Bogle worried Vanguard is getting too big

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
neomutiny06
Posts: 384
Joined: Thu Feb 11, 2016 5:14 pm

Bogle worried Vanguard is getting too big

Postby neomutiny06 » Sun Jan 01, 2017 11:44 pm

I'm not sure I understand the reasoning for his worries. Can anyone explain if they have some further insight or other quotes from Bogle?

From a 2012 interview with ETF.com:

"I do worry that Vanguard is getting too big. For years the highest market share in the mutual fund industry, going back into the beginning of the industry’s history, was about 13 percent.

And Vanguard today is at 18 percent and it’s not going down. So the concentration of assets in this industry—the five largest firms are getting close to 50 percent. And the norm used to be maybe 35-40 percent. So that concentration troubles me."

User avatar
tadamsmar
Posts: 7081
Joined: Mon May 07, 2007 12:33 pm

Re: Bogle worried Vanguard is getting too big

Postby tadamsmar » Mon Jan 02, 2017 6:52 am

Getting big can present a problem for active mutual funds, and Vanguard has some of those.

But I can't see it as a problem for brokering cap-weighted index funds, unless it got so close to 100% that there were too few price setters left and that is far from happening.

User avatar
stevewolfe
Posts: 1517
Joined: Fri Oct 10, 2008 7:07 pm

Re: Bogle worried Vanguard is getting too big

Postby stevewolfe » Mon Jan 02, 2017 7:06 am

It is a problem (concentration of assets) - for active and passive funds - from a corporate governance / shareholder activism perspective. Jack has spoken on this subject many times and I wonder if he is referring to those issues here.

User avatar
davidkw
Posts: 597
Joined: Sun Feb 25, 2007 6:39 pm
Location: Sterling, VA

Re: Bogle worried Vanguard is getting too big

Postby davidkw » Mon Jan 02, 2017 7:36 am

For investors it is nice, since Vanguard will continue to lower fees and force others to do so too.
David | | From Jack Brennan's "Straight Talk on Investing", page 23 "Living below your means is the ultimate financial strategy"

sambb
Posts: 1426
Joined: Sun Mar 10, 2013 3:31 pm

Re: Bogle worried Vanguard is getting too big

Postby sambb » Mon Jan 02, 2017 7:45 am

I hope other companies dont cut their expenses so much that they cant keep up with the IT issues. I fear that vanguard has done that and it certainly doesnt seem good. Expenses can be cut so much that operational expenses are not enough.

Easman61
Posts: 2
Joined: Mon Sep 05, 2016 8:23 am

Re: Bogle worried Vanguard is getting too big

Postby Easman61 » Mon Jan 02, 2017 8:09 am

Vanguard wait times are horrendous when calling - even with over $1mm invested. I have waited over 20 minutes several times this past year to speak to someone. Seems excessive and my impression is that they're trying to run their organization on a too thin budget.

Grt2bOutdoors
Posts: 15236
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Bogle worried Vanguard is getting too big

Postby Grt2bOutdoors » Mon Jan 02, 2017 8:56 am

Easman61 wrote:Vanguard wait times are horrendous when calling - even with over $1mm invested. I have waited over 20 minutes several times this past year to speak to someone. Seems excessive and my impression is that they're trying to run their organization on a too thin budget.


I guess you are in favor of paying higher fees then?
All organizations are/have been focusing on doing more with less, where do you think your returns have been coming from? Actual sales? :twisted:
"Luck is not a strategy" Asking Portfolio Questions

User avatar
unclescrooge
Posts: 897
Joined: Thu Jun 07, 2012 7:00 pm

Re: Bogle worried Vanguard is getting too big

Postby unclescrooge » Mon Jan 02, 2017 9:48 am

Grt2bOutdoors wrote:
Easman61 wrote:Vanguard wait times are horrendous when calling - even with over $1mm invested. I have waited over 20 minutes several times this past year to speak to someone. Seems excessive and my impression is that they're trying to run their organization on a too thin budget.


I guess you are in favor of paying higher fees then?
All organizations are/have been focusing on doing more with less, where do you think your returns have been coming from? Actual sales? :twisted:


I can't speak for the OP, but yes, I'm willing to pay more for better service.

User avatar
nisiprius
Advisory Board
Posts: 32311
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: Bogle worried Vanguard is getting too big

Postby nisiprius » Mon Jan 02, 2017 10:10 am

Yeah, Vanguard's competitors are worried about it, too!

Seriously, though, he's been writing about this for a while. His 2004 essay, Re-Mutualizing the Mutual fund Industry: The Alpha and the Omega and others talk about the successive rise and fall of various mutual fund companies. He was not cheering when Vanguard surpassed Fidelity in total assets, because he feared the loss of Vanguard's culture and ideals if it grew too large. Not to put too fine a point on it, though, he's also said things like "Teamwork is important. I know it is. I can't do it myself but I know it's important," and to some extent he may regret the way growing organizations get blander, more bureaucratic, more managerial, more procedural--and less under the control of a strong personality at the helm.

I haven't yet personally experienced long holds calling Vanguard (and I'm not Flagship), but there do seem to be a lot of postings about it and it sounds like a real problem and Vanguard had better fix it....

(I know it's a paranoid conspiracy theory, but I do wonder if Vanguard's rivals are going to make a serious effort to make index fund illegal, and whether that could possibly succeed. Rhetoric like "The Silent Road to Serfdom: Why Passive Investing is Worse Than Marxism"--"The Road to Serfdom" being the title of a famous book by Hayek--seems like the kind of insanely over-the-top nonsense that can't be taken seriously, but who knows?)
Last edited by nisiprius on Mon Jan 02, 2017 10:39 am, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
TheTimeLord
Posts: 3396
Joined: Fri Jul 26, 2013 2:05 pm

Re: Bogle worried Vanguard is getting too big

Postby TheTimeLord » Mon Jan 02, 2017 10:27 am

davidkw wrote:For investors it is nice, since Vanguard will continue to lower fees and force others to do so too.


Increasing concentrations in fewer companies should lead to the opposite as competition diminishes. Personally, I would rather Vanguard upgrade their technology platforms and fix their customer service instead of shaving another 0.01% off my expenses since failures in those platforms are much more painful than paying an extra 0.01%. But Vanguard is in a tough spot here as other with better platforms and customer service equal or exceed them in lowering expenses. In my case I have the majority of my assets with Fidelity just because I see them as a distinctly better company from a customer service perspective. Ford may have invented the assembly line but I drive a Lexus.
Run, You Clever Boy! | AA 37.16/62.84 as of 01/21/2017

sambb
Posts: 1426
Joined: Sun Mar 10, 2013 3:31 pm

Re: Bogle worried Vanguard is getting too big

Postby sambb » Mon Jan 02, 2017 10:33 am

TheTimeLord wrote:
davidkw wrote:For investors it is nice, since Vanguard will continue to lower fees and force others to do so too.


Increasing concentrations in fewer companies should lead to the opposite as competition diminishes. Personally, I would rather Vanguard upgrade their technology platforms and fix their customer service instead of shaving another 0.01% off my expenses since failures in those platforms are much more painful than paying an extra 0.01%. But Vanguard is in a tough spot here as other with better platforms and customer service equal or exceed them in lowering expenses. In my case I have the majority of my assets with Fidelity just because I see them as a distinctly better company from a customer service perspective. Ford may have invented the assembly line but I drive a Lexus.


+1

I am considering leaving for fidelity given all of the issues at vanguard.
.01 basis points is irrelevant for my retirement, thanks for the sage comment

User avatar
rustymutt
Posts: 3518
Joined: Sat Mar 07, 2009 12:03 pm
Location: Oklahoma

Re: Bogle worried Vanguard is getting too big

Postby rustymutt » Mon Jan 02, 2017 10:36 am

Easman61 wrote:Vanguard wait times are horrendous when calling - even with over $1mm invested. I have waited over 20 minutes several times this past year to speak to someone. Seems excessive and my impression is that they're trying to run their organization on a too thin budget.


I've experienced that same delays. Keep in mind that it's the end of the year, and they are swamped with callers less educated than many Bogleheads. Vanguard is a mutual company, meaning we all are owners of the firm. I think the service is good enough for me.

PS. My company 401K, and pension payout was handled through Fidelity, and they to have the same type issues with customer service people being swamp at certain times of the year.

Happy New Years
Last edited by rustymutt on Mon Jan 02, 2017 10:38 am, edited 1 time in total.
Knowledge is knowing that the Tomato is a fruit. Wisdom is knowing better than to put the tomato in a fruit salad.

leonard
Posts: 5945
Joined: Wed Feb 21, 2007 11:56 am

Re: Bogle worried Vanguard is getting too big

Postby leonard » Mon Jan 02, 2017 10:37 am

Your quote doesn't say why "the concentration troubles" Mr Bogle. Any more to the quote that you can provide.

Many seem to be assuming the "trouble" with market concentration is the potential to manipulate prices. But, the trouble could be other things as well, for example maybe a concern that the infrastructure is not robust enough to support that level of transactions from a single firm. Or any number of things.

So, what's the "trouble" specifically?
Leonard | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

neomutiny06
Posts: 384
Joined: Thu Feb 11, 2016 5:14 pm

Re: Bogle worried Vanguard is getting too big

Postby neomutiny06 » Mon Jan 02, 2017 10:48 am

leonard wrote:Your quote doesn't say why "the concentration troubles" Mr Bogle. Any more to the quote that you can provide.

Many seem to be assuming the "trouble" with market concentration is the potential to manipulate prices. But, the trouble could be other things as well, for example maybe a concern that the infrastructure is not robust enough to support that level of transactions from a single firm. Or any number of things.

So, what's the "trouble" specifically?


He doesn't go any further. I am asking the board if they know why he is concerned.

leonard
Posts: 5945
Joined: Wed Feb 21, 2007 11:56 am

Re: Bogle worried Vanguard is getting too big

Postby leonard » Mon Jan 02, 2017 10:59 am

neomutiny06 wrote:
leonard wrote:Your quote doesn't say why "the concentration troubles" Mr Bogle. Any more to the quote that you can provide.

Many seem to be assuming the "trouble" with market concentration is the potential to manipulate prices. But, the trouble could be other things as well, for example maybe a concern that the infrastructure is not robust enough to support that level of transactions from a single firm. Or any number of things.

So, what's the "trouble" specifically?


He doesn't go any further. I am asking the board if they know why he is concerned.


Perhaps it's a humble/backdoor brag about having built the company with an 18% market share?

Just kidding everyone, I know he wouldn't do that.
Leonard | | | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

User avatar
simplesimon
Posts: 2806
Joined: Mon Feb 25, 2008 8:53 pm
Location: Boston, MA

Re: Bogle worried Vanguard is getting too big

Postby simplesimon » Mon Jan 02, 2017 11:49 am

sambb wrote:
TheTimeLord wrote:
davidkw wrote:For investors it is nice, since Vanguard will continue to lower fees and force others to do so too.


Increasing concentrations in fewer companies should lead to the opposite as competition diminishes. Personally, I would rather Vanguard upgrade their technology platforms and fix their customer service instead of shaving another 0.01% off my expenses since failures in those platforms are much more painful than paying an extra 0.01%. But Vanguard is in a tough spot here as other with better platforms and customer service equal or exceed them in lowering expenses. In my case I have the majority of my assets with Fidelity just because I see them as a distinctly better company from a customer service perspective. Ford may have invented the assembly line but I drive a Lexus.


+1

I am considering leaving for fidelity given all of the issues at vanguard.
.01 basis points is irrelevant for my retirement, thanks for the sage comment


Fidelity offers many funds and services that Bogleheads would argue are expensive and offer little added value (active funds, expensive 401k plans - I have had to participate in one of them at a previous employer). Fidelity may be able to offer you better customer service because someone else is paying for it. Is that sustainable? Who knows. I agree competition is good and if some Bogleheads leave for Fidelity, we may all be better off.

User avatar
TheTimeLord
Posts: 3396
Joined: Fri Jul 26, 2013 2:05 pm

Re: Bogle worried Vanguard is getting too big

Postby TheTimeLord » Mon Jan 02, 2017 12:09 pm

simplesimon wrote:
sambb wrote:
TheTimeLord wrote:
davidkw wrote:For investors it is nice, since Vanguard will continue to lower fees and force others to do so too.


Increasing concentrations in fewer companies should lead to the opposite as competition diminishes. Personally, I would rather Vanguard upgrade their technology platforms and fix their customer service instead of shaving another 0.01% off my expenses since failures in those platforms are much more painful than paying an extra 0.01%. But Vanguard is in a tough spot here as other with better platforms and customer service equal or exceed them in lowering expenses. In my case I have the majority of my assets with Fidelity just because I see them as a distinctly better company from a customer service perspective. Ford may have invented the assembly line but I drive a Lexus.


+1

I am considering leaving for fidelity given all of the issues at vanguard.
.01 basis points is irrelevant for my retirement, thanks for the sage comment


Fidelity offers many funds and services that Bogleheads would argue are expensive and offer little added value (active funds, expensive 401k plans - I have had to participate in one of them at a previous employer). Fidelity may be able to offer you better customer service because someone else is paying for it. Is that sustainable? Who knows. I agree competition is good and if some Bogleheads leave for Fidelity, we may all be better off.


No one is saying buy their active funds and they have been aggressively addressing expenses in index products as have iShares. Their relationship with iShares is excellent for customers as is their branded 2% back credit card. Vanguard doesn't even offer Admiral shares to Solo 401Ks plus Fidelity allows transfers. I believe both charge the same for their DAFs although Fidelity minimum is $5,000 and Vanguard is $25,000. I had a Fidelity 401K at Megacorp and it was not expensive. The only place I see a clear advantage for Vanguard is with actively managed funds where they are considerable cheaper than Fidelity last I looked.
Run, You Clever Boy! | AA 37.16/62.84 as of 01/21/2017

pshonore
Posts: 4954
Joined: Sun Jun 28, 2009 2:21 pm

Re: Bogle worried Vanguard is getting too big

Postby pshonore » Mon Jan 02, 2017 12:35 pm

Speaking of Customer Service, is Vanguard the last major financial site in the world not to have "Live Chat".

That's usually pretty quick at most places and one advantage is you can usually get a transcript of what was said.

atlnuke
Posts: 26
Joined: Wed Mar 09, 2016 7:18 am
Location: Atlanta, GA

Re: Bogle worried Vanguard is getting too big

Postby atlnuke » Mon Jan 02, 2017 2:18 pm

It's clear that as the % of index funds increases, there will be more opportunities for active traders. No one really knows what % that is though.

There's no doubt the high frequency firms and other hedge funds run arbitrage schemes against the index funds. This is a huge problem for some ETFs and it's possible that it could be a bigger deal in the future for index funds.

sambb
Posts: 1426
Joined: Sun Mar 10, 2013 3:31 pm

Re: Bogle worried Vanguard is getting too big

Postby sambb » Mon Jan 02, 2017 3:30 pm

pshonore wrote:Speaking of Customer Service, is Vanguard the last major financial site in the world not to have "Live Chat".

That's usually pretty quick at most places and one advantage is you can usually get a transcript of what was said.



Great point also. Wow, so many examples of their poor IT. index funds at fidelity are pretty cheap also.. I hope vanguard can do better with IT.

Theoretical
Posts: 625
Joined: Tue Aug 19, 2014 10:09 pm

Re: Bogle worried Vanguard is getting too big

Postby Theoretical » Tue Jan 03, 2017 1:26 am

atlnuke wrote:It's clear that as the % of index funds increases, there will be more opportunities for active traders. No one really knows what % that is though.

There's no doubt the high frequency firms and other hedge funds run arbitrage schemes against the index funds. This is a huge problem for some ETFs and it's possible that it could be a bigger deal in the future for index funds.


In fact there's even a Smart-Beta ETF that specifically exploits a major Index in serveral rule based ways. It's the Schwab Fundamental US Small company ETF against the Russell 2000.
Here's how:

1. Index design. Its universe is defined as the bottom 12.5% in market cap of the Russell 3000, weighted based on sales minus leverage, cash flows, and dividends plus buybacks. The market cap doesn't matter in this evaluation, which leads to point 2.

2. Index reconstitution date. It reconstitutes its fundamentally-weighted Index on the same day FYSE Russell officially reconstitutes the Russell 1000 and 2000. While the Russell 2000 doesn't have the horrific alphas it used to (something like -4.5% annually on live funds from 1998-2007 (they added buffers for the 2007 rebalance) it still gets front run to the tune of between .3-1% annually. By reconstituting at the same time as the Russell indicies (and with their huge index funds following), the index can effectively ride the front-runners' wave.

3. Quarter-tranche quarterly rebalancing. This fund (and all Russell RAFIs) rebalances 1/4 of the portfolio to the June index weights each quarter. This has advantages and disadvantages. It weakens the value effect by potentially rebalancing/staying in companies that no longer qualify as valuey. It could also mean gradually shifting more and more of a portfolio down into into a negative momentum falling knife as it worsens and worsens. However, the flipside is that it also provides positive momentum by gradually adding to holdings on their way up for the year, and it avoids divesting from winners too soon. However, the most important thing is that 3/4 of the portfolio is not facing front run trades in its holdings that straddle the Russell 1000/2000 lines.

4. If you look at the prospectus of FNDA, then this piece about the trading strategy is really interesting in light of the Russell 2000's front running history:

The fund will generally give the same weight to a given stock as the index does. However, when the investment adviser believes it is in the best interest of the fund, such as to avoid purchasing odd-lots (i.e., purchasing less than the usual number of shares traded for a security), for tax considerations, or to address liquidity considerations with respect to a stock, the investment adviser may cause the fund’s weighting of a stock to be more or less than the index’s weighting of the stock. The fund may sell securities that are represented in the index in anticipation of their removal from the index, or buy securities that are not yet represented in the index in anticipation of their addition to the index.


Several of those strike me as giving a little bit of flexibility to be on the winning side of front run trades. It still has to be 90%+ of the index.

Theoretical
Posts: 625
Joined: Tue Aug 19, 2014 10:09 pm

Re: Bogle worried Vanguard is getting too big

Postby Theoretical » Tue Jan 03, 2017 1:49 am

Also, as to the too big, I think for equities in particular, if a split in control (say antitrust) was to happen, it should be where total market funds (and 80%+ broad large cap funds like the S&P 500 or EAFE or MSCI Emerging) have to be independently operated and controlled from any other funds (say dealing with small caps or active funds) and that each operating company can only have a certain percentage ownership of the overall market. The reason is that if the same manager is in charge of both a TSM and a small cap fund, there could be some incentives to make management decisions that benefit the big existing companies and penalize or at least limit new/disruptive small competitors.

For the smaller capitalizations and active funds, there's vastly less risk of oligopolizing the entire marketplace, simply because they're the small fries.

The other area where I suspect a Too Big could go badly is with aggressive securities lending to one's affiliated by common ownership/management sister funds either by antitrust frowning on this kind of integrative behavior or some accounting and fiduciary duty breaches going badly for investors in a big fund.

I think these issues are probably half to a full business cycle away from really cropping up.

inbox788
Posts: 3107
Joined: Thu Mar 15, 2012 5:24 pm

Re: Bogle worried Vanguard is getting too big

Postby inbox788 » Tue Jan 03, 2017 2:49 am

rustymutt wrote:
Easman61 wrote:Vanguard wait times are horrendous when calling - even with over $1mm invested. I have waited over 20 minutes several times this past year to speak to someone. Seems excessive and my impression is that they're trying to run their organization on a too thin budget.


I've experienced that same delays. Keep in mind that it's the end of the year, and they are swamped with callers less educated than many Bogleheads. Vanguard is a mutual company, meaning we all are owners of the firm. I think the service is good enough for me.

PS. My company 401K, and pension payout was handled through Fidelity, and they to have the same type issues with customer service people being swamp at certain times of the year.

Happy New Years

Were they busy or less busy times? Some operations are always busy, and I don't know the ebb and flow of customers calling Vanguard, but I would guess that they're busy and short staffed on weekends. Also, later in the day, afternoon, evening and near closing are probably bad times to call. Early morning can be hit or miss depending on how many early birds call and quickly they open up the office. Also, avoid Mondays and Fridays. If I had flexibility and wanted to try to avoid waiting, I'd try Tuesday or Wednesday morning around 8:30 AM EST. (that's 5:30 AM PST!) And if you don't have flexibility, just do what many of us do, and that's put them on speakerphone and multitask. You're already doing 3 other things, so what's one more that's just waiting around? And just visit these forums for 20 minutes while you wait.

pshonore wrote:Speaking of Customer Service, is Vanguard the last major financial site in the world not to have "Live Chat".

That's usually pretty quick at most places and one advantage is you can usually get a transcript of what was said.

I don't understand what people are doing that is urgent and why folks don't plan ahead. Or have people gotten so impatient. Chat is seldom implemented well, and I've seen far more poor implementations of chat that I'd rather they didn't bother with chat than do it wrong or even average. The vast majority of chat I've used has been a waste of time for both the site as well as me.

Also, the kind of stuff I do at Vanguard is glacial pace, so if it takes a little longer, chances are the market has gone just a bit more up by the delay. I'm not advocating for bad service, but I don't see the need to spend tons of money (costing more fees) just so people can do meaningless things faster. If it's better, cheaper and faster (and simpler, too), great, but simply faster and more expensive is foolish IMO.

smashhand
Posts: 33
Joined: Mon Jan 06, 2014 4:37 pm

Re: Bogle worried Vanguard is getting too big

Postby smashhand » Tue Jan 03, 2017 6:45 am

To a large extent, I agree with inbox788: while I see many more attractive websites as I cruise around the internet, what Vanguard now provides meets my needs--which admittedly are simple. I don't have a lot of questions, make a lot of "moves", or require a lot of hand-holding. And as for Live Chat, there seem to be a heck of a lot more chatters who want my time and attention, than those to whom I would like to speak. To each his own, though.

WhyNotUs
Posts: 875
Joined: Sun Apr 14, 2013 11:38 am

Re: Bogle worried Vanguard is getting too big

Postby WhyNotUs » Tue Jan 03, 2017 9:33 am

I don't make a lot of trades so have not had a lot of issues but VG is a means not an end. Over time we moved everything to VG to simplify our tracking and oversight but could have done it at Fido as well. The edge went to VG due to their corporate structure.

The Bogle principles do not include "invest at VG".
I own the next hot stock- VTSAX

gkaplan
Posts: 6536
Joined: Sat Mar 03, 2007 8:34 pm
Location: Portland, Oregon

Re: Bogle worried Vanguard is getting too big

Postby gkaplan » Tue Jan 03, 2017 9:49 pm

smashhand wrote:To a large extent, I agree with inbox788: while I see many more attractive websites as I cruise around the internet, what Vanguard now provides meets my needs--which admittedly are simple. I don't have a lot of questions, make a lot of "moves", or require a lot of hand-holding. And as for Live Chat, there seem to be a heck of a lot more chatters who want my time and attention, than those to whom I would like to speak. To each his own, though.


I too agree with inbox788.
Gordon

chinto
Posts: 20
Joined: Wed Jan 04, 2017 7:39 pm

Re: Bogle worried Vanguard is getting too big

Postby chinto » Wed Jan 04, 2017 8:41 pm

In my opinion Vanguard's customer service is abysmal. My opinion only but I feel they are way below Schwab, Scottrade, and even Firsttrade and they do not even begin to approach Fidelity.

I started investing in 1981,when I turned xx. So I have been with Fidelity since 1981...back then some of their practices irritated me and I ventured out to other firms. Eventually, as a result of this forum and Bogle's books I finally succumbed to the allure in 2006 and opened my first Vanguard Account. Unfortunately I was an idiot and opened it as taxable account instead of transferring IRA or ROTH IRA assets. To this day it remains a lament. If not for the taxes I would simply liquidate my holdings at Vanguard. At this point I guess they will get to hold those assets for another 40-50 years as I don't want to feed the Government leviathan(i.just let those equity assets pass to my children with the stepped up cost basis).

I manage my children's account also, and unfortunately my son has his 401K with Vanguard. Their Reps are close to clueless. They don't know what an in-place conversion is, do not understand how ROTH 401K plans work (they tried to tell me that A ROTH 401K is not subject to RMDs for example), they do not understand that, plan permitting, you can roll a traditional IRA into a 401K plan etc. In contrast, Fidelity's reps are well versed in all these aspects (where I have my 401K). So I directed my children to open their ROTHs and taxable at Fidelity. It is hard to beat the expense ratios of .03% and commission free ishare ETFs like ITOT or even .08% on DGRO.

Right now I am in the process of consolidating all non-taxable at Fidelity and all new taxable. It is nothing against Vanguard,but they seem pretty heavy handed and their reps seem to come with an attitude, especially given their plebeian knowledge. I am not a huge investor,my investment assets are a bit over 2 million, but I amazed at how poor Vanguards website is,the features it offers and the lack of knowledge of their representatives(in terms of how to locate things on their website).

However, I don't think Fidelity would have done what they have done were it not for Vanguard. So in some ways I think Fidelity investors who stick primarily with their low cost ETfs or index mutual funds are free-riders. You get superior customer service and low cost. But once gain, without Vanguard, I don't think it would have happened.

Back to the central point of this thread: IMO, big is fine, but when it is coupled with arrogance I'll pass. And in my opinion Vanguard has arrogance in spades. Yet, i still think we owe them a debt of gratitude.

User avatar
whodidntante
Posts: 1174
Joined: Thu Jan 21, 2016 11:11 pm

Re: Bogle worried Vanguard is getting too big

Postby whodidntante » Wed Jan 04, 2017 9:52 pm

I'm doing my part by not having an account there. :happy

User avatar
Whiggish Boffin
Posts: 227
Joined: Sun Dec 09, 2007 10:20 pm

Re: Bogle worried Vanguard is getting too big

Postby Whiggish Boffin » Wed Jan 04, 2017 10:54 pm

At last October's Bogleheads conference, Bogle gave one hard limit on Vanguard's size. By the Investment Company Act of 1940, a mutual fund can't own more than 10% of any corporation. Vanguard owns about 6% of every corporation now.

So, could Vanguard close Total Stock Market to new investors, and open Total Stock Market II ?

henrikk
Posts: 29
Joined: Sat Oct 06, 2007 9:23 am

Re: Bogle worried Vanguard is getting too big

Postby henrikk » Thu Jan 05, 2017 10:37 am

Grt2bOutdoors wrote:I guess you are in favor of paying higher fees then?

Yes! Yes! I will pay for better service. I know many who will (and others who will not). This is true not only for investing but other services as well. Of course, the number of people/companies who will take [more] money for the promise of better service and then not deliver far exceeds those that truly deliver on their promise.

Customer service is the primary reason I will not invest with Vanguard. I have no problems investing in their ETF's and mutual funds.
Last edited by henrikk on Thu Jan 05, 2017 7:59 pm, edited 1 time in total.

leonard
Posts: 5945
Joined: Wed Feb 21, 2007 11:56 am

Re: Bogle worried Vanguard is getting too big

Postby leonard » Thu Jan 05, 2017 3:21 pm

chinto wrote:And in my opinion Vanguard has arrogance in spades.


How exactly does a corporation pull off arrogance?
Leonard | | | | Market Timing: Do you seriously think you can predict the future? What else do the voices tell you? | | | | If employees weren't taking jobs with bad 401k's, bad 401k's wouldn't exist.

Jack FFR1846
Posts: 4095
Joined: Tue Dec 31, 2013 7:05 am

Re: Bogle worried Vanguard is getting too big

Postby Jack FFR1846 » Thu Jan 05, 2017 3:36 pm

inbox788 wrote:I don't understand what people are doing that is urgent and why folks don't plan ahead. Or have people gotten so impatient. Chat is seldom implemented well, and I've seen far more poor implementations of chat that I'd rather they didn't bother with chat than do it wrong or even average. The vast majority of chat I've used has been a waste of time for both the site as well as me.


Respectfully.....I 100% disagree with the characterization of chat features. I've used live chat at Fidelity (a lot and sometimes at 3am), Schwab and TDAmeritrade. All have been excellent, the answers were exactly what I was looking for and the speed and predictability were phenominal.

As an example, I wanted to know if I could open a Roth for my 16 year old over the holiday break. He has income. So not knowing if one broker allowed his own account and another didn't, I opened chat windows with Schwab and TDAmeritrade (I thought Schwab didn't allow it and TDA did). On the chats, I found that anywhere I was to open an account, it would be a custodial account where I could be the custodian. I could watch TV with my son as I researched for him and me (he was excited to open this account) and had answers from 2 sources in very short order without any annoying phone music or having to speak with someone. As a result, I opened a custodial account for him at Schwab.
Bogle: Smart Beta is stupid

Caduceus
Posts: 1301
Joined: Mon Sep 17, 2012 1:47 am

Re: Bogle worried Vanguard is getting too big

Postby Caduceus » Thu Jan 05, 2017 3:47 pm

henrikk wrote:
Customer service is the primary reason I will not invest with Vanguard. I have no problems investing in their ETF's and mutual funds.


This sentiment does seem increasingly prevalent. A good number of my colleagues use Vanguard as their primary brokerage and they too have mentioned really long call wait times. Given that this board is only a small sample of all customers, it's likely quite a good number are getting frustrated too. I think Vanguard should take note.

To be fair, I think people should expect lower cost to be paired with worse customer service experience. Hiring more people, upgrading technology, investing money to train the existing reps that you have - all costs money.

I think you can quantify the value of your time in making this decision. If you purchase a three-fund portfolio with new money/dividends every quarter, that is 12 trades a year. Let's say you need to occasionally sell something, so we'll make it 15 trades. A non-Vanguard brokerage charges about $8 per trade, so that's $120 a year. If you can earn $120 an hour, and over the year Vanguard makes you wait more than an hour compared to other brokerages, make the switch. If you don't mind putting up with the inferior customer service from Vanguard for $120, then stay.

User avatar
TheTimeLord
Posts: 3396
Joined: Fri Jul 26, 2013 2:05 pm

Re: Bogle worried Vanguard is getting too big

Postby TheTimeLord » Thu Jan 05, 2017 4:51 pm

smashhand wrote:And as for Live Chat, there seem to be a heck of a lot more chatters who want my time and attention, than those to whom I would like to speak. To each his own, though.


What does that even mean. You being stalked by customer service reps?
Run, You Clever Boy! | AA 37.16/62.84 as of 01/21/2017

chinto
Posts: 20
Joined: Wed Jan 04, 2017 7:39 pm

Re: Bogle worried Vanguard is getting too big

Postby chinto » Fri Jan 06, 2017 5:03 pm

leonard wrote:
chinto wrote:And in my opinion Vanguard has arrogance in spades.


How exactly does a corporation pull off arrogance?


Generally corporation have a culture and their successful employees adopt and propagate it. I presume the attitude I encountered with Vanguard's reps is a direct result of the training they received and indoctrination into what is acceptable Vanguard corporate culture.

chinto
Posts: 20
Joined: Wed Jan 04, 2017 7:39 pm

Re: Bogle worried Vanguard is getting too big

Postby chinto » Fri Jan 06, 2017 5:10 pm

Regarding Live Chat. I have used it extensively at Fidelity and strongly value the ability to be able to print the transcript. There were several steps I need to perform to transfer a traditional IRA into my 401K, and having the instructions printed, along with the associated conversation was very helpful. Moreover I liked the idea they were able to bring in someone from compliance to review the details of proposed transaction without having to reiterate, because the chat session existed for them to review.

Chat, is a handy tool.

mptfan
Posts: 3856
Joined: Mon Mar 05, 2007 9:58 am

Re: Bogle worried Vanguard is getting too big

Postby mptfan » Fri Jan 06, 2017 5:17 pm

I have been a Vanguard customer for years and I have not noticed a decline in customer service. To be fair, I very rarely interact with their customer service, but on the few occassions I have needed it I have had a good experience.

Some people complain that Vanguard "cutting expenses by .01 percent" is not worth it because it results in poor customer service...but my understanding is that the reductions in the fund expense ratios that Vanguard reports each year are the result of greater assets under management, so the net effect is a lower expense ratio even though the amount that they are spending on expenses did not go down...the fact is that Vanguard may have actually INCREASED their spending on operating expenses, it's just that the increase was less as compared to the greater increase in assets under management, so the expense ratio goes down. (This is the benefit of economy of scale) If my understanding is correct, then those who wring their hands over Vanguard's alleged penny pinching may be doing so out of ignorance.
I eat risk for breakfast. :)

Mij
Posts: 6
Joined: Wed Dec 28, 2016 8:53 pm

Re: Bogle worried Vanguard is getting too big

Postby Mij » Fri Jan 06, 2017 8:59 pm

I am a FLAGSHIP client. I called Vanguard and it took me over a month to get my my Customer Service rep, and financial planner and finally make the changes. NOT GOOD.

Bonnan
Posts: 97
Joined: Tue Dec 16, 2008 10:57 pm

Re: Bogle worried Vanguard is getting too big

Postby Bonnan » Fri Jan 06, 2017 9:52 pm

We've been Flagships clients for many years; never had a problem reaching rep or receiving quick service. The last couple of years have been no different then 10-12 years ago.
But I do wonder if they haven't reached the point of "diminishing returns" regarding costs. The trend line must go asymptotic at some point in time.

User avatar
TheTimeLord
Posts: 3396
Joined: Fri Jul 26, 2013 2:05 pm

Re: Bogle worried Vanguard is getting too big

Postby TheTimeLord » Fri Jan 06, 2017 10:06 pm

mptfan wrote:I have been a Vanguard customer for years and I have not noticed a decline in customer service. To be fair, I very rarely interact with their customer service, but on the few occassions I have needed it I have had a good experience.

Some people complain that Vanguard "cutting expenses by .01 percent" is not worth it because it results in poor customer service...but my understanding is that the reductions in the fund expense ratios that Vanguard reports each year are the result of greater assets under management, so the net effect is a lower expense ratio even though the amount that they are spending on expenses did not go down...the fact is that Vanguard may have actually INCREASED their spending on operating expenses, it's just that the increase was less as compared to the greater increase in assets under management, so the expense ratio goes down. (This is the benefit of economy of scale) If my understanding is correct, then those who wring their hands over Vanguard's alleged penny pinching may be doing so out of ignorance.


i can't speak for others but what i said was better customer service was worth more to me than cutting another 0.01% from the ER. I was making a comparison of what would be valuable to me, pointing out i would be willing pay for better customer service. Others may feel different but I am weary from the Wal*Marting of organizations in America. Yes, I would assume as their customer base increases their total budget for customer support increases but not sure if their per customer spend has increased. Regardless if their budget had increased, decreased or stayed the same I would like to see customer service improved.
Run, You Clever Boy! | AA 37.16/62.84 as of 01/21/2017

poundwise
Posts: 116
Joined: Wed Apr 06, 2011 1:17 pm

Re: Bogle worried Vanguard is getting too big

Postby poundwise » Fri Jan 06, 2017 10:13 pm

There's also this:

http://www.slate.com/articles/news_and_ ... educe.html

http://www.nytimes.com/2016/12/07/opini ... n-pop.html

The argument is that the concentration in the mutual fund industry can lead to anti-competitive outcomes in the underlying businesses. When I first saw this, I thought -- no way, Vanguard is a passive investor. But per the NYT article: "Vanguard states on its website, 'We believe that our active engagement demonstrates that passive investors don’t need to be passive owners.'"

Not sure if this is one of Bogle's worries, but regulators are keeping watch.

ahmadcpa
Posts: 129
Joined: Sun Sep 23, 2012 5:58 pm

Re: Bogle worried Vanguard is getting too big

Postby ahmadcpa » Fri Jan 06, 2017 11:29 pm

When Vanguard gets too big, the stock prices gets inflated and therefore, the rate of return would drop? The flip side is more equity would be invested in autonomous vehicles, efficient solar panels and Space X like companies and therefore the rate of return would rise? Who knows!

User avatar
TheTimeLord
Posts: 3396
Joined: Fri Jul 26, 2013 2:05 pm

Re: Bogle worried Vanguard is getting too big

Postby TheTimeLord » Fri Jan 06, 2017 11:54 pm

ahmadcpa wrote:When Vanguard gets too big, the stock prices gets inflated and therefore, the rate of return would drop?


To some extent you are suggesting that the unbridled systematic contributions to index funds by a large percentage of investors will eventually recreate the Japan in the U.S.

Not an issue with Vanguard getting too large but with specific Index funds getting too large and indiscriminately receiving money systematically driving up P/Es regardless of whether or not there is any fundamental basis. Interesting.
Run, You Clever Boy! | AA 37.16/62.84 as of 01/21/2017

User avatar
Whiggish Boffin
Posts: 227
Joined: Sun Dec 09, 2007 10:20 pm

Re: Bogle worried Vanguard is getting too big

Postby Whiggish Boffin » Sat Jan 07, 2017 12:58 am

In this interview, in Money Magazine on 27 July 2015, Jack Bogle said:
Q: One critic of indexing, money manager David Winters, says that because index funds own a stock no matter what, corporate boards have no incentive to rein in executive pay.
A: He just doesn’t know what he’s talking about. There is, as far as I can tell, no difference between the corporate governance activity of actively managed funds and index funds. They’re both very low. But think through the logic of it: The old Wall Street rule was, if you don’t like the management, sell the stock. In the case of an index fund, the rule has to be, if you don’t like the management, fix the management, because you can’t sell the stock. So I look at indexing as the great hope of governance.

selters
Posts: 251
Joined: Thu Feb 27, 2014 9:26 am

Re: Bogle worried Vanguard is getting too big

Postby selters » Sat Jan 07, 2017 1:39 pm

TheTimeLord wrote:
ahmadcpa wrote:When Vanguard gets too big, the stock prices gets inflated and therefore, the rate of return would drop?


To some extent you are suggesting that the unbridled systematic contributions to index funds by a large percentage of investors will eventually recreate the Japan in the U.S.

Not an issue with Vanguard getting too large but with specific Index funds getting too large and indiscriminately receiving money systematically driving up P/Es regardless of whether or not there is any fundamental basis. Interesting.


But funds generally only purchase their shares once, don’t they? How much buying pressure does that put on the stock market? How much of today's trading volume comes from net purchases of index funds?

User avatar
TheTimeLord
Posts: 3396
Joined: Fri Jul 26, 2013 2:05 pm

Re: Bogle worried Vanguard is getting too big

Postby TheTimeLord » Sat Jan 07, 2017 3:13 pm

selters wrote:
TheTimeLord wrote:
ahmadcpa wrote:When Vanguard gets too big, the stock prices gets inflated and therefore, the rate of return would drop?


To some extent you are suggesting that the unbridled systematic contributions to index funds by a large percentage of investors will eventually recreate the Japan in the U.S.

Not an issue with Vanguard getting too large but with specific Index funds getting too large and indiscriminately receiving money systematically driving up P/Es regardless of whether or not there is any fundamental basis. Interesting.


But funds generally only purchase their shares once, don’t they? How much buying pressure does that put on the stock market? How much of today's trading volume comes from net purchases of index funds?


Funds take there inflows and purchase shares according to rules set out on there prospectus. If there are outflows they sell. Index funds do this without regards to specific fundamentals of the individual issues.
Run, You Clever Boy! | AA 37.16/62.84 as of 01/21/2017

User avatar
mickeyd
Posts: 4309
Joined: Fri Feb 23, 2007 3:19 pm
Location: Deep in the Heart of South Texas

Re: Bogle worried Vanguard is getting too big

Postby mickeyd » Sat Jan 07, 2017 3:55 pm

Bogle says that it "troubles" him, but does not suggest that Vanguard investors should direct their investments elsewhere. I believe that Vanguard can handle to troubles of Bogle with ease.
Part-Owner of Texas | | “The CMH-the Cost Matters Hypothesis -is all that is needed to explain why indexing must and will work… Yes, it is that simple.” John C. Bogle

RAchip
Posts: 91
Joined: Sat May 07, 2016 7:31 pm

Re: Bogle worried Vanguard is getting too big

Postby RAchip » Sat Jan 07, 2017 11:11 pm

More money in index funds means the market value of individual stocks will not accurately reflect circumstances of individual companies, creating opportunities for those who do not just buy index funds.

selters
Posts: 251
Joined: Thu Feb 27, 2014 9:26 am

Re: Bogle worried Vanguard is getting too big

Postby selters » Sun Jan 08, 2017 7:06 am

RAchip wrote:More money in index funds means the market value of individual stocks will not accurately reflect circumstances of individual companies, creating opportunities for those who do not just buy index funds.


Well, that's the hypothesis. But does the claim stand up to closer scrutiny? Do index funds contribute enough buying pressure on certain stocks to bid up stocks to artificially high prices?

columbia
Posts: 396
Joined: Tue Aug 27, 2013 5:30 am

Re: Bogle worried Vanguard is getting too big

Postby columbia » Sun Jan 08, 2017 11:44 am

My only real beef with Vanguard is that they do not have "Rebalance Now" and/or annual automatic rebalancing features.

If they really are getting so big, surely there is room in the budget to implement such software features. Heck, I'll donate my time to write the code. :)


Return to “Investing - Theory, News & General”

Who is online

Users browsing this forum: Arch, Bracket, cdrwok, johnra, JRB22, matto, Sailor36, willing2try, Yellowstone, zaboomafoozarg and 54 guests