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yogibearbull
Valued Contributor

Barron's on Vanguard

Barron's this week has a cover story on Vanguard. A summary is included in my weekly Barron's postings - reproduced below.

Cover Story, “Vanguard Led the Way for Decades. Now It’s Playing Catchup”. Vanguard may finally eliminate commissions for trading equities and options. It offers money-market funds as brokerage core/settlement option [only Fidelity, and possibly few others, do this]. A new robo Digital Advisor is coming with all-in fee of 0.20%. But Vanguard hasn’t been in the forefront of fund fee wars and many competing funds have lower or matching fees. Its brokerage platform is clunky, it has had outages and other operational glitches [lost/delayed deposits, duplicate transactions, balance errors, etc – all sorted out eventually]. Hubris is all that remains based on huge past successes. It has not offered, or withdrawn from, various services – no bill-pay; no debit/credit cards; call center support only for assets under $5 million; high margin rates; no asset-custody for RIAs, etc. Its finances remain a mystery. [I find it strange that personal assistants (glorified secretaries at most places) to CEOs at Vanguard often end up being CEOs later on]

https://community.morningstar.com/t5/Market-Insights/From-Barron-s-December-30-2019-Part-1/m-p/36983...

Barron's link may require subscription,   https://www.barrons.com/articles/vanguard-led-the-way-for-decades-how-long-can-it-stay-on-top-515774...

YBB
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27 Replies
rila3400
Contributor ○○

Re: Barron's on Vanguard

 

Yogi,


Thanks for sharing this informative article. My biggest Vanguard concerns are:

1) Vanguard appears to be prioritizing AUM growth instead of focusing on improving customer service or redesigning their unwieldy investor website.

"It has launched several mutual funds and ETFs in recent years. Its managed-portfolio business has racked up $148 billion in assets since 2015. The company plans to roll out a lower-cost robo called Vanguard Digital Advisor in 2020. Vanguard is also expanding internationally, aiming to bring its brand of low-cost indexing to Europe, Asia, and other regions where fees remain high."

2) Vanguard sometimes adds extra sub-advisors to its actively managed funds which can be detrimental to performance. There can be too many cooks in the kitchen...

 

Interesting Fact: Although Vanguard is well-known for passive index funds, it is one of the largest managers of active funds.

"Much of its growth has come from index funds, but Vanguard is also the third-largest manager of actively managed mutual funds, with $1.1 trillion in assets at the end of November, behind American Funds and Fidelity."

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ctyankee
Participant ○

Re: Barron's on Vanguard

Thanks Yogi!

I read the article with great interest.  I thought Barron's did a good job overall with the article.  

I also wonder whether they need new leadership, not because of where the CEO started from a humble beginning, but because there seems to be a lack of thought leadership.  What great new ideas have they brought to the table in the last 20 years?  Their website still looks like something out of the 1990's.  I don't expect them to be a bank, but I don't know why they can't make a bundle of cash by offering credit cards.    

They have a mutual structure much like an insurance company, why not go into the annuity business?  With a lean cost structure, they could take trillions from the insurance companies.  With trillions already in 401K program assets and based on SECURE act law, they could keep those assets in-house versus the insurance companies.  

ctyankee

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yogibearbull
Valued Contributor

Re: Barron's on Vanguard


@ctyankee wrote:

Thanks Yogi!

I read the article with great interest.  I thought Barron's did a good job overall with the article.  

I also wonder whether they need new leadership, not because of where the CEO started from a humble beginning, but because there seems to be a lack of thought leadership.  What great new ideas have they brought to the table in the last 20 years?  Their website still looks like something out of the 1990's.  I don't expect them to be a bank, but I don't know why they can't make a bundle of cash by offering credit cards.    

They have a mutual structure much like an insurance company, why not go into the annuity business?  With a lean cost structure, they could take trillions from the insurance companies.  With trillions already in 401K program assets and based on SECURE act law, they could keep those assets in-house versus the insurance companies.  

ctyankee


Didn't VG recently off loaded annuity servicing to its insurance vendors?

VG isn't an insurance company, so it has to partner with 3rd parties for that business.

YBB
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ctyankee
Participant ○

Re: Barron's on Vanguard


@yogibearbull wrote:

@ctyankee wrote:

Thanks Yogi!

I read the article with great interest.  I thought Barron's did a good job overall with the article.  

I also wonder whether they need new leadership, not because of where the CEO started from a humble beginning, but because there seems to be a lack of thought leadership.  What great new ideas have they brought to the table in the last 20 years?  Their website still looks like something out of the 1990's.  I don't expect them to be a bank, but I don't know why they can't make a bundle of cash by offering credit cards.    

They have a mutual structure much like an insurance company, why not go into the annuity business?  With a lean cost structure, they could take trillions from the insurance companies.  With trillions already in 401K program assets and based on SECURE act law, they could keep those assets in-house versus the insurance companies.  

ctyankee


Didn't VG recently off loaded annuity servicing to its insurance vendors?

VG isn't an insurance company, so it has to partner with 3rd parties for that business.


@yogibearbull 

Correct.  And my idea might be all wet.  However, Amazon wasn't in the pharmacy business until they bought one.  Berkshire Hathaway wasn't in the insurance business until they bought one.  Other than healthcare I don't know if there is an area despised more by consumers than the insurance industry and I doubt there are many groups more loved than Vanguard.  Could it be a game-changer?

ctyankee    

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FD1001
Valued Contributor

Re: Barron's on Vanguard

The best way to survive LT as a company is to invest in IT and you can't cut corners.  You got to pay highly for your IT stuff no buts or ifs. Second, a company has to be innovative and again why it needs great IT services. Third, great customer service.

VG is behind on all three while Schwab is a leader for all.

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Mozart622
Participant ○

Re: Barron's on Vanguard

This story is a good example of financial writers being forced to come up with something to write and trying to add some spice so it gets read.

Either you understand and believe what Vanguard is, or you don't.  It is nothing like all the other companies who strive for AUM to make more profits, and who drop fees on some products, by keeping fees on other products unnecessarily high.  It doesn't cost $0 to run an index fund.  Someone at FIDO is paying.

Vanguard's fees are based on costs.  Recently they announced more fee lowering on international funds.

  Under Vanguard's structure, the only reason to want more AUM is to lower fees to investors.  There is no profit motive.  There is no indication that top officials or fund managers make huge incomes compared to the rest of the industry.  Their advertising is minimal; sites like this, and some financial mags.  Compare that to all the TV ads you see for TDA and Fido and Schaub. All the extra "income" from their huge AUM goes to lowering fees.

And Vanguard has shown little interest in encouraging investors who trade frequently and would potentially bring in more fees.  In fact, their policies are aimed at restricting such activity.  Earlier this year, they discontinued offering leveraged products, and are slow to offer risky products, unlike other fund families.  Their one HY bond fund is the least risky in its class.  They have no confusing multi-bond fund.  Most of their OEFs are lower risk and they stay away from specialized ETFs.

Their web site and IT expenditure reflects much of the culture there; Buy, hold, and leave us alone.  They don't want to create a day traders paradise by assuring you have human and top web access 24/7.  There are other places for that.

I've never understood why some investors here can't seem to understand that Vanguard just isn't a good fit for them, and complaining about the service or policies changes nothing.  Many have realized that and moved to other places, yet VG continues to lead the industry in fund flows.   I have invested there since the mid '80s.  I'm happy with the service I get and need (minimal) and appreciate the fact that there are no multi-millionaires sitting at the top. It is what it is.

Win1177
Participant ○○○

Re: Barron's on Vanguard

Agree with Mozart622! If you do not like the “culture” of Vanguard, go somewhere else!

Personally, I’ve been (overall) VERY happy with Vanguard since 2007, when I started moving all our accounts there. Have there been occasional “hiccups”, yes. Are there some areas I think Vanguard could improve, again yes. But overall, a very good mutual fund family with high quality inexpensive offerings. I think they could improve the web site technologically, but overall a very good investment “house”. 

Win
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FD1001
Valued Contributor

Re: Barron's on Vanguard

Mozart,

One of the best ways to lower costs is investing heavily in IT and making your product, especially one that depends heavily on online interaction, very easy with great tools.  That will lower a lot of live customer support + back-office work. 

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yogibearbull
Valued Contributor

Re: Barron's on Vanguard

My wife and I do have Vanguard accounts - mutual fund accounts, not brokerage accounts. So, some of the reported complaints bother me. Just to go elsewhere is not a good suggestion. There is no excuse for delayed or missed deposits, duplicate/double transactions [so, one fellow's bank a/c was overdrawn], poor Rep accessibility [VG is too big for only M-F, 9-5 phone operation], etc. In the article, a VG executive offers the excuse that VG inflows are so huge that they equal to those for 9 next fund families combined and VG is trying its best to cope with that. But this is a poor rationalization.

We have also resisted conversion to VG Brokerage. We have brokerage accounts elsewhere and we don't want 5 new and bad brokerage accounts [T-IRA, R-IRA for both of us and a taxable trust a/c]. I suppose one day we will be forced to change. But how VG is handling this is not good. My wife is inundated with mail/e-mail requests to change, but not I. When I asked VG about this, it just said that my turn is not yet. If we have to change, we will do it for both of us at the same time, not in a piecemeal way. The urgency of VG requests [act! platform is going away] for my wife to change sound hollow [and we just ignore it] when my turn hasn't even come.

Few years ago, we started getting consolidated household statement - we didn't ask for it. Last year, VG went back to separate statements. These sort of unasked-for changes, I assume to save paper & postage, are bad.

YBB
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hku
Explorer ○○

Re: Barron's on Vanguard

55 minute hold to speak to a rep; consistently wrong 1099s, many corrected 1099s, dividends incorrectly coded as interest; tax exempt payments coded as taxable, Flagship reps turnover 3x in 3 years.  Dont know their name, cuz tommorow it will change.   This is what you get at Vanguard.  For some reason, I expected more than surrendering to the Vanguard Flagship with a white flag.  Yes, I surrendered.

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youth
Explorer ○○○

Re: Barron's on Vanguard

Well, it may get worse.  Vanguard is entering the Chinese market with robots investment advice.  So....hold on to your suspenders.  

Gabe

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Mozart622
Participant ○

Re: Barron's on Vanguard


@yogibearbull wrote:

My wife and I do have Vanguard accounts - mutual fund accounts, not brokerage accounts. So, some of the reported complaints bother me. Just to go elsewhere is not a good suggestion. There is no excuse for delayed or missed deposits, duplicate/double transactions [so, one fellow's bank a/c was overdrawn], poor Rep accessibility [VG is too big for only M-F, 9-5 phone operation], etc. In the article, a VG executive offers the excuse that VG inflows are so huge that they equal to those for 9 next fund families combined and VG is trying its best to cope with that. But this is a poor rationalization.

We have also resisted conversion to VG Brokerage. We have brokerage accounts elsewhere and we don't want 5 new and bad brokerage accounts [T-IRA, R-IRA for both of us and a taxable trust a/c]. I suppose one day we will be forced to change. But how VG is handling this is not good. My wife is inundated with mail/e-mail requests to change, but not I. When I asked VG about this, it just said that my turn is not yet. If we have to change, we will do it for both of us at the same time, not in a piecemeal way. The urgency of VG requests [act! platform is going away] for my wife to change sound hollow [and we just ignore it] when my turn hasn't even come.

Few years ago, we started getting consolidated household statement - we didn't ask for it. Last year, VG went back to separate statements. These sort of unasked-for changes, I assume to save paper & postage, are bad.


Sorry, Yogi, but I don't agree with much of your comment.  Businesses get keep or lose customers for many reasons.  I one is not happy with the business for some reason, and that reason is very important to them, then they should seek another company.  Having inflows greater than the next 9 companies is a perfect reason for service to lag until that tapers off.  It makes no sense to build a huge infrastructure in boom times that you don't want to support later on when flows slow or dry up.

Don't most large companies require you to have a brokerage?  Why run two platforms?  Isn't that a waste of money?

I have learned to accept things as they are, not as I want them to be.  I care about very little at Vanguard except getting good funds at very low costs.  I don't need advice, hand holding, or an expensive fancy dancy web site.  If I was at fidelity, the active funds I would choose would cost me about .7% on average, .5 of that going into the Johnson's pocket.

Others have different wants and needs.  I get it.  Go where they are met is all I'm saying. Vanguard meets mine.

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ctyankee
Participant ○

Re: Barron's on Vanguard


@Mozart622 wrote:

Under Vanguard's structure, the only reason to want more AUM is to lower fees to investors.  There is no profit motive.  There is no indication that top officials or fund managers make huge incomes compared to the rest of the industry.  Their advertising is minimal; sites like this, and some financial mags.  Compare that to all the TV ads you see for TDA and Fido and Schaub. All the extra "income" from their huge AUM goes to lowering fees.

... snip


@Mozart622 

Really?  I doubt their TV ads are simply in my market ...

https://www.youtube.com/watch?v=JiPHXDf0xUs

Don't get me wrong.  Vanguard does a lot of things well.  But, I truly believe they have become sleepy and complacent.  That can happen when a ton of money comes their way each and every month through 401K contributions and happy boomer accounts keep getting larger.  

ctyankee

Individually we are 30 million Vanguard investors. Together, we're changing the way the world invests. How radical. ​©2019 The Vanguard Group, Inc. All rights reserved. Vanguard Marketing Corporation, Distributor of the Vanguard Funds.
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Capital
Contributor ○

Re: Barron's on Vanguard

I originally opened my Vanguard account to be able to buy their EFTs commission free. I still hold the ETFs I bought in that account there; however, with the advent of commission free trading at Fidelity that reason no longer exists. I still keep this account; however, now for a different reason. Their core MM fund (Vanguard Federal Money Market Fund) consistently has a yield of about 20-25 basis points higher than what I have been able to find at Fidelity, even at the MM funds that are not used as core accounts and have lower expense ratios. For that reason I have our cash savings at Vanguard. If Fidelity can ever get their MM funds to yield what Vanguard does, I will have not further reason to keep a Vanguard account. For what I do, service wise, Fidelity is an overall superior product. My wife and I each have separate logins. On both logins I can see our Joint Brokerage and our Cash Management account that acts as our main bank account. In addition we each have Roth IRA, Rollover IRA and HSA accounts visible on our separate logins.  The transfer of funds between these accounts is all fairly immediate. I use our HSAs mostly as a reimbursement tool. Making the annual contribution to our HSA and reimbursing our expenses, when necessary, takes less that a minute. 

Capital
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ctyankee
Participant ○

Re: Barron's on Vanguard


@Capital wrote:

I originally opened my Vanguard account to be able to buy their EFTs commission free. I still hold the ETFs I bought in that account there; however, with the advent of commission free trading at Fidelity that reason no longer exists. I still keep this account; however, now for a different reason. Their core MM fund (Vanguard Federal Money Market Fund) consistently has a yield of about 20-25 basis points higher than what I have been able to find at Fidelity, even at the MM funds that are not used as core accounts and have lower expense ratios. For that reason I have our cash savings at Vanguard. If Fidelity can ever get their MM funds to yield what Vanguard does, I will have not further reason to keep a Vanguard account. For what I do, service wise, Fidelity is an overall superior product. My wife and I each have separate logins. On both logins I can see our Joint Brokerage and our Cash Management account that acts as our main bank account. In addition we each have Roth IRA, Rollover IRA and HSA accounts visible on our separate logins.  The transfer of funds between these accounts is all fairly immediate. I use our HSAs mostly as a reimbursement tool. Making the annual contribution to our HSA and reimbursing our expenses, when necessary, takes less that a minute. 


@Capital 

Indeed.  And a perfect example of what Vanguard should be trumpeting now and when they roll out their Robo-Advisor service.  I'd specifically target Schwab, which is the worst offender as Fidelity's sweep account delivers much more than Schwab does.  Additionally, IIRC, Schwab forces cash positions in their Robo-Advisor which pay squat.  That's Schwab's Achilles heel and investors should be really aware how it costs them.  

ctyankee

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youth
Explorer ○○○

Re: Barron's on Vanguard

Vanguard Select is excellent.  So, save your pennies.

 

Gabe

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Capital
Contributor ○

Re: Barron's on Vanguard


@youth wrote:

Vanguard Select is excellent.  So, save your pennies.

 

Gabe


FYI - Most of the Vanguard Select funds also have a EFT with an equal of lower expense ratio. For example Select Fund VTSAX has a 0.04% ER with a $3k minimum to invest while the identical ETF VTI has a 0.03% ER with a minimum of the cost of one share, currently $164.08 as of the close last Friday (12/28/2019). 

Capital
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Mozart622
Participant ○

Re: Barron's on Vanguard


@Capital wrote:

@youth wrote:

Vanguard Select is excellent.  So, save your pennies.

 

Gabe


FYI - Most of the Vanguard Select funds also have a EFT with an equal of lower expense ratio. For example Select Fund VTSAX has a 0.04% ER with a $3k minimum to invest while the identical ETF VTI has a 0.03% ER with a minimum of the cost of one share, currently $164.08 as of the close last Friday (12/28/2019). 


I'm pretty sure Gabe meant Vanguard Flagship Select which is for clients with over 5 million.

 

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Capital
Contributor ○

Re: Barron's on Vanguard


@Mozart622 wrote:

@Capital wrote:

@youth wrote:

Vanguard Select is excellent.  So, save your pennies.

 

Gabe


FYI - Most of the Vanguard Select funds also have a EFT with an equal of lower expense ratio. For example Select Fund VTSAX has a 0.04% ER with a $3k minimum to invest while the identical ETF VTI has a 0.03% ER with a minimum of the cost of one share, currently $164.08 as of the close last Friday (12/28/2019). 


I'm pretty sure Gabe meant Vanguard Flagship Select which is for clients with over 5 million.

 


Thanks @Mozart622 - In that event VITSX has a 0.03% ER with a $5M minimum to invest.

Capital
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