It’s a high-stakes decision. Advisory is supposed to help drive growth now that index funds and fee-cutting are ubiquitous. Vanguard also opened a private equity offering, run with HarbourVest Partners, to qualified individuals—entering a higher-fee realm than the cheap, accessible index arena. Kurtz called the pact “a continuation of Vanguard’s enduring commitment to broadening access to investment strategies.”
One initiative that captures Vanguard’s challenges was known as the Innovation Studio. Opened in 2017 with Bogle’s blessing, it was supposed to find ways to reach new kinds of customers. After a series of projects that failed to flourish, the studio turned to direct indexing, a growing trend among the high-net-worth set that involves buying the stocks of an index, rather than owning a mutual fund or ETF.
Vanguard set up an outpost for the studio in Philadelphia, complete with the requisite start-up-style ping-pong table, exposed duct work, and a blackboard chalked with phrases such as “Let’s Make Something Awesome.” But the team was instructed not to tell potential aquirees they were calling from Vanguard, frustrating and confusing some staff, according to a person familiar with the matter. Instead, they said they represented a Philadelphia-based innovation company, and rarely had their calls returned. BlackRock, Morgan Stanley and JPMorgan Chase & Co. all snapped up their own direct index businesses before Vanguard moved in.
Eventually, in 2021 Vanguard acquired Just Invest—its first acquisition ever. The Innovation Studio shuttered the same year. Kurtz noted it was part of Vanguard's corporate strategy group, which still exists.
Service Woes
To some extent, the Innovation Studio episode encapsulates a uniquely Vanguard predicament: a history of revolutionary change coupled with an aversion to being a first mover. Software engineers were left wringing their hands, according to current and former employees.
To fill gaps in technology staffing, Vanguard has come to rely heavily on outside consultants and contractors. McKinsey & Co., for instance, was hired to improve the technology department’s efficiency, and generated a project called “New Ways of Working,” or NWOW, which was supposed to make information flow efficiently. Engineers joked it was basically the systems that other companies had adopted long ago as a matter of routine, said one of the people.
Customer service seems to be suffering. A site that gathers feedback, Customer Service Scoreboard, showed Vanguard’s proportion of customer service complaints exceeded Schwab’s and Fidelity’s.
Roth, of Wealth Logic, said that trying to get his name removed from his grown son’s Vanguard account was a challenge. He had one at Fidelity, too, and that was no problem.
“Fidelity was done in 20 minutes, with five minutes of my time,” Roth said. “With Vanguard, it took well over a month, with many hours of my time.”
“We take our clients’ feedback seriously, aspire to deliver an exceptional experience, and are making significant capital investments to get there,” Vanguard’s Kurtz said.
Other Bogleheads are also complaining. Rick Ferri, a longstanding adherent, says discovering Vanguard index funds was “like the fog had lifted and the sun shined through.”
But when it comes to calling Vanguard, “I try not to,” he said. “I have to wait on hold. And wait and wait and wait.”
--With assistance from Silla Brush and Dawn Lim.
This article was provided by Bloomberg News.