I’m a Vanguard Loyalist. Vanguard and its late founder, John C. Bogle, changed my life and I credit both for my financial independence.
That said, I’m increasingly worried about the reliability of the firm. I’ve had checks returned and lost, and I find the web interface very nonintuitive.
But now, I’m sounding a red alert with the Vanguard iPhone App, which recently showed my wife and I having nearly $13.5 million in five brokerage certificates of deposit in three banks. It’s off by roughly 10,000%, and I’ll bet you know in which direction.
I don’t consider being off by 10,000%percent and over $13.3 million in one account a minor error, so I immediately informed Vanguard, sending them an image similar to the one above. In fact, I sent the images to three different people at Vanguard and it still took well over two weeks to correct.
I am not the first to express such concern. Erin Arvedlund of the Philadelphia Inquirer stated the following in the book “The Bogle Effect,” by Eric Balchunas:
Vanguard has a ton of legacy computer systems. I talked to some IT guys who had recently retired and it is keeping some of these legacy systems together with bailing wire. It doesn’t have the money that Fidelity, Schwab, and Robinhood have to upgrade. Or it may have it, but it isn’t going to spend it. And it has a lot of technical problems. On big trading days, its website goes down regularly. I’ve had a lot of reader complaints of account values being wrong. That’s really serious.
Arvedlund recently wrote about Vanguard clients taking to social media over customer service mishaps. Many complaints can be found in the Bogleheads forum on both the website and new mobile app. These are among the most loyal Vanguard clients.
Now other financial firms also have IT issues, such as the recent Barclays ETN debacle. But my clients are consistently telling me that firms like Schwab and Fidelity have far greater reliability and are far easier to navigate. Arvedlund acknowledged to me that other firms have issues but “things are far worse at Vanguard.”
The Good & The Bad
My original hypothesis was that Vanguard’s legacy systems made it more vulnerable to cybersecurity threats. While possible, one IT expert told me that those may actually be safer, as hackers may not know the legacy programming languages they were written in. Also, I’ve consistently found Vanguard employees to be smart, dedicated and willing to help.
But the bad is that it may be hard to overcome the IT systems issues, and I suspect much of the overload resulting in long client telephone hold times is due to web and mobile issues.
In short, long hold times are the symptom, while systems are the problem. Thus, fixing IT systems would result in fewer calls, better service and even lower costs since customer service reps are expensive.
A Vanguard spokesperson responded to my concerns, stating:
Vanguard is continually introducing enhancements and improvements to our mobile app, and continues to heavily reinvest in our business and technology infrastructure to provide a better client experience via mobile, web, and phone. We remain committed to continuously improving our technology and adding new capabilities based on client feedback.
Though I give Vanguard a lot of credit for admitting there is a problem, it has done so for years, and I see them falling further and further behind competitors. I think systems need a higher prioritization.
What This Means For You
While I’m not moving my account from Vanguard, I’m seeing some of my clients decide to do so. After all, clients can get the best of both worlds by buying Vanguard ETFs at firms like Fidelity and Schwab, getting both better service and ultra-low-cost Vanguard Index funds such as VTI, VXUS and BND. And the client often gets a cash acquisition award of thousands of dollars from those and other brokerage firms.
However, one must always be careful and realize that those for-profit firms are using this as a way to acquire assets and sell more expensive products and services.
I’m happy to see that Vanguard took back the $13.3 million in CDs that didn’t belong to me. But I’d be happier if Vanguard fixed its systems and provided accurate and easy-to-understand information to all of us.
Allan Roth is the founder of Wealth Logic LLC, an hourly based financial planning firm. He is required by law to note that his columns are not meant as specific investment advice. Roth also writes for Barrons, AARP, Advisor Perspectives and Financial Planning magazine. You can reach him at ar@DareToBeDull.com, or follow him on Twitter at Allan Roth (@Dull_Investing) · Twitter.