What happened to Vanguard’s customer service?

For many years, I’ve been a client of Vanguard and broadly advocated their services to others. Some may have even thought I was a shill for them and financially incented to push their offerings. (I wasn’t.)

Their investment solutions offered the trifecta of low costs, a broad selection, and excellent customer service. In the past, competitors such as Fidelity and Schwab offered two of the three but there was nowhere else to find all three in one place.

Recently, Vanguard’s customer service has noticeably declined. They’ve experienced long telephone wait times, website glitches, and have phased out dedicated support for their larger “Flagship” clients. They’ve grown so big and fast that they either don’t care or cannot manage their size. Whichever is the case, it’s discomforting to their customers.

I’m not the only one to have noticed. You can read other complaints here, here, and here.

Having said that, I still recommend Vanguard’s funds — they’re well-managed, diversified, and low cost. It’s their account management I now question. I’ll explain the difference between investing in Vanguard funds and having a Vanguard investment account.

Your Investments Versus Your Investment Firm

You should differentiate the investments you hold (typically mutual fund or ETF shares) and the firm at which you have your investment account. With a few exceptions, these are decoupled and you can buy, sell, and hold one firm’s funds in another firm’s brokerage account.

In some cases, you may pay a fee to purchase mutual funds on a third party platform. For example, if you buy Vanguard mutual funds in a Fidelity or a Schwab account, you’ll pay a fee of ~$75 per transaction. That can be meaningful and certainly not something you want to incur regularly.

Note that 401Ks work differently — your employer selects the plan administrator and the mutual fund investment options.

ETFs also operate differently — they trade on a stock exchange like regular individual stocks. So, you can buy Vanguard, or anyone else’s, ETFs in any firm’s brokerage account and there is no extra fee to do so. This is one advantage of ETFs. Many of Vanguard’s mutual funds have an equivalent ETF but not all of them — most notably, the target date funds do not have ETF equivalents.

What to do about it?

1. If you love Vanguard’s mutual funds such as their Target Retirement funds (they’re very popular), then you may want to stay with them to manage your account. However, Schwab, Fidelity, and others offer their own low-cost target date funds that work similarly to Vanguard’s.
2. If you love Vanguard’s ETFs (many people do), you are probably aware that you can own these in a brokerage account at any firm. You have no reason to tether yourself to a Vanguard account.
3. If you’re frustrated with Vanguard’s customer service and have no allegiance to your fund choices, you may want to consider another firm such as Fidelity or Schwab as you can likely find suitable substitutes for your investments.

I have also used Fidelity for years and my customer service experience has always been good. Fidelity aggressively moved into the low-cost index fund space a few years ago and offers funds that are cost-competitive with Vanguard. I now believe Fidelity is a very good solution offering low costs, a broad selection, and good customer service.

Fidelity also has the advantage that much of corporate America is already familiar with them through their NetBenefits 401K platform as they are the largest 401K administrator. So, if you already know and use Fidelity and are happy with them, I see no reason to switch.