I’ve been a Vanguard customer (ahem, owner) for 23 years now. As such, I’ve also been one of those long-time customers that has been disappointed to see their struggles with customer service for their individual retail brokerage clients. One of my big decisions in 2024 was if I would move the majority of my assets to Fidelity or Schwab. Here’s another long-winded post about my thoughts about Vanguard.
Jack Bogle made a powerful decision when he created the Vanguard ownership structure. Each of the mutual funds was its own entity, and the shareholders own the funds. In turn, the member funds own the umbrella Vanguard Group. The member funds each pay their own expenses for research, management, etc. Everything is “at-cost”. There are no outside shareholders that may call for profits to put aside or dividends to be paid out to them. In theory, this means that the goals of each individual retail investor are aligned with the Vanguard executives.
However, in practice, we are entirely passive shareholders in that we have no vote over who is CEO, who is on the Board of Director, how much each of those folks gets paid (we don’t even get to see the actual number), whether the company should prioritize customer service or growth of assets or employee benefits. As with many large non-profits, the executives at Vanguard get very large compensation packages and the target is almost always growth, growth, growth. Bigger is better; more assets means the executives can justify a larger paycheck.
When I started with Vanguard, they were much smaller and there was more “fat” in the system. Their expense ratio for the flagship S&P 500 index fund something like 0.20% annually ($20 a year for every $10,000 invested). ETFs did not exist, and mutual funds usually charged users a transaction fee unless they were on a “mutual fund supermarket” with a pay-to-play structure. In turn, this made mutual funds more expensive because they passed the costs onto the customer. Vanguard refused to pay kickbacks because that would increase the costs to shareholders, so us retail investors had to go “direct” to Vanguard to get access with no transaction fees. The cheapest option was to go direct with Vanguard, and they had a “cheap and cheerful” reputation. They weren’t the best in customer service, but phone calls were answered promptly.
Then came the exchange-traded fund (ETF). ETFs were cheaper to maintain for Vanguard (and everyone else). This drove costs even lower. ETFs could be bought and sold at any brokerage with the same transaction costs as a stock. ETFs also had inherent tax-advantages that made it much easier to avoid creating capital gains distributions. I believe a big break happened when Vanguard stopped holding the mutual fund and ETF expense ratios at the exact same level. Everyone was incentivized further to hold the ETF version.
Today, the expense ratio for the flagship S&P 500 index mutual fund is only 0.04% annually ($4 a year for every $10,000 invested). But the ETF version is only 0.03% annually ($3 a year for every $10,000 invested). There are both certainly much cheaper than 20 years ago, but today each of their ETFs also has at least two other competitors at the same low expense ratio. Vanguard probably feels forced to keep their ETF costs as low as possible, lest they hurt their “low-cost” brand.
However, since each Vanguard fund has to pay for its own expenses including customer service costs, Vanguard is now incentivized to have you hold your ETF at another brokerage. (And once you start holding Vanguard ETFs in another brokerage, technically you should be rooting for lower costs and thus Vanguard to spend less on customer service as well.) Trades are zero now everywhere. But every single customer service call still has to be paid for somehow, and from this perspective, you can begin to understand why their customer service has gone downhill. Their margins are purposefully thin and the only solutions are to either raise their expense ratios a tiny bit (slower growth and perhaps lower executive salaries) or just try to keep spending as little as possible on customer service.
Guess which one they picked? From WSJ article (gift) Vanguard’s Die-Hard Customers Have a Message for New CEO: ‘The Service Is Abysmal’:
Brokerage-account customers were also recently warned that “excessive reliance on phone associates” could lead to additional fees or account termination.
Importantly, Vanguard has limited ways to subsidize the low costs of their ETFs. Meanwhile, Fidelity still makes a ton of money upselling customers to a variety of wealth management services. Schwab earns hundreds of millions extra by quietly paying nearly zero interest on their cash sweep (they recently dropped it to 0.05% APY in December 2024), pocketing an average of 2% to 3% annually on their customer’s idle cash. Robinhood lets me trade random crypto 24/7 and promotes active trading which results in an insane amount of payment for order flow.
Is this the natural end for Vanguard? Will they just make the commodity product and let others distribute it and deal with customers?
This is why the new CEO will undoubtedly have a big focus on low-cost wealth management. This will allow them to charge customers a higher fee for increased financial advice and customer service. They would finally have something to upsell. The only other alternative is for them to raise Vanguard brokerage fees so that the retail customers pay directly for the additional services they require.
In the end, I asked myself, “If something happens to me, would I rather have my wife deal with Vanguard, Fidelity, or Schwab?” She may end up wanting to pay for extra assistance and advice. Vanguard would have the worst customer service, but perhaps they will come up with a reasonable-cost advisory system. Fidelity and Schwab would undoubtedly be happy to provide her additional financial advice as well, likely at a higher price. Fidelity has solid customer service in my opinion, but I don’t really like their wealth management options based on my past experiences helping older relatives. Schwab has a conveniently-located physical branch near us, but I have a bad taste in my mouth after their “Intelligent Portfolios” zero-interest-cash-is-good-for-you fiasco. (See CBNC article Charles Schwab to pay $187 million to settle SEC charges that it misled robo-advisor clients on fees.)
In the end, I have punted my decision and only made some smaller moves. I transferred our Vanguard IRA assets over to Robinhood as a 5-year test run (in exchange for $16,000). I already have my Solo 401k and an active Cash Management Account at Fidelity. Perhaps Vanguard will shore up their customer service to “decent enough” and use AI to create a at-cost/low-cost advisory platform for the masses. Perhaps the Fidelity model of solid customer service plus a whole bunch of both low-cost and higher-cost menu items is the best one. Perhaps I will place the highest value on a local Schwab human rep.
Image credit: Canva AI generated with prompt “HMS Vanguard in rough seas”
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Given that Schwab is basically stealing from its customers by paying them so little on their idle cash, that would eliminate them from contention for me. What good is a local human rep if they have a conflict of interest? “Conflict of interest,” ba dum bum!
But seriously, I’d just move it to whatever brokerage will pay you the highest bonus for it, and while not going for a bonus, keep it at Fidelity. Fidelity reimburses for ACAT-in and doesn’t charge for ACAT-out.
As for additional financial advice, I wouldn’t trust any of these places. Teach your kids what to do, and soon they’ll be old enough to help your wife should you pass away before her. Or, instruct her to hire a financial advisor who charges hourly.
Before retirement several years ago I tried all 3. I was looking for the best platform i.e. easy to operate and make trades etc. Also one that had all types of benefits i.e. free webinars, pod casts etc. Also one that gives me a CFP that I can call and look at my plan if I wanted. Also one that has retirement software that is free I could put in one time expenses in the future for college gifts and even for LTC expenses 20 years from now. And one that has the best cash management and credit card options i.e. the have a cash back card with unlimited 2% and the money in my money market with them (spaxx) I can write checks on it or have debits to it etc. The education they have on the site is top notch. I can trade any fund of any company as long as I have the ticker. All this is free and I do not own a single fidelity fund other than spaxx.
So which company did you go with?
I am sure they mean Fidelity.
I went with Fidelity
I’ve been thinking along the same lines. There’s really not enough of a driving force to get me to move another brokerage. I actually have more assets with Fidelity and Schwab just based on how they acquired other companies over the years.
I will probably consolidate as much as possible at some point, but for now, I have bigger fish to fry. It’s not broke enough for me to consider fixing it.
After being moved to Schwab from Ameritrade against my will, I can’t recommend Schwab. At Ameritrade, I could at least get hold of someone who could answer questions. At Schwab, they could care less. Good intentions and customer service matters.
I joined Scottrade long ago, was moved to TD Ameritrade with the buyout (I hated them), and then moved to Schwab with the buyout. Scottrade was too small to be competitive, had limited offerings, and charged $7 for many trades — to include Vanguard funds. TD Ameritrade was mostly a high-fee junk fund marketing platform. Their website had all sorts of ads and issues, and they preyed on ignorance. I’m happy to be gone.
Compared to the others, Schwab has the best feature mix and value of these. They are mediocre-to-fine at everything but don’t make it easy to find or optimize stuff. They direct me to automated tools (which I do not need or use), and have offered in-person support (which I did not use for fear of aggressive marketing). Schwab won’t sweep all dividends into the high yield money market fund (SWVXX), but its interest rates are decent. You can sweep SWVXX payouts back into SWVXX.
I’ve rarely interacted any customer service for any of these. I did visit offices for rollovers and had calls during the transitions. They were all fine in the routine banking/insurance salesdude way.
We’ve been with vanguard for over 15 years. Every few years I consider moving to another brokerage firm for various perks, such as free TurboTax, better portfolio analysis, better associated bank accounts, atm fee free debit cards, etc. But everytime I look back, I seem to be happy I never made the switch. Charles Schwab ended up having that cash sweep issue, fidelity is always cold calling me for wealth management advice, and even now I see my vanguard cash sweep amount pays better then my fidelity. Admittedly I don’t follow my accounts close enough to be sure I’m not getting taken advantage of, and at least with vanguard they are the least likely to deliberately do so.
I moved everything to Fidelity years ago since that was where my work 401k is. Their customer service is excellent, and they even have HSAs now for a few years.
I had been with Vanguard for 20 years. As my needs grew I found that their reps were really inexperienced in dealing with even basic issues. They then about 2019 stopped cash management within their Flagship services. When I asked they said “You can just transfer funds to a bank and then you can handle from there. I know it may take several days for funds to be available”. Then they had their debacle with the Target Date Funds in 2021. Moved to Fidelity. Easier to get someone knowledgable on the phone within 5 minutes and no surprises so far. Pretty happy with the move.
Due to my own mistakes and other issues beyond my control, I have accounts with all four; Vanguard, Schwab, Fidelity, and Robinhood. I’d like to consolidate but at the moment it’s not getting in the way of anything as I’m still firmly in the accumulation phase and some of these just sit and reinvest their dividends.
Outside of transferring accounts and dealing with a deceased parent’s estate, I’ve (thankfully) seldom needed any of their customer service. However, I’m curious what CS needs folks have and how frequent they are. Perhaps it’s a good idea for a whole post itself. Currently I’m able to accomplish 99.9% of everything I need via their firmly mediocre web and mobile apps.
I found this online, there’s a comparison chart. I’m not sure how accurate it is, but wanted to share.
https://www.fidelity.com/why-fidelity/pricing-fees
I have had my Schwab account for 35 years, with no issues. I automate a lot of financial stuff but for whatever reason, I don’t really mind manually transferring Schwab cash dividends and interest to wherever I want them to go. A weekly log-in doesn’t tempt me to make unnecessary trades, but maybe that is unusual- I would likely log in that often even if there was a good automatic cash sweep in Schwab. Anyway, I am glad to have a local office where I can talk to helpful people, and entirely fee-free accounts, including a Simple IRA for my business.
Hi Jonathan. Thanks for this post.
I started and assumed I would end with Vanguard. However, like many, the horrible customer service became too much, and since I had already converted every fund to ETF, it was time to move out and over to Fidelity. I am extremely glad I did, as there customer service is outstanding, and I can just as easily manage my brokerage accounts with Vanguard ETFs from their platform. What’s left at Vanguard, my sons’ 529 accounts and $1 in VUSXX in a trust acct.
You speculated on how your successor/spouse would carry-on at one of the firms. After reading Boglehead member Longinvest’s post on “One Fund in All,” I am a strong supporter of Longinvest’s idea that the easiest, and a “good enough” plan for most, especially the loved ones we leave behind, would be a mirrored portfolio of the same one fund in all accounts. I learned of the iShsares Core Allocation Funds (AOA, AOR, AOM, AOK) which are indexed globally diversified ETF portfolios comparable to the Vanguard LifeStrategy Funds. These are great for all accounts especially taxable accounts d/t the ETF structure.
I am transitioning to putting everything in AOR (a 60/40 stock bond globally diversified portfolio), and have instructed my wife accordingly. She won’t need to fiddle with anything or deal with any upsells from financial advisors/wealth management, and at an ER of 0.15% these funds will keep on keeping on. These funds are something to think about. Read more here:
https://www.bogleheads.org/forum/viewtopic.php?t=287967
I wanted to go with Fidelity but the low cost muni bond funds can’t be replicated. e.g. VMLUX, VNJUX.. any suggestions?
I would keep an eye out, as Vanguard has been expanding their active bond ETFs. Here are two new muni ETFs: Vanguard Core Tax-Exempt Bond ETF (VCRM) and Vanguard Short Duration Tax-Exempt Bond ETF (VSDM)
https://corporate.vanguard.com/content/corporatesite/us/en/corp/who-we-are/pressroom/press-release-vanguard-launches-two-active-municipal-etfs-112124.html
Their expense ratios are a bit high for now, but as the AUM increase the expense ratios should drop and could go even lower than the mutual funds.
Due to past 401Ks and pre marriage accounts ended up with money spread among Vgd, Fidelity and Schwab as well as numerous direct mutual fund families. Essentially a PIA to manage but since I was self directed and a long-term invest and hold guy it was/is manageable and kind of fun. With MBA and MA in economics, I never found an advisor that struck me as really offering a value add. With a multi 7 digit portfolio I am happy with how I built and grew our wealth. Now retired, I looked at consolidation a few years ago so that it would be easier and focused for me and my wife if anything happened to me. I interviewed FAs at each firm and ended up universally unimpressed. I need I get back to the process but I’m looking outside the 3 big firms. VGD service is nonexistent. CS took 3 years to respond to my inquiries on who was assigned to my account after the guy I did know, who I
liked but was really a salesman hunting AUM left. The guy who replaced him has not impressed me. Fidelity seems ok but is far away. I find the CFPs I have met are often not really broadly experienced and seem to be focused on pushing company managed accounts of very average ETF portfolios for 1%. Classic mismatch between needs and services offered.
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Another downer with regard to Vanguard. I like printed, monthly statements. I keep them in a binder. VG kept hectoring me- go paperless! Save the planet. Of course, this was ploy to eliminate printing and postage costs. When that didn’t work, they imposed a $ 25 fee for EACH account. Now, they unilaterally decided to eliminate useful information on the statements, like cost basis, estimated annual yield, etc. So you are now paying for a dumbed down, marginally useful statement. Schwab still provides all that info & more on their statements, and doesn’t charge any fees. No one asked the the VG owner/investors about this change. Maybe the whole point was to make these statements worthless and force everyone to “go digital.” I ‘m sure some MBA strategist at VG got a big pat on the back for this. Just another example of VG customer service going to hell in a handbasket.
I miss getting my annual paper statement from VG. One new thing I just noticed on VG’s “dashboard” page is a box with a small bar graph of investment income totals by quarter, and you can toggle by taxable, non-taxable (I.e. retirement accts) and total. The website seems to be improving.
40+ years at Vanguard. They have met my needs. Earlier, there was a guy who (cold) called me, asking how things were going, and telling me about new products. But I found, I was more knowledgeable than him about a lot of things.
I was with Schwab for a while. I was on put on hold forever while some CS agent had to ask someone else. Then there were huge fees nobody could explain. They were the worst to deal with.
I keep coming to the same conclusion. A reasonable position can be justified to go with any of the big three.
I’ve been with Vanguard for 20+ years. The upgraded website is easy enough to use. I can always easily get someone on the phone.
after a sudden forced retirement at 55, I’ve got more to think about than the little differences between them. And if I push everything to Fidelity or Schwab, I’m sure something else will happen that makes me regret it.
Hi Jonathan,
Out of the three, the only company I’ve had to call was Schwab, and I’ve had good service each time. I think the UI for Fidelity is the clunkiest and could use an update. But I have to use them due to work. I’ve been with Vanguard the longest and haven’t had any issues.
The other thing I like about Schwab is their “appreciation bonus” for holders of their Amex platinum card. Annual $100 statement credit for $250,000 in assets, going up to $1,000 for those lucky enough to have $10m.
Who pays for other people getting “bonus” for transferring your business to them from,say,Vanguard?
Since Vanguard doesn’t pay those kind of “bonus” to new people/money coming in I as a Vanguard customer am not subsidizing such marketing. A virtue as far as I am concerned (I don’t jump around between banks and brokerages for the “bonuses”,if I did such my attitude might be different.
I think John C. Bogle explained such in one of his books or perhaps in person,I think Vanguard still retains that and a few of his other policies although he is departed this world.
I hope Vanguard continues to work to remediate its recent customer service shortfalls. As to not providing a platform for “crypto” or “bitcoins” I see those as a digital pyramid scheme or game and something that can only hurt society and people in the aggregate who send in their money to “get in on the action”. Kudos to Vanguard for “not getting in on the action” I note that such schemes as “bitcoins” strongly incentivize people who have money in the scheme to recruit other people to send in their money.
You write: “This is why the new CEO will undoubtedly have a big focus on low-cost wealth management. This will allow them to charge customers a higher fee for increased financial advice and customer service.”
I think you’re right, but isn’t this what thy’ve been doing for the past few years – initiating and trying to expand their Personal Advisory Service at 0.30% AUM?
I agree, they are definitely started on this path, but even though they have billions under management for PAS and DAS, I believe if they do it right, it could be trillions.
Can the “Vanguard Effect” reach into advice? Meaning they are so successful that it makes everyone else cheaper as well? I don’t think it’s quite there yet.
And I agree with you that “they’re not quite there yet.” I’m a retired guy with 2/3 of my assets at Vanguard and about 1/3 outside Vanguard in the form of some fixed rate annuities ( MYGAs) and a rental property. I was considering signing up for PAS, mainly to keep an eye on me as I age ( I’m 77) and to have a connection for my kids who are my beneficiaries. As part of their introductory process, they reviewed my portfolio and proposed how they would change it. But to my surprise and disappointment, they didn’t factor in my outside investments in their analysis. I said I understood they couldn’t manage them, but I asked how they could ignore income generating assets from their analysis, and the only response was simply, “We only look at and manage assets held at Vanguard.” In the end, I found their Vanguard-only analysis too narrow, and the only “management” they would be doing is rebalancing the handful of index stock and bond funds they were recommending. So, as far as what I would consider financial advisement, this was woefully inadequate and not worth it for me even at their very low AUM fee.
Agreed again! – I am very surprised that they have something like $200 billion under management (something like 2% or 3% of all assets held in Vanguard ETFs/funds) when their tools and scope are so limited. It just shows the demand for such a product, in my opinion. I hope they can get it together and really figure it out.
At the risk of one more agreement…. Despite my complaint about PAS and despite my decision not to enroll, I still plan to stick with Vanguard rather than migrate to a competitor, and here’s why: The original reason that I was attracted to Vanguard, besides their low fee index funds, was their unique ownership structure – it’s functionally a non-profit owned by its investors – and this ownership structure still keeps Vanguard from playing the many games that for-profit brokerages play. I won’t try to list them, but it comes down to Vanguard not funneling money out of investors’ pockets and into their own in multiple subtle ways that are legal but hardly visible. And while I would be unlikely to fall for these games at this point in my financial education, my less financially savvy kids/ beneficiaries might. So I think my adult kids would be best served by investing at Vanguard, and I have promoted this outcome by first encouraging them to open Roth IRAs there, and then by my helping fund their Roths while they fund their own workplace retirement plans.
I had accounts long time accounts with Vanguard and Schwab (and more) and recently consolidated with Fidelity. They gave a small cash bonus to move but mostly their customer service has been really refreshing. I always find a human to help immediately. They call back on their own to follow up on some request, and there is a local Fidelity office with a local contact who has been very helpful in getting some things done. Their site and research tools also seem better than Vanguard. And they have tons of other offerings (like ability to build bucket portfolios for a small fixed fee). Really happy I made the switch
I’ve had to deal with all 3 of those banks post-death. I’d say you don’t want your wife to have to deal with Vanguard or Schwab. Fidelity is pretty good.