Vanguard Stumbles in Pivot from Cult of Jack Bogle
("Scant notice" seems to be standard operating procedure for Vanguard nowadays.)For diehard fans of the company’s founder, what’s at stake is the very soul of the $8 trillion mutual-fund giant.
Chief Executive Officer Tim Buckley is trying to move beyond parts of the revered founder’s playbook, and rouse the sometimes-sleepy Vanguard.
Courting suspicion from traditionalists, Vanguard is pushing ever deeper into financial advice, known internally as “Engine No. 2” of growth. It’s giving wealthier clients and advisory customers the velvet-rope treatment, in contrast to Bogle’s everyman ethos. With scant notice, it’s quintupled the minimum balance required for one personalized service to $5 million.
This was new to me:“I don’t think Bogle would have done a number of these things,” said John Rekenthaler, vice president of research for Morningstar Inc....
Some index-fund enthusiasts known as Bogleheads fret the company has veered off the [strait] and narrow.
A series of big moves have surprised employees and investors. Last year, Vanguard abruptly retreated from much of its business in China. It also slashed a long-standing medical benefit for retirees, provoking such outcry that Buckley reversed course and apologized.
“The way that they chose to communicate the termination of that benefit and the timing they chose was extremely poorly done,” said Katherine Lowe, who worked at Vanguard for more than two decades, through 2020....
Just this month, three investors filed a class-action lawsuit, saying changes to popular target-date funds saddled thousands of individual customers with “massive” tax bills, all for the benefit of big institutions.
“The ethics came from Jack Bogle, and I’m a little concerned they’re going in different directions,” said Allan Roth, founder of Colorado-based financial planning firm Wealth Logic, and a self-described Boglehead....
A series of glitches and customer-service errors have infuriated clients. In December, U.S. customers couldn’t access trade confirmations and monthly statements. And that came after high-profile gaffes in 2018 that saw Buckley -- a Vanguard lifer who started as Bogle’s assistant -- vowing to spend $1 billion a year to update the firm’s technology.
Buckley, 52, declined an interview request. Chas Kurtz, a spokesman, said any changes reflect Vanguard’s long history of evolving to meet its clients’ needs....
The culture is partly maintained by hiring employees from local colleges and promoting from within. Vanguard pays about one-third less than the competition, according to a person familiar with its compensation practices.
Kurtz, the Vanguard spokesman, said the firm offers “competitive, comprehensive, and best-in-class total rewards.”
Lower base pay can be offset by its phantom equity program, as well as an unusually generous 401(k) plan that contributes the equivalent of 10% of an employee’s salary to their retirement account.
[PAS is described]. Advisory is supposed to help drive growth now that index funds and fee-cutting are ubiquitous. Vanguard also opened a private equity offering, run with HarbourVest Partners, to qualified individuals -- entering a higher-fee realm than the cheap, accessible index arena.
Followed by an account of customer service problems.[An initiative called Innovation Studio started in 2017.] A series of projects failed to flourish.... the studio turned to direct indexing.... Vanguard set up an outpost for the studio in Philadelphia.... But the team was instructed not to tell potential aquirees they were calling from Vanguard, frustrating and confusing some staff, according to a person familiar with the matter. Instead, they said they represented a Philadelphia-based innovation company, and rarely had their calls returned. Eventually, in 2021 Vanguard acquired Just Invest -- its first acquisition ever. The Innovation Studio shuttered the same year.... the Innovation Studio episode encapsulates a uniquely Vanguard predicament: a history of revolutionary change coupled with an aversion to being a first mover.