I have long been on the record that the best way to invest your money is in low cost index funds. In my mind it’s the smartest, most efficient, best bang for your buck way to invest. They’re cheaper than mutual funds, more diversified than single stocks.
Vanguard funds, founded by John Bogle in 1974, has really revolutionized investing. Decades ago, it was either extremely difficult (logistically) to invest in a diversified portfolio, and it was rather expensive. Vanguard set out to change that by allowing people to invest in diversified funds while they worked relentlessly to keep costs down on the funds (and allow consumers to keep more in their investment accounts).
As a result that incredible feat and the resulting goodwill, they have over $10 trillion invested in their funds, and have a cult like following from their Bogleheads, a group of people active with their personal finances who support Vanguard’s mission to make investing more affordable and accessible.
However, that reverence pertains to their funds. It does not pertain to Vanguard as a custodian (the place where your investments are held).
Last year the WSJ had an article (later republished on MSN.com) going through a litany of customer complaints from people who loved Vanguard funds, but couldn’t stand Vanguard as a custodian.
Common grievances include:
• Service Issues: Stories of glitchy trading platforms, incorrect account balances, and struggles to reach customer service are rampant. For instance, Theodore Wagenaar, after 40 years with Vanguard, moved to Fidelity due to service frustrations, saying that “It was difficult for me to leave them. My heart is with Vanguard and their mission. But it just continually got worse. The service is abysmal.”
• Industry Comparison: In a survey by Investor’s Business Daily, Vanguard ranked last for customer satisfaction regarding website and mobile app performance among major brokerages. I have had clients who moved over their accounts from Vanguard, and from my perspective it was like their user interface was still stuck in the 1990s. In addition, competitors like Fidelity and Charles Schwab offer 24/7 customer service, while Vanguard offers 8AM ET to 8PM ET customer service (which could be a pain if you’re on the West Coast, have kids and don’t have free time until late at night, etc).
• Nickel and Dime Charges: From the article: “New fees and rules have also left customers feeling nickel-and-dimed. Account closures or transfers to other brokerages may now cost a $100 processing fee. For clients with less than $1 million in qualifying assets, mutual fund or ETF trades placed over the phone cost $25. Brokerage-account customers were also recently warned that “excessive reliance on phone associates” could lead to additional fees or account termination.”
With all that said I do appreciate what Vanguard has done for the industry and individual investors. And I still am a big fan of their investment funds. However, when it comes to which custodian I would recommend in the future, I would much rather go with Fidelity or Schwab over Vanguard. And of course if you like Vanguard funds, you can still purchase them just as easily at those two companies, but with better technology, a more intuitive interface, and better customer service.