At Vanguard, customer complaints rise along with assets

Company plans to hire 1,700 new employees this year to address the problem

Feb 16, 2017 @ 5:00 pm

By John Waggoner

+ Zoom
(Bloomberg News)

As assets at Vanguard have soared, customer complaints have risen, too — something the fund behemoth is taking steps to fix, in part by hiring 1,700 new employees this year.

Customers flooded Vanguard funds with $323 billion in new money last year, and another $49 billion in January 2017. "The volumes were off the charts, beyond our forecasts: We handled more than 10 million phone calls, answered 1.4 million emails, and transacted 17 million brokerage trades," said Vanguard spokesman John Woerth.

Not surprisingly, not all of those transactions have gone smoothly.

"We've had enough complaints about Vanguard's service that we really can't ignore them," said Jeff DeMaso, director of research at advisory firm Adviser Investments. "We've heard a lot of complaints about required minimum distributions and reinvesting distributions," he said.

Charles Salmans, a retiree in Darien, Conn., said that his son had to convert a custodial account into his name when he turned 21. "It took forever and ever," Mr. Salmans said. "I kept calling."

Mr. Salmans is a Flagship member, an elite class of Vanguard investor with a personal representative assigned to him. "It means nothing," he said. "The guy answered the phone maybe one time in 20."

The account wasn't changed over, and his Flagship representative said that his efforts had been futile. A call to the Flagship representative had the same result, and a letter to Vanguard CEO Bill McNabb went unanswered. "Eventually I got a standard letter from someone in customer service that said, 'Talk to your Flagship representative.'"

The Flagship representative noted that the transaction came near tax time, typically a busy time in the financial services industry. "It's like a department store telling me I can't get good service because it's Christmas," Mr. Salmans said.

"Our clients deserve premier service, and we're working hard to address the situation with an aggressive hiring plan of adding 1,700 crew members in 2017," said Vanguard's Mr. Woeth. "We are also investing heavily in digital technologies and mobile applications to provide a better client experience and increase efficiencies. And we take an all-hands-on deck approach during particularly busy periods, reassigning crew members to provide additional support to reduce call wait times and speed account processing."

Mr. DeMaso was quick to point out that the vast majority of investors seem satisfied with Vanguard's customer service and low fees. "The vast majority haven't had issues," he said.

And Vanguard's fiercely loyal investors have proven to be one of their most effective markting tools, spreading the word about the advantages of low-cost, buy-and-hold investing. The Bogleheads board is filled with effusive praise for Vanguard's customer service representatives.

Nevertheless, Vanguard has clearly gotten the message to up its game. Its ratings on Yelp are lower than those of archrival Fidelity, as is its rating on job-seeking board Glassdoor.

"If they're going to be a low-cost provider, they have to figure out where to squeeze the money from," Mr. DeMaso said. "The executives aren't starving."

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