Vanguard Mounts Hiring Push Amid Service 'Hiccups'
As investors keep pouring money into low-cost funds provider Vanguard, customer service complaints are also on the rise. Meanwhile, managers of the Malvern, Pa.-based asset manager and hybrid robo argue they’re mounting an aggressive push to hire more support staffers and advisors.
Still, lingering service gaps could pose a threat to Vanguard in retaining and attracting millionaire clients, says Jeff DeMaso, research chief at Newton, Mass.-based Adviser Investments.
“The price wars between Vanguard and other low-fee competitors aren't going away anytime soon,” says DeMaso. “We think they're here to stay, which means the stakes for Vanguard to get their service issues solved have to be a real concern.”
According to Jamey Delaplane, a senior executive in Vanguard’s retail-investor group, Vanguard works with “hundreds of thousands” of “flagship” clients – those with $1 million or more invested through the firm’s mutual funds, ETFs and in-house investment management services.
“We’ve seen consistent growth across all segments of our business,” says Delaplane. “To make sure we continue to have the level of service we want, we’ve been devoting more of our resources to technology enhancements and hiring more people to help serve our clients.”
Vanguard’s hybrid robo platform, Personal Advisor Services, just hit its two-year anniversary. PAS, which mixes human intervention with computers to manage portfolios, topped $65 billion under management in the first quarter. Overall, Vanguard’s asset count has jumped to $4.2 trillion.
This year, Vanguard plans to hire 2,000 new employees, according to Delaplane. Part of that employment push includes adding about 100 new advisors by the end of 2017, he says. That would augment the 500-odd advisors already on the PAS roster.
The “vast majority” of Vanguard’s advisors are either CFPs or working towards that designation, says Delaplane. New recruits, he adds, aren’t being hired just to satisfy employment targets.
“We’re not planning on relaxing our standards in order to keep up with the growing demand for our services,” says Delaplane.
Despite recent service "hiccups" at Vanguard, Adviser Investments’ DeMaso doesn’t see his firm shifting portfolio strategies. The indie RIA, which manages $4.5 billion, allocates most of its client assets into Vanguard and Fidelity funds. Separately, CEO Daniel Wiener serves as editor of an independent newsletter that tracks Vanguard funds.
“From strictly an investments standpoint, we still feel that Vanguard offers top-notch funds at very competitive prices,” says DeMaso. Newsletter subscribers and the firm’s own clients, though, tell him and Wiener they “continue to have real service issues with Vanguard.”
Although he doesn’t dispute claims that Vanguard is "aggressively" trying to hire more support staffers and "proactively" building out its technology infrastructure, DeMaso suggests both efforts will take time to fully implement.
At the same time, investment flows show that investors aren’t souring on Vanguard. In the first quarter, Morningstar estimates the funds complex attracted $116.4 billion in net U.S. inflows, up nearly 63% from a year earlier.
“We’re certainly not seeing any slowdown in demand for their services,” DeMaso says. “If anything, Vanguard is gaining momentum this year — not losing it.”
Patrick Stark, an advisor in Newport Beach, Calif., also doesn’t see Vanguard’s low-cost allure dimming anytime soon. In fact, one of his longtime clients recently signed up for the fund company's hybrid robo platform.
“Her intent was to test-drive the service and evaluate whether the 0.30% annual management fee provides the same value as working with me,” says the head of financial planning at RS Crum, which manages about $400 million.
Vanguard ended up transferring the wrong accounts and making several errors processing her paperwork, says Stark, who uses funds from Vanguard and Dimensional Fund Advisors.
Phone calls had to be set up beforehand, he adds, which meant she couldn’t phone her advisor without advance notice. After several frustrating weeks, Stark reports she bailed on the experiment and rescinded her transfers.
“I personally think that Vanguard’s service offerings can be excellent for the right people,” says Stark. “However, for clients accustomed to the high level of service and broad scope of financial planning that private wealth management firms can offer, it’s not the ideal solution.”