At $6.5 trillion, Vanguard is by far the world’s biggest fund manager.

BlackRock (NYS:BLK)  is larger overall, thanks to its institutional accounts, but Vanguard dominates the mutual fund and exchange-traded fund business. In that field, the company boasts a 17% global market share, with no rival reaching even 10%.

Such influence demands scrutiny. Twelve months ago, in the article “Has Vanguard lost its way?”, I wondered if the company was heading in the wrong direction.

Today we revisit the concerns raised in that analysis. 

Customer service

Last year’s article generated the most emails in this column’s history. Almost all came from longtime Vanguard investors who were displeased with the company’s customer service. Some of the criticism came from those who sought additional services. For example. “Vanguard does not seem equipped to see their clients through the full lifecycle of investing. Customer needs are greater in the later stages of life. Self-service links and automated phone lines just won’t do the job.”

Most, though, arose from investors who were satisfied with the current arrangement, but not its execution. They complained about hidden phone numbers, long wait times, and operational requests (such as adding a second name to an account) that went unfulfilled. From their allegations, Vanguard’s assistance sounded like what one would receive from a resale ticket agency.

Of course, that poll was skewed. Angry customers are likelier to respond to a skeptically headlined article than are content ones. But those comments supported the initial evidence. I had written my article after hearing similar stories elsewhere, including from several friends. Another testimony to Vanguard’s customer-service struggles was this dismal survey result.

When preparing this article, I contacted all respondents who had emailed me last year, asking if they had changed their views. They had not.

The survey data were consistent, too. A spring 2022 J.D. Power study showed that Vanguard’s clients continue to face longer telephone wait times than did either Fidelity’s or Schwab’s (NYS:SCHW). An autumn study from the same company was more pessimistic yet, rating Vanguard dead last among financial-services firms for digital satisfaction.

Personal advisor services

In its defense, the Personal Advisors Services program (offered only in the US) addresses a genuine need. As with its rivals, many of which have created similar programs, Vanguard recognized several years ago that its industry failed to serve the middle ground. Some investors desire neither to invest entirely on their own, nor to pay for full-service advice, at roughly 1% of assets per year. They seek a hybrid solution.

For such appetites was PAS launched in 2015. Requiring a balance of at least US$50,000, the program creates and oversees fund portfolios, using a blend of online tools and telephone advisors. Its annual fee starts at 0.30% of assets, declining to a minimum of 0.05%, for portfolios exceeding $25 million.

That combination of pricing and service seems acceptable. A $1 million account pays $3,000 per year, while a $30 million portfolio is charged $15,000. (Besides the program fee, the investor also pays the expense ratio of the underlying funds—a stipulation that holds for full-service advice, as well.) True, the program’s funds come only from Vanguard itself, but as they are mostly generic and always cheap, that drawback exists mostly in theory, rather than practice.

My concern was that Vanguard overpromoted the program. The company built its reputation by trusting its clients. While rivals used shareholder reports to pitch the merits of their funds, Vanguard kept quiet, thereby permitting its customers to make unimpeded decisions. Consequently, the company’s habit of imploring shareholders to buy the add-on PAS program does not square with its history.

But perhaps I am being overly sensitive. The PAS program appears to be well-designed; I have received no complaints about either the funds that it selects or the service that it delivers. Thus, I partially retract my previous criticism. That said, I would be happier yet if readers were to inform me that Vanguard is no longer trying to upsell them.

Private equity

My third and final quarrel was not directly with Vanguard’s 2020 announcement that it would sell private-equity funds. From Elizabeth Warren to Warren Buffett, private-equity investing has attracted brickbats, but my view is more sanguine. While private equity is indeed risky, it becomes safer when overseen by a company that also has something major to lose. After all, Vanguard has staked its reputation on the line. I suspect that its private-equity funds will perform relatively well.

Rather, what bothers me is the notion of exclusivity. At least for the foreseeable future, the private-equity funds will not be available to Vanguard’s everyday investors. Nor are three actively managed funds that the firm recently launched. They are solely for the use of PAS investors—which is only available in the US. It’s understandable that Vanguard would cut its funds’ expense ratios for its larger customers, as it has done with its Institutional and Admiral shares. But creating additional product lines is another matter altogether.

Perhaps this approach, too, is one to which I can grow accustomed. Vanguard during the Jack Bogle era was manifestly democratic. (Ironically, the same could not be said of its leader’s management style.) The company prided itself on picking up all customer calls within three rings and on giving its retail customers the pricing and selection that had previously been available only to institutions.

Conclusion

Now, that same pricing and selection is widely available to all investors, from many companies besides just Vanguard. Consequently, Vanguard must reinvent itself. The question is not whether the organization should change. It has no choice but to do so, given that its competitors have copied so much of what made Vanguard unique. The question is instead whether such changes are acceptable.

For the most part, I believe that they have been, aside from some of the unresolved customer-service problems. Vanguard has every right to curtail its services in the attempt to reduce its costs and retain the lowest possible fund pricing. When doing so, though, it should continue to meet at least the basic service requirements—a goal that, regrettably, it has not always achieved.