguard website, not receiving text messages for log-in authentication, and long waits on the phone — the Texas-based long-haul truck driver said he took his money elsewhere at the end of 2020.

O’Hara has lots of company in his irritation with Vanguard.

The firm still ranks at the top of surveys by J.D. Power and others, yet complaints about Vanguard’s customer service are growing anecdotally, according to online reviews, financial advisers, and company loyalists.

In part it’s because Vanguard and many of its peers are being slammed with new clients. But Vanguard also has led the race in cutting costs for clients’ funds. And that may mean scrimping on service, investors say, leading some like O’Hara to make this choice: continuing to buy Vanguard funds while moving their brokerage accounts to a different firm.

Vanguard added to the furor in July when it said it is phasing out secure messaging on its website by the end of August for clients under $1 million in assets. Those with $1 million or more, known as Flagship investors, will still have secure message access on the company’s website.

The company plans “to introduce new ways to more efficiently and effectively communicate with Vanguard digitally,” said spokesperson Charles Kurtz. Some clients, like those with accessibility needs and who often write secure messages, as well as Flagship clients, “will retain access,” he said, until new ways to communicate are introduced.

The reaction has been mixed: Some fiercely loyal Bogleheads, the longtime Vanguard investors who adhere to founder John Bogle’s low-cost investment philosophy, took to their website -- www.bogleheads.org/forum/ -- to both support and decry Vanguard’s secure-messaging change.

Some say they rarely use it. Others think Vanguard has fallen behind competitors for complex trust and administrative tasks.

“Why does Fidelity get me my monthly statements sooner than Vanguard?” said Dan Wiener, editor of the Independent Adviser for Vanguard Investors newsletter, which tracks the performance of Vanguard funds. His clients still like to purchase Vanguard funds, but prefer to buy and sell them through a Fidelity account so they can avoid Vanguard’s service problems.

» READ MORE: Decision day for 1,300 Vanguard workers as their jobs head to India-based Infosys

“We don’t want to [maintain] custody at Vanguard, because of service issues,” Wiener said. “They don’t have enough money invested into the service for clients. We’re not going to do that to clients.”

So “we hold Vanguard funds at Fidelity,” he said. “The issue is when I have something that needs to be done, I can’t get it done at Vanguard, whether settling an estate, moving assets, making a gift. It’s fine until it’s not.”

“I’m a huge fan of Vanguard,” added financial planner Allan S. Roth, based in Colorado. However, in March, he wrote a column about how he experienced Vanguard returning hundred-thousand-dollar-plus checks, making mistakes in trust accounts, and messing up the distribution in his mother’s inherited IRA account. “They missed the RMD [required minimum distribution for retirees] even though we said to take it out every year.”

Roth still promotes and uses Vanguard mutual funds and Exchange Traded Funds for himself and his clients.

“I love that they’re not defensive about improving customer service. But now they have to actually do it,” he said in an interview.

Vanguard is justly famous for its low-cost investment funds, enabling clients to save more money over time than competitors’ products with higher fees. Like Amazon or Southwest Airlines, “Vanguard is still the low-cost provider. But will they be the lowest service provider?” Roth wonders.

Asked about these complaints, spokesperson Emily Farrell said Vanguard continues to improve processes and introduce new online resources. “While we are pleased with our progress thus far, this is only the beginning,” she said. “Vanguard will continue to evolve as we strive to meet the changing needs of our clients.”

Vanguard’s reach is vast. And whatever the level of complaints, they haven’t stopped its juggernaut growth. In 2016, the company had $4 trillion in assets. And those have doubled to $8 trillion as of June 30.

The three largest asset managers —BlackRock, Vanguard, and State Street — collectively manage $19 trillion for millions of investors, with Vanguard accounting for the largest slice: 42% of the total.

In recent years, young investors have flocked to open brokerage accounts and are trading meme stocks like GameStop along with such cryptocurrencies as bitcoin. Last fall, many firms fueled the influx by offering commission-free stock trades to compete with up-and-coming firms like Robinhood. A rising stock market has also spurred more investors to open trading accounts.

Amid all this, Vanguard now boasts 30 million customers globally. The company is at a point where its longtime customers need more services, say industry observers. Its older, wealthier clients, mainly baby boomers, are drawing down, cashing out assets, or leaving money to their heirs. That requires more hand-holding, complicated rollovers, and transactions and phone calls to Vanguard.

Vanguard doesn’t encourage day trading, unlike Robinhood or other newer apps. And yet Vanguard is competing for younger, millennial clients who can choose among a bevy of competitors such as Fidelity, Schwab, Personal Capital, Wealthfront, or Betterment.

All legacy brokers need to maintain service while pushing down costs, said H. Adam Holt, CEO of Asset-Map Holdings, which makes software for advisers to work with investors.

“When you don’t care about personal advisers or humans, you just want speed,” Holt said. “But once you have more money, the higher-value accounts want a human for comfort. How do you support those people and keep costs down?”

Telephone wait times to reach a human representative at Vanguard during the pandemic can be lengthy, pushing clients to the website, according to Bogleheads and other customers. Without secure messaging on Vanguard’s website, that leaves some Vanguard brokerage customers with no way to reach Vanguard other than by phone.

Vanguard employee reviews on Indeed.com and Glassdoor.com offer a window into the frustration on both sides —- customer-service reps and clients.

“They don’t have nearly enough help, so you get back-to-back calls for 7.5+ hours a day with no real training,” wrote one former employee on Glassdoor

“You’ll sit through hours of propaganda and lectures just to be thrown on calls that you have no idea how to handle. When the clients catch on that you’re as lost as they are, your only option is to look up some Infowave and Standard work articles ... and try and figure out what you need to do. All the while the client is waiting and getting more and more frustrated by the minute.”

“Several experiences of waiting 20+ minutes on hold, all the while listening to their self-congratulatory message about their low fees being the reason for the wait, combined with the ridiculous pop-up ads for their PAS [Personal Advisor Service, charging 0.30% annually] every time I logged onto their laughably outdated website made me throw in the towel and move everything to Schwab,” wrote a former customer on Early-Retirement.org.

Despite the glitches, Vanguard took the top spot in the J.D. Power annual survey of customer satisfaction in 2021.

However, the rankings came with a caveat for all the brokerages.

The influx of new investors, coupled with rising trades and needier clients, “clearly put a strain on the system,” said Michael Foy, head of wealth intelligence at J.D. Power. “With virtually every firm now offering free trading and new investors showing lower levels of brand loyalty, firms that get the customer satisfaction formula right have a chance to set themselves apart.”

The American Customer Service Index survey also confirmed how a flood of new investors in the markets are crushing many brokerage firms — not just Vanguard.

“The challenge of handling an influx of new and often younger investors is playing out in depressed customer satisfaction for internet investment services,” according to the latest report by ASCI.

Charles Schwab and Vanguard held the high ground in the 2019-20 ASCI study with top marks, but the companies saw their numbers erode. Schwab led in ease of making a transaction, while Vanguard was praised for its mobile app.

Access can be an issue especially during a pandemic. At Fidelity and Schwab, all customers have 24/7 access via chat, email, phone, and physical branches during open hours. Vanguard offers customer phone service for personal investors weekdays from 8 a.m. to 8 p.m. eastern time and does not open call centers on the weekends.

In an opinion piece for Financial Planning magazine, Roth, the Colorado adviser, decried the recent customer-service flaps at Vanguard. Roth, author of How a Second Grader Beats Wall Street, is a financial planner who charges by the hour, and is a contributor to AARP.org, Financial-Planning.com, NextAvenue.org, and other sites.

Vanguard doesn’t have other businesses to subsidize its retail brokerage, unlike Schwab and Fidelity, which have active units trading stocks and bonds. The bare-bones firm Robinhood doesn’t offer any live phone customer service but offers trading in cryptocurrencies.

“For at least a dozen years, I’ve been getting a reasonably high feedback [from Vanguard clients] that their systems were way behind competitors,” Roth said.

“Can they be the low-cost provider? Yes. But what if it takes hours and hours to deal with something a competitor can do easily?”

Roth’s son has two investment accounts, one at Fidelity and one at Vanguard. When his son turned 21, he took Roth’s name off the account. That took about 10 minutes at Fidelity — but hours and hours on the phone over a month at Vanguard.

Susan Webber, who writes a financial blog under the name Yves Smith, described a Vanguard customer-service experience from August 2020.

The author of the blog Naked Capitalism, Webber said she has been a Vanguard customer for herself and her mother for nearly 15 years, and was “bullied” by a representative.

Webber said it took more than an hour and a half to have Vanguard identify the form she needed to complete “a non-standard instruction.” She said she got through on the fourth call attempt after “I called on the Flagship [elite customer] line, using my mother’s ID to get through to a human being. If my account was not linked to a Flagship account, I doubt I ever would have gotten to anyone.”

Another problem arose when Webber clicked on Vanguard as a “favorite” in Safari. Instead of going to the standard address in her browser, “www.vanguard.com,” she said she was redirected to a site that generated a security warning that the site might be trying to steal her data.

“When I finally got to an IRA agent, he was arrogant and incompetent about [these] IT security issues that were clearly Vanguard IT issues of a seriousness that I have never seen on any other financial services website. When I said he needed to report them, he told me he wouldn’t.”

Many loyalists still don’t want to leave Vanguard, stressing that its low-cost funds remain great deals for the consumer.

“I’m grateful to Vanguard for bringing low-cost diversified investing to me and my clients,” said Roth, stressing the Vanguard mantra that low costs are critical to getting good returns.

However, O’Hara, the long-haul truck driver with a master’s degree in theology, is happy with the workaround of purchasing Vanguard products through other firms.

“Vanguard funds and ETFs can be purchased and held at non-Vanguard custodians,” said O’Hara. That’s what he decided to do after he left Vanguard.

“I went to Fidelity because they have fractional share trading [allowing customers to buy a fraction of a share]. That was the deciding factor. Now for friends and family, I recommend going with a brokerage account other than Vanguard because of their IT issues,” O’Hara said.

“That may be the best of both worlds for clients,” Roth added.

“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.”