By Charles Lynn Bolin

Vanguard’s clients have grown from about 20 million with $3.8 billion in assets in 2016 to 30 million now with nearly $8 billion in assets. Vanguard is the world’s largest mutual fund company with more market share of mutual funds than the next three competitors combined. For this article, I read Inside Vanguard: Leadership Secrets from the Company That Continues to Rewrite the Rules of the Investing Business by Charles D. Ellis, a longtime director of Vanguard. I want to know the direction of customer service performance, plans for technology advancement, and more about Vanguard Personal Advisor Services.

Vanguard has and is making large strides to improve customer service, which has suffered in large part due to rapid growth and the COVID pandemic. Mr. Ellis wrote:

“Vanguard has fallen behind key competitors like Fidelity and Schwab in advice to investors. The reasons range from the firm’s explosive growth in assets to its long-ago reluctance to automate, compounded by pandemic-era challenges with many representatives working remotely. The problems are multiple. Routine service requests can take hours, not minutes to resolve. Mistakes are made… While this is a problem that can be solved, it has been a serious error to allow it to become widespread.”

This article is divided into the following sections:

• Section 1, A Brief History of Vanguard
• Section 2, Reviews
• Section 3, Customer Service
• Section 4, Technology
• Section 5, Education and Support
• Section 6, Vanguard’s Investment Philosophy and Portfolio Construction
• Section 7, Vanguard Advisory Services
• Section 8, Active-Passive Fund Performance

As a follow-up to previous articles, Readers who are interested in finding an independent financial advisor may find these links useful: National Association of Personal Financial Advisors, The Financial Planning Association, and Investment Adviser Public Disclosure.

A BRIEF HISTORY OF VANGUARD

Vanguard’s Mission: “To take a stand for all investors, to treat them fairly, and to give them the best chance for investment success.”

Vanguard is owned by the investors in the funds and focuses on low-cost, long-term investing through funds, and does not participate in all services that other full-service providers do. During the 2008 financial crisis, when Wall Street Banks were failing, being bailed out, and/or laying off employees, Vanguard remained stable.

An in-depth history of Vanguard can be found on the Vanguard Corporate website. Below I focus on the past two decades of technological development, customer service, and advisory services.

• 2001: Offers William Sharpe’s Financial Engines online portfolio service free to clients with $100,000.
• 2008: F. William McNabb III was named Vanguard CEO, succeeding John J. Brennan. Mr. McNabb’s goals were high fund performance, crew engagement, and lowering expense ratios. He focused on developing new products, cybersecurity, and regulatory changes.
• 2011: Vanguard forms a division dedicated to serving financial advisors and broker-dealers. Introduced the Mobile-App.
• 2015: Vanguard unveiled Personal Advisor Services (hybrid robo-advisor), which had $47 billion in assets in its first year.
• 2016: Announced plans to open an Innovation Center to “build capabilities that we believe give our clients the best chance for investment success. At the time, 90% of its interactions with clients were done digitally.
• 2018: Mortimer J. (Tim) Buckley assumed the CEO position and focused on offering custom-tailored financial advice and increasing capital investments in technology.
• 2019: According to Statista, the number of employees at the Vanguard Group fell from 12,604 in 2019 to 11,634 in 2020 during COVID before rising to 11,845 in 2021.
• 2020: Vanguard inaugurates Digital Advisor for financial planning and money management service and selects Infosys as a partner to provide cloud-based record keeping.
• 2021: Vanguard launched the New Mobile App. Vanguard announced that it was adopting a hybrid work model for the majority of employees to work remotely on Mondays and Fridays.
• 2023: Vanguard’s Personal Advisor Service has now grown to $243 billion, up from $47 billion in 2016.

REVIEWS

Accolades: A Recognized Industry Leader is a list of companies recognizing Vanguard for achievements, including Forbes magazine, which named Vanguard one of the “World’s Best Employers” (October 2021). Sixty-one percent of 1,368 Vanguard employees reviewing it at INDEED rate Vanguard with more than three stars, while seventeen percent rate Vanguard with less than three stars for an overall rating of 3.6.

Consumer Affairs (CA): Fifty-four percent of one hundred and thirty-six reviews rate Vanguard with four or five stars, while twenty-one percent rate it with one or two stars. The pros are the robo-advisor option, educational resources, and low-cost funds, while the cons are few features on the website, fund minimums, slow response time, and customer service.

Edith Balazs at Broker Chooser rates Vanguard 4.5 out of 5 overall and the same for customer service describing great customer service and providing fast and relevant answers.

TopRatedFirms gives Vanguard 3 stars, with a 4-star rating for its investment system and three stars for customer service. Most of the investor reviews are critical. It is interesting to note that there were 11 comments in 2019, 28 in 2020, 71 in 2021, and 107 in 2022, but only 22 in the first six months of 2023. I take this reduction in complaints as an indication that the issues peaked during the COVID pandemic and are being resolved.

Bogleheads – Anyone Still Favor Vanguard? (2023): Bogleheads is “Investing Advice Inspired by John Bogle,” so I found this discussion particularly relevant. I summarize a few comments:

• “They offer integrity and meet my needs.”
• “I will never understand the willingness of some of my fellow Bogleheads to put all their life savings in just one basket, i.e., brokerage firm. It seems like a sucker bet. So, yes, I still favor Vanguard as well as Fidelity, Schwab, and…”
• “Calls to customer service regarding custodial IRAs were answered promptly. Additionally, I find transferring money between Vanguard and my CU, along with purchasing CDs and treasuries easy.”
• “I’ve had good and bad service with Vanguard and other companies.
• “My experience has been that customer service is always good.”
• “I still favor Vanguard. I like their website. Everything is so easy to use with Vanguard. I have always received very good customer service with Vanguard.”

CUSTOMER SERVICE

Kim Clark at Kiplinger describes some of the strengths and weaknesses in Vanguard Faces Competition and Criticism (June 2023). Vanguard’s strengths are simplicity, low cost, and quality funds. Vanguard’s weaknesses are cited as being overly cautious, slow to react, and below average customer service. Vanguard is now about two-thirds through a technology upgrade aimed at improving customer service and has focused on its advisory services, including tax loss harvesting. Ms. Clark says:

“Morningstar last year called Vanguard’s advice programs the best overall in the industry because of their low costs, services such as goal-planning tools, and portfolio construction. Kiplinger readers gave Vanguard ‘above average’ ratings for its customer service and advice programs this spring. Vanguard also ranked at the top for do-it-yourself investors in a recent J.D. Power survey.”

Vanguard Faces Competition and Criticism, by Kim Clark, Kiplinger, June 19, 2023.

Morningstar gives Vanguard a Parent Rating of “High” because of its ownership structure, low costs, and direct-to-investor playbook while acknowledging client service missteps. They say that “Vanguard has built an increasingly compelling ecosystem of advice for investors with simple to complex needs.”

Christine Benz interviewed Vanguard CEO Tim Buckley in November 2018 regarding complaints about poor customer service, as reported in “At Vanguard, Heavy Investments to Boost Customer Service.” Mr. Buckley explained that at that time [in 2018], 90% of calls went through in 60 seconds, but issues existed with “asset transfers”. Mr. Ellis noted that Vanguard has introduced new contact center technology, reorganized client service teams, and accelerated efforts to redesign and improve clients’ digital experience.

TECHNOLOGY

In September 2022, Marco De Freitas wrote “Empowering Investors Through Digital Platforms,” in which he described ongoing technological developments and how the COVID pandemic drove the wider adoption of apps, websites, and videoconferencing. Vanguard’s efforts center around increasing self-service and enabling better control and consumer decision-making. Vanguard conducted a survey of clients to determine preferences which showed that 60% of clients preferred conducting financial activities online.

Examples of online tools include the Quick Start screen and the Tools and Calculators Overview. The Mobile App upgrade experienced technical difficulties after its rollout but has been largely resolved. In 2020, Vanguard partnered with Infosys to enhance its defined contribution business, particularly reporting.

EDUCATION AND SUPPORT

I looked at Vanguard’s online resources and am pleased with the enhancements to Vanguard’s Investor Resources, especially their economic and market outlook. They have a lot of information available about choosing investment accounts, planning for retirement, and market insights and economic analysis, among others. They have an easy-to-use filter for the calculators and tools available.

If you click on the “Support” icon, you are redirected to online guided support which lists dozens of topics and frequently asked questions. There is also the “Message Center” for sending questions to Vanguard. Clicking on “Technical Support” at the bottom of the page takes you to common topics related to computer, mobile, and access issues. You can sign up for The Vanguard View monthly newsletter. You can also call support at 800-284-7245 Monday through Friday from 8 a.m. to 8 p.m. ET. For those wanting more support, there is the option to use Vanguard Personal Advice Services at a cost of 0.3% of assets managed, which is low compared to competitors. They do not have 24/7 phone service nor a “chat” feature.

INVESTMENT PHILOSOPHY AND PORTFOLIO CONSTRUCTION

A Look Ahead with Vanguard is a recent (January 2023) interview with Vanguard CEO Tim Buckley. Mr. Buckley points out the pitfalls of trying to time the markets and highlights Vanguard’s philosophy of “staying the course.” He discusses how return forecasts can be used in setting allocations for the long term. Mr. Buckley’s answer to why an investor should choose Vanguard summarizes its mission of putting client’s “interest first and letting them keep more of their return.” Finally, he touches on Vanguard’s development of quality, low-cost advice as a customer service.

Vanguard Principles for Investing Success describes its four principles to improve an investor’s chances of achieving investment success:

1. Think About Your Goals: Retirement, buying a home, etc.
2. Stay Balanced: Find the right level of risk and reward.
3. Keep Costs Low: See Vanguard Return Cost Savings to Shareholders
4. Be Disciplined: Invest for the long-term and don’t try to time the market.

Their philosophy on asset allocation is:

“Asset allocation and diversification are powerful tools for achieving an investment goal. A portfolio’s allocation among asset classes will determine a larger proportion of its return and the majority of its volatility risk. Broad diversification reduces a portfolio’s exposure to specific risks while providing an opportunity to benefit from the markets’ current leaders.”

What appeals to me about Vanguard Personal Advisory Services is the financial simulation tool called the Vanguard Capital Markets Model (VCMM) that generates expected long-term returns and volatility, a summary of which can be viewed in Our Investment And Economic Outlook, June 2023. Vanguard uses the Capital Markets Model and Asset Allocation Model to develop long-term customized portfolios to develop a glide path for investors. Vanguard’s Portfolio Construction Framework is a detailed look at how Vanguard designs portfolios.

VANGUARD ADVISORY SERVICES

The trend of shifting from defined benefit retirement plans to defined contribution savings plans has increased the burden on individuals to understand investing and the impact of taxes. This is the primary driver behind the rise in advisory services. Mr. Ellis says that many of Vanguard’s clients are of moderate means with simpler needs for advice than at some competitors.

Vanguard’s investment strategies are “designed with a disciplined, long-term approach that focuses on managing risk through appropriate asset allocation and diversification”. “From Assets To Income: A Goals-Based Approach To Retirement Spending” by Vanguard is a comprehensive article on using goals for financial planning.

Kiplinger Reader’s Choice Awards for 2023, in their July issue, rated Vanguard outstanding in the Wealth Managers category for Trustworthy Advisors, Quality of Advice, Most Recommended, and Overall Satisfaction.

The Client Relationship Summary (CRS) provides the details of how the service works, from setting goals, developing an investment strategy and asset allocation, lifetime goal forecasting with multiple goals using the Vanguard Capital Markets Model, risk tolerance, advisor consultations, range of solutions, fees, annual update discussions, and much more. Vanguard has the Digital (robo) Advisor, Personal Advisor hybrid option with a team of advisors, Personal Advisor Select that also has a dedicated advisor, and Personal Advisor Wealth Management, as described in this link.

Vanguard recently increased its number of on-staff advisors from three hundred to a thousand, mostly through internal transfers. Vanguard’s approach to investor advice is for advisors to focus on financial planning, long-term investment programs, and behavioral coaching to stay with the plan. Advisors per client can be found at Investor.com. Vanguard has one advisor per 408 clients while Fidelity has one advisor per 113 clients. In my opinion, this largely reflects the level of services needed.

I read the Personal Advisor Services reviews by The Tokenist (7.5/10), Best Robo Advisors (Best Overall Hybrid), Michael Toub at DoughRoller, Rickie Houston at Business Insider (4.54/5), and Elizabeth Ayoola at Nerdwallet (4.3/5). In general, positive comments regarding the Vanguard Personal Advisory Services are:

• Investments in customer service have paid off
• Good financial planning services and investment plan
• Reporting
• Monitoring progress toward goals
• Ability to run “what if” scenarios
• Accounts are reviewed quarterly and rebalanced as needed.
• A range of projected account balances can be reviewed
• One of the best options for people looking for easily-managed investments and personalized help
• Good access to an advisor
• Vanguard has a “B” from the Better Business Bureau, reflecting how well it interacts with customers

ACTIVE-PASSIVE FUND PERFORMANCE

The Vanguard Financial Advisor suggested the Active-Passive Approach to me, which falls under the “Wealth Growth” objective. Mr. Ellis describes why index funds are often considered “passive” but says that most index funds are actually “actively managed” because of the sophisticated work to replicate the index. Table #1 contains all Vanguard funds for the past ten years. I divided the funds into active non-index funds, active index funds, and passive index funds. What we see is that active index funds have the lowest volatility, while active non-index funds usually have the highest return. The active index funds gain some ground on risk-adjusted return as measured by the Martin Ratio.

Table #1: Active vs Passive Fund Performance

Closing Thoughts

I have developed a multi-strategy approach in which I managed Buckets 1 and 2 that will be used during the next ten years, low-cost Vanguard Personal Advisory Select Services to manage a portion of long-term investments using the Vanguard Capital Markets Model, and Fidelity Wealth Services to manage a portion of long-term investments according to the business cycle.

The primary benefit is to provide advice for my wife in case I pass away before her. Secondary benefits are to have professional money management advice. Other benefits are to get assistance with Roth conversions, required minimum distributions, and personalized customer service from dedicated advisors.