A new Morningstar report has raised questions about investing powerhouse Vanguard, with research analysts questioning whether competitive pressures have eroded the company's customer service and forced it into an ill-advised move into proprietary funds and advisory services, and private equity.

In the final analysis, they ask, does the company still stand for the values held by founder Jack Bogle?

“The trouble is, Vanguard has attracted too many imitators,” John Rekenthaler, Morningstar vice president of research, said in a report released this week. “No longer does Vanguard walk alone. These days, BlackRock, State Street, Fidelity and Schwab, among others, offer comparably priced index-fund lineups. To be sure, Vanguard remains the industry’s leader, attracting about 40% of this year’s net index-fund sales, but it faces fierce competition—leading to pressure on its funds’ expense ratios. As with the rest of the industry, Vanguard has been forced to cut its index funds’ costs, repeatedly.”

In fact, if trends persist, BlackRock and its iShares ETF business in 2021 will take in more new money than Vanguard’s U.S. funds for the second year in a row.

The financial pressure is exhibiting itself in two ways, Rekenthaler claimed. First, customer service at the firm that prided itself on answering every phone call within three rings has suffered dramatically, with some investors claiming it takes 45 minutes or longer to get through, according to the report.

The second change that gives Rekenthaler greater pause regarding Vanguard’s motivation and rankles some advisors is the firm’s foray into the advice business.

Rekenthaler said the aggressive promotion of the company’s advice platform, Personal Advisor Services, which was launched in 2015 and charges 30 basis points, “bolsters the suspicion that the main reason is money.”

“The service has been an unquestioned success," he said. "At roughly $250 billion, it has thrived in the marketplace, becoming easily the largest digital-advice platform. ... And the platform’s revenue has surely been to Vanguard’s liking, checking in at close to $750 million per year."

But two recent Vanguard announcements “have startled observers,” he said. “This spring, Vanguard promised to bring private-equity funds to qualified PAS clients. Then, last month, the company introduced three actively run Advice Select funds, available exclusively for the program’s customers.”

Private-equity funds “directly contradict Vanguard’s existing brand, being costly, complex, illiquid, rather than cheap, simple and easily traded,” he said.

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