Has Vanguard Lost Its Way? [White Coat Investor]

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eonny
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Has Vanguard Lost Its Way? [White Coat Investor]

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Drew31
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by Drew31 »

Stumbled upon this earlier today and read it. Enjoyed the article. I don’t have any skin in the game anymore as I moved to Fidelity a year or so ago just to simplify as I had 401k there and enjoy the CMA + Credit card. I enjoyed the perspective in his article.
billaster
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

I agree with the White Coat Investor that the first three complaints about vanguard are relatively minor. But the final item, the Target Retirement fiasco is unforgivable.

There is a class action lawsuit pending and it would behoove Vanguard to settle up quickly to avoid an open trial. Otherwise Vanguard's reputation is going to be at stake when crying "widders and orphans" testify publicly to a jury about how Vanguard's callous actions caused permanent losses of ten and hundreds of thousands of dollars forever from their retirement funds.

As to incompetence vs malice, I think that is going to come out in the discovery phase as Vanguard will be forced to disclose its obscure and secretive compensation scheme. If it is disclosed that fund managers were receiving bonuses or promotions based on keeping large institutional investors happy, it could go very badly for Vanguard as to motive and fiduciary duties.
billaster
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

However, I disagree with the White Coat Investor about the suitability or unsuitability of holding Target Retirement Funds in a taxable account.

There is absolutely nothing wrong with holding these funds in a taxable account. As he points out, even a financially savvy investor like Mike Piper considers it okay -- at least until this fiasco.

Bogle himself held balanced stock/bond funds like Wellesley and Wellington in taxable accounts.

Keep in mind that these capital gains had absolutely nothing to do with bond dividends. The capital gains were generated by holdings of the Total Stock Market Fund and Total International Fund that never generate capital gains distributions of their own. It was Vanguard's forced liquidation of these stock holdings that generated the capital gains.

The capital gain surprise was 100 times larger than any previous capital gain distribution and entirely unexpected in their history. There was no fault on the part of taxable investors.

Also note that other stock funds are not immune to these capital gains surprises. If Vanguard were to engineer a mass exodus from any stock fund, the liquidation result would be similar. Not even ETF heartbeat trades would be able to keep up.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by smectym »

billaster wrote: Fri May 20, 2022 10:18 pm However, I disagree with the White Coat Investor about the suitability or unsuitability of holding Target Retirement Funds in a taxable account.

There is absolutely nothing wrong with holding these funds in a taxable account. As he points out, even a financially savvy investor like Mike Piper considers it okay -- at least until this fiasco.

Bogle himself held balanced stock/bond funds like Wellesley and Wellington in taxable accounts.

Keep in mind that these capital gains had absolutely nothing to do with bond dividends. The capital gains were generated by holdings of the Total Stock Market Fund and Total International Fund that never generate capital gains distributions of their own. It was Vanguard's forced liquidation of these stock holdings that generated the capital gains.

The capital gain surprise was 100 times larger than any previous capital gain distribution and entirely unexpected in their history. There was no fault on the part of taxable investors.

Also note that other stock funds are not immune to these capital gains surprises. If Vanguard were to engineer a mass exodus from any stock fund, the liquidation result would be similar. Not even ETF heartbeat trades would be able to keep up.
billaster, great points. And not much has been made of the fact that other Vanguard funds such as VWIAX (which we hold mainly in retirement, but also in taxable) also generated insane capital gains orders of magnitude higher than any previous distribution that I could find. Whether this was the result of the same dynamic that affected Target funds, or something different, I don’t know. But everyone seems to be treating Target Retirement cap gains issues as unique. Definitely not as to Vanguard capital gains distributions at the end of 2021. It may happen that the litigation expands to embrace Vanguard shareholders in funds other than Target Retirement.
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HanSolo
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by HanSolo »

smectym wrote: Fri May 20, 2022 10:43 pm billaster, great points. And not much has been made of the fact that other Vanguard funds such as VWIAX (which we hold mainly in retirement, but also in taxable) also generated insane capital gains orders of magnitude higher than any previous distribution that I could find.
The commodities fund (VCMDX) distributed about 24% of its assets in December. Not sure if it's the same issue (the distribution was a dividend in this case). Either way, that can be a big deal if you're holding it in taxable.

The article mentions active funds, and for me, that's a plus, not a minus. One of the reasons I stay with Vanguard is that they offer several active funds that I like. Aside from that, I tend not to need any customer service.

That said, there have been some minuses that do matter to me, e.g.:

* Bond quality drift: some of Vanguard's active bond funds have skewed toward lower quality over time (discussed here).

* Website UI being unnecessarily "improved" in ways that may appeal to mobile users but is worse for computer users (discussed here).

* Website features not working properly, or not at all, e.g., account signup (here and here), Portfolio Watch (here).

Due to the various issues I've seen and/or heard about, I'm no longer as enthusiastic about recommending Vanguard.

Now that these issues are getting more public visibility, I wonder if management will respond at some point.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by quietseas »

Jack Bogle set Vanguard on the course it is still on: low cost. Bogleheads who want to exploit an anomaly to get good service at low cost can find it at Fidelity and Schwab right now, who still have a lot of customers paying high fees on actively managed funds (sold through their mutual fund windows) doubled up with AUM fees paid to investment advisors who use Fidelity and Schwab platforms. Schwab and Fidelity collect the revenues paid to them, invest in the back office, and make the resulting product available to their clients who directly invest with them and buy low cost (or Zero) mutual funds. Like any pricing anomaly this will eventually close, but it may take years or even decades. As the client base for high expense investment products gets smaller (due to switch to lower cost approaches or death) its going to be harder for Schwab and Fidelity to offer good service to customers who don't pay a lot of fees.

It's the basic economics of a commodity industry. On an airline a 5 million mile customer and a once a decade flier are still sitting on the same plane, so if its stuck at the gate due to a mechanical issue or no pilot exacerbated by cost cutting neither passenger is going anywhere. One has to pay a lot to go with a private jet instead of using a common carrier airline, but a savvy Boglehead would know someone who has a private jet and lets the Boglehead travel for free. The savvy Boglehead doesn't own a boat or have a swimming pool, but has good friends who do.
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ClevrChico
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by ClevrChico »

That is a great, impartial take on the current state of Vanguard. The historical perspective is excellent too.

(I'm a happy Vanguard customer.)
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by Cheez-It Guy »

I liked it. I'm staying the course. I think the assessment about the need to moderate expectations is dead on.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by NYCaviator »

Vanguard the fund company? Great. Vanguard the brokerage? Horrible.

You can get the best of both worlds by buying Vanguard ETFs at Fidelity or Schwab.

Vanguard's constant tech issues, long hold times, reliance on paper forms, and awful customer service are simply inexcusable in this day and age. Low cost, portable ETFs have commoditized the brokerage industry, and Vanguard is trying to compete. The problem is they don't know how to do it. They haven't lost their way, they've simply became complacent when they were the only game in town to offer low cost investing and are far behind the curve in adapting to this new era of investing.

If they get their act together at some point, I can always transfer my holdings back in. The only reason people should use Vanguard as a brokerage is to access their mutual funds for free or because of some misguided sense of nostalgia.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by topper1296 »

NYCaviator wrote: Sat May 21, 2022 9:42 am Vanguard the fund company? Great. Vanguard the brokerage? Horrible.

You can get the best of both worlds by buying Vanguard ETFs at Fidelity or Schwab.

Vanguard's constant tech issues, long hold times, reliance on paper forms, and awful customer service are simply inexcusable in this day and age. Low cost, portable ETFs have commoditized the brokerage industry, and Vanguard is trying to compete. The problem is they don't know how to do it. They haven't lost their way, they've simply became complacent when they were the only game in town to offer low cost investing and are far behind the curve in adapting to this new era of investing.

If they get their act together at some point, I can always transfer my holdings back in. The only reason people should use Vanguard as a brokerage is to access their mutual funds for free or because of some misguided sense of nostalgia.
This pretty much sums it up as far as I'm concerned. I actually sold my ST bond index ETF and moved to the mutual fund version. I'm done with VG except for mutual funds. Schwab is a much better website for brokerage services.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by rkhusky »

billaster wrote: Fri May 20, 2022 9:58 pm There is a class action lawsuit pending and it would behoove Vanguard to settle up quickly to avoid an open trial. Otherwise Vanguard's reputation is going to be at stake when crying "widders and orphans" testify publicly to a jury about how Vanguard's callous actions caused permanent losses of ten and hundreds of thousands of dollars forever from their retirement funds.
Very unlikely. Most people have very little retirement savings. Most do not own stocks/bonds. The vast majority that do own stocks/bonds own them in tax-advantaged accounts like 401k's and IRA's or own them as play/gambling money in brokerages like Robinhood. The tiny majority that run out of space in their tax-advantaged accounts and have to invest in taxable accounts are very likely to be considered upper middle class or rich.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by rkhusky »

smectym wrote: Fri May 20, 2022 10:43 pm But everyone seems to be treating Target Retirement cap gains issues as unique.
And other brokerages have also seen one-off large cap gains when they've made changes to their stock funds.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

rkhusky wrote: Sat May 21, 2022 10:39 am
billaster wrote: Fri May 20, 2022 9:58 pm There is a class action lawsuit pending and it would behoove Vanguard to settle up quickly to avoid an open trial. Otherwise Vanguard's reputation is going to be at stake when crying "widders and orphans" testify publicly to a jury about how Vanguard's callous actions caused permanent losses of ten and hundreds of thousands of dollars forever from their retirement funds.
Very unlikely. Most people have very little retirement savings. Most do not own stocks/bonds. The vast majority that do own stocks/bonds own them in tax-advantaged accounts like 401k's and IRA's or own them as play/gambling money in brokerages like Robinhood. The tiny majority that run out of space in their tax-advantaged accounts and have to invest in taxable accounts are very likely to be considered upper middle class or rich.
Only half of workers have access to 401(k) type retirement plans. Most are limited to IRAs and many have some investment savings in taxable accounts. I know some of them. Regardless of how many there are, its a bad look for Vanguard to throw them under the bus in preference to large institutional investors.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

rkhusky wrote: Sat May 21, 2022 10:44 am
smectym wrote: Fri May 20, 2022 10:43 pm But everyone seems to be treating Target Retirement cap gains issues as unique.
And other brokerages have also seen one-off large cap gains when they've made changes to their stock funds.
I think what makes this case unique is the cause of the large capital gains. This wasn't driven by stock market fluctuations, or reallocation of investments by the managers, or rebalancing goals.

It was driven exclusively by a goal of maximizing assets under management by throwing small retail investors under the bus, sticking them with the capital gains generated by the exiting large institutional investors, at the deliberate instigation of Vanguard managers.

Worse, just a few months later Vanguard merged the retail and institutional funds, proving that the costly exercise was entirely avoidable -- after the damage was done.

Time will tell how a jury views this, if it gets that far.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by absolute zero »

billaster wrote: Fri May 20, 2022 9:58 pm Otherwise Vanguard's reputation is going to be at stake when crying "widders and orphans" testify publicly to a jury about how Vanguard's callous actions caused permanent losses of ten and hundreds of thousands of dollars forever from their retirement funds.
They would have to be some seriously loaded widdows and orphans in order to make that claim. Someone would need to be worth millions in order for Vanguard to have cost them tens of thousands of dollars. They would need to be worth tens of millions for Vanguard to have cost them hundreds of thousands of dollars.

I’m not trying to defend what Vanguard did, just saying that you may have exaggerated the impact a bit.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by absolute zero »

billaster wrote: Sat May 21, 2022 12:30 pm
Worse, just a few months later Vanguard merged the retail and institutional funds, proving that the costly exercise was entirely avoidable -- after the damage was done.
I did not know about this part. Not a good look for Vanguard.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by rkhusky »

absolute zero wrote: Sat May 21, 2022 12:38 pm
billaster wrote: Sat May 21, 2022 12:30 pm
Worse, just a few months later Vanguard merged the retail and institutional funds, proving that the costly exercise was entirely avoidable -- after the damage was done.
I did not know about this part. Not a good look for Vanguard.
Is this the noted merger of retail and institutional funds that was announced end of September last year?:
https://corporate.vanguard.com/content/ ... 92821.html
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by rkhusky »

billaster wrote: Sat May 21, 2022 12:30 pm It was driven exclusively by a goal of maximizing assets under management by throwing small retail investors under the bus, sticking them with the capital gains generated by the exiting large institutional investors, at the deliberate instigation of Vanguard managers.
You mean Vanguard was helping all the millions of employees of largish companies who use Vanguard Target Retirement funds in their 401k's at the expense of the few well-to-do investors who were using the Target Retirement funds in their taxable accounts?

Morningstar has a reasonable article about the situation:
https://www.morningstar.com/articles/10 ... s-surprise
Last edited by rkhusky on Sat May 21, 2022 8:46 pm, edited 1 time in total.
billaster
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

rkhusky wrote: Sat May 21, 2022 1:06 pm You mean Vanguard was helping all the millions of employees of largish companies who use Vanguard Target Retirement funds in their 401k's at the expense of the few well-to-do investors who were using the Target Retirement funds in their taxable accounts?
Where do you come up with this "well-to-do" stuff. An elderly neighbor I help with taxes is not poor but she certainly not as well off as most of the folks on this site. She worked her entire life and never had access to a 401(k) plan. She had a modest taxable account in a Target Date Fund.

Not only did she owe thousands of unexpected taxes with her return -- she was distraught because she had never had to write a check to the IRS in her life -- but she also was bumped up to the 85% Social Security tax bracket and will be bumped up for Medicare IRMAA premiums.

It remains to be seen in trial whether Vanguard managers were motivated to help 401(k) employees or were they helping themselves by maintaining assets-under-management quotas. And keep in mind, it was totally unnecessary.

Keep in mind that the fiduciary standard is not what is best for most or even Pareto optimal. The fiduciary standard is "First do no harm" by preferencing one set of beneficiaries over another.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by LilyFleur »

billaster wrote: Sat May 21, 2022 12:15 pm
rkhusky wrote: Sat May 21, 2022 10:39 am
billaster wrote: Fri May 20, 2022 9:58 pm There is a class action lawsuit pending and it would behoove Vanguard to settle up quickly to avoid an open trial. Otherwise Vanguard's reputation is going to be at stake when crying "widders and orphans" testify publicly to a jury about how Vanguard's callous actions caused permanent losses of ten and hundreds of thousands of dollars forever from their retirement funds.
Very unlikely. Most people have very little retirement savings. Most do not own stocks/bonds. The vast majority that do own stocks/bonds own them in tax-advantaged accounts like 401k's and IRA's or own them as play/gambling money in brokerages like Robinhood. The tiny majority that run out of space in their tax-advantaged accounts and have to invest in taxable accounts are very likely to be considered upper middle class or rich.
Only half of workers have access to 401(k) type retirement plans. Most are limited to IRAs and many have some investment savings in taxable accounts. I know some of them. Regardless of how many there are, its a bad look for Vanguard to throw them under the bus in preference to large institutional investors.
This.
And the lack of fiduciary duty is discouraging.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by rkhusky »

billaster wrote: Sat May 21, 2022 1:28 pm
rkhusky wrote: Sat May 21, 2022 1:06 pm You mean Vanguard was helping all the millions of employees of largish companies who use Vanguard Target Retirement funds in their 401k's at the expense of the few well-to-do investors who were using the Target Retirement funds in their taxable accounts?
Where do you come up with this "well-to-do" stuff. An elderly neighbor I help with taxes is not poor but she certainly not as well off as most of the folks on this site. She worked her entire life and never had access to a 401(k) plan. She had a modest taxable account in a Target Date Fund.

Not only did she owe thousands of unexpected taxes with her return -- she was distraught because she had never had to write a check to the IRS in her life -- but she also was bumped up to the 85% Social Security tax bracket and will be bumped up for Medicare IRMAA premiums.

It remains to be seen in trial whether Vanguard managers were motivated to help 401(k) employees or were they helping themselves by maintaining assets-under-management quotas. And keep in mind, it was totally unnecessary.

Keep in mind that the fiduciary standard is not what is best for most or even Pareto optimal. The fiduciary standard is "First do no harm" by preferencing one set of beneficiaries over another.
Presumably this elderly neighbor was invested in the TR Income fund, which according to the below White Coat Investor article saw a cap gain of 6%, which is maybe 4x normal. Plus there is the usual 2-3% in yearly dividends. So, for $100K in the fund, that would be an extra $4.5K in cap gains, which is about $675 in taxes, assuming a 15% tax rate rather than the 0% tax rate for a less well off taxpayer.
https://www.whitecoatinvestor.com/vangu ... -disaster/

Does Vanguard have fiduciary responsibilities to taxable investors? I know there were some changes to the law in recent years, but I was under the impression that the changes applied to financial advisors.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by Calico »

The article and this thread have been an eye opener. I just opened a Vanguard account yesterday (want to invest the proceeds from the sale of my house). I haven't moved any money there yet because I was deciding on funds and AA, but now I am not sure if I want to transfer the money to Vanguard as a brokerage. I might just use Schwab instead after reading this (they are the brokerage I currently use for my IRA and Roth--I use the Schwab index funds). I kind of feel uneasy about the future of Vanguard, especially if there is a lawsuit pending. But also, the talk of poor customer service bothers me. I don't need much CS help, but when I do, I've always appreciated the quality of Schawab's people. From what I understand reading here, I can still get Vanguard funds (as EFTs) though Schwab if I want. I looked into EFTs years ago and I think doing that costs money, but it's a small fee. I think I will look into that possibility before I move money on Monday. I am open to any advice for things I might be over looking. But I think this article and the comments here have given me plenty of good advise indirectly.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by bondsr4me »

keep your money at Schwab and invest in Vg etf's there.
you'll get great service and a great investment.
no need to change over to Vg.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by Big Dog »

Calico wrote: Sat May 21, 2022 2:29 pm The article and this thread have been an eye opener. I just opened a Vanguard account yesterday (want to invest the proceeds from the sale of my house). I haven't moved any money there yet because I was deciding on funds and AA, but now I am not sure if I want to transfer the money to Vanguard as a brokerage. I might just use Schwab instead after reading this (they are the brokerage I currently use for my IRA and Roth--I use the Schwab index funds). I kind of feel uneasy about the future of Vanguard, especially if there is a lawsuit pending. But also, the talk of poor customer service bothers me. I don't need much CS help, but when I do, I've always appreciated the quality of Schawab's people. From what I understand reading here, I can still get Vanguard funds (as EFTs) though Schwab if I want. I looked into EFTs years ago and I think doing that costs money, but it's a small fee. I think I will look into that possibility before I move money on Monday. I am open to any advice for things I might be over looking. But I think this article and the comments here have given me plenty of good advise indirectly.
Companies get sued all the time for all sorts of things, and that is why they carry liability insurance. I would not let that concern you. That said, if you are happy with Schwab, no reason not to condsolidate with them.

full disclosure: 30+ year Vanguard investor.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by Rex66 »

Not sure why people think vanguard had a fiduciary responsibility on this? The fiduciary rules don’t seem to apply.

Still I think vanguard will have to settle eventually since I believe it can be reasonably shown they did this for the reasons mentioned.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by HomeStretch »

Calico wrote: Sat May 21, 2022 2:29 pm … I might just use Schwab instead after reading this…
Ask Schwab to reimburse you for fees, if any, from the sending brokerage. Also ask Schwab for a bonus to transfer the $ (Google E*Trade’s bonus offers online and ask Schwab to match).
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

Rex66 wrote: Sat May 21, 2022 2:59 pm Not sure why people think vanguard had a fiduciary responsibility on this? The fiduciary rules don’t seem to apply.
Under securities law, mutual fund trustees who oversee the fund and its managers have the fiduciary duty to represent the interests of the fund’s shareholders and are subject to duties of loyalty and care. Loyalty means that they do not exercise conflicts of interest in which they represent, say, the shareholders of the institutional fund in conflict with the shareholders of the retail fund. Duty of care means that they do not take actions that are harmful to shareholders.

In court, the plaintiffs lawyers will likely argue that the trustees failed on both counts. That is for the jury to determine.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by rkhusky »

Note that, according to Vanguard, 99% of Target Retirement shareholders held the shares in tax-advantaged accounts.
billaster wrote: Sat May 21, 2022 6:41 pm Loyalty means that they do not exercise conflicts of interest in which they represent, say, the shareholders of the institutional fund in conflict with the shareholders of the retail fund. Duty of care means that they do not take actions that are harmful to shareholders.
Loyalty means that they put the interests of the fund ahead of their own personal interests.
billaster wrote: Sat May 21, 2022 6:41 pm Duty of care means that they do not take actions that are harmful to shareholders.
The trustees of the institutional funds acted in the best interest of their shareholders. The trustees of the institutional funds should not be putting the interests of shareholders of the retail funds ahead of the interests of the institutional shareholders.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by egri »

I am generally happy with my experience at Vanguard, but if I was starting over again knowing everything I know now, I think I would have gone with Schwab. The fund offerings aren't that different, but Schwab's UI is much nicer. Vanguard's feels like a time warp back to 2002.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by HanSolo »

egri wrote: Sat May 21, 2022 9:34 pm I am generally happy with my experience at Vanguard, but if I was starting over again knowing everything I know now, I think I would have gone with Schwab. The fund offerings aren't that different, but Schwab's UI is much nicer. Vanguard's feels like a time warp back to 2002.
Be careful what you wish for.

Vanguard has been making the effort to "modernize" their website. Try the following on a desktop or notebook computer: go to the Vanguard 500 profile page (here), see how you like the layout, then click on "Experience the new page now" and see how you like the more "modern" layout.

Are you sure you like the "modern" one better? In another thread (here), the consensus was that it's so bad, it's comical.
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Post by Miriam2 »

billaster wrote: Fri May 20, 2022 10:18 pm Bogle himself held balanced stock/bond funds like Wellesley and Wellington in taxable accounts.
Would appreciate if you could you provide the source of this information.

We know, from many articles and from his talks at the Bogleheads Conferences, that John Bogle owned balanced stock/bond funds Wellington, Wellesley, Windsor, and Balanced Index, but I'd appreciate the source that he held them in his taxable accounts.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by egri »

HanSolo wrote: Sat May 21, 2022 10:09 pm
egri wrote: Sat May 21, 2022 9:34 pm I am generally happy with my experience at Vanguard, but if I was starting over again knowing everything I know now, I think I would have gone with Schwab. The fund offerings aren't that different, but Schwab's UI is much nicer. Vanguard's feels like a time warp back to 2002.
Be careful what you wish for.

Vanguard has been making the effort to "modernize" their website. Try the following on a desktop or notebook computer: go to the Vanguard 500 profile page (here), see how you like the layout, then click on "Experience the new page now" and see how you like the more "modern" layout.

Are you sure you like the "modern" one better? In another thread (here), the consensus was that it's so bad, it's comical.
I've noticed that "improvement" too. The Germans have a word for it, Verschlimmbesserung; attempted improvement that only makes something worse. Every time Vanguard prompts me to provide feedback, I put in the comments section to hire the people who designed Schwab's website. It probably won't change anything, but it makes me feel better about it.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

rkhusky wrote: Sat May 21, 2022 8:41 pm Loyalty means that they put the interests of the fund ahead of their own personal interests.
Not just personal interests but conflicting interests of other parties or funds.
The trustees of the institutional funds acted in the best interest of their shareholders.
But in this case the trustees of both the institutional and retail funds were the same people. The conflicts of interest are obvious. If the trustees were acting in the best interest of the institutional fund, as you claim, then they were simultaneously not acting in the best interest of the shareholders in the retail fund who were harmed.

So the trustees, serving as fiduciaries for both funds, had a conflict of loyalties, which is a fiduciary violation. And they acted to harm the interests of at least some of the retail shareholders which is a violation of duty of care. Remember, the first duty of care is "do no harm."

Keep in mind that they needn't have had a conflict of interest. They could have served the interests of both funds without harm to either in at least four ways which I will enumerate below.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by Fryxell »

rkhusky wrote: Sat May 21, 2022 10:39 am Very unlikely. Most people have very little retirement savings. Most do not own stocks/bonds. The vast majority that do own stocks/bonds own them in tax-advantaged accounts like 401k's and IRA's or own them as play/gambling money in brokerages like Robinhood. The tiny majority that run out of space in their tax-advantaged accounts and have to invest in taxable accounts are very likely to be considered upper middle class or rich.
To add to that: About half of people don’t even pay any Federal income tax. People that have to pay Federal capital gains taxes are almost all upper middle class or rich.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by DrDoodle »

I guess I'm still mostly content having my holdings at Vanguard, but only because I ask so little of them. But on the occasions when I do want something from them, they often disappoint. And as my Vanguard holdings have grown, now in excess of $5M, I'm a bit miffed that I get a higher level of service from Schwab, where I have $500. It's petty, I admit, but practically every business I've ever crossed paths with will throw in a little something extra for long time, high value customers ... but not Vanguard.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

Vanguard's goal was to lower the fees for large institutional investors over $5 million. They could have accomplished this in any of the following ways with no capital gains distributions:

1. Simply create a new lower fee shareholder class in the existing retail fund for shareholders with assets over $5 million. These large shareholders would have had no reason to leave.

2. The could have required large shareholder redemptions over $5 million or some other large amount to be issued "in kind." This would eliminate the capital gains distributions.
Vanguard Statutory Prospectus wrote: If Vanguard determines that it would be detrimental to the best interests of the remaining shareholders of a Fund to make payment wholly or partly in cash, the Fund may pay the redemption price in whole or in part by a distribution in kind of readily marketable securities held by the Fund in lieu of cash.
Based on statements in the prospectus, shareholders had every reason to believe that the fund managers would act in their interest to prevent harm from mass redemptions by requiring "in kind" redemptions -- especially in the case of mass redemptions engineered and initiated by the Vanguard managers themselves.

3. They could have simply merged the institutional and retail funds with no capital gain distributions. This is in fact what Vanguard did just a few months after the damage was already done.

4. They could have simply reduced fees for both large and small investors alike in the original retail fund. This is in fact what Vanguard did just a few months after the damage was already done.

Why Vanguard did none of these things to accomplish their goal of lower fees while preventing harm to small investors will be at issue if there is a trial.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by Random Poster »

egri wrote: Sat May 21, 2022 10:47 pm The Germans have a word for it….
Of course they do.

I’m honestly shocked that the German dictionary isn’t a 50 volume, three million page long set.
Most experiences are better imagined.
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William Million
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by William Million »

There was also a time when TIAA-CREF was an industry leader in innovation. Obviously, those days are long gone.

Same thing has happened with Vanguard. Vanguard's role in history is indisputed. However, as things stand now, no rational Boglehead should hold funds with that company. If you want Vanguard ETFs, then buy them in a Fidelity, Schwab, Etrade, etc account. But not Vanguard.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by Cheez-It Guy »

William Million wrote: Sat May 21, 2022 11:44 pm There was also a time when TIAA-CREF was an industry leader in innovation. Obviously, those days are long gone.

Same thing has happened with Vanguard. Vanguard's role in history is indisputed. However, as things stand now, no rational Boglehead should hold funds with that company. If you want Vanguard ETFs, then buy them in a Fidelity, Schwab, Etrade, etc account. But not Vanguard.
What if I want access to all Vanguard mutual funds (including admiral class active funds and closed funds) as well as the ability to purchase them on a pre-arranged automated schedule with no fees?
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by retiringwhen »

billaster wrote: Sat May 21, 2022 6:41 pm
Rex66 wrote: Sat May 21, 2022 2:59 pm Not sure why people think vanguard had a fiduciary responsibility on this? The fiduciary rules don’t seem to apply.
Under securities law, mutual fund trustees who oversee the fund and its managers have the fiduciary duty to represent the interests of the fund’s shareholders and are subject to duties of loyalty and care. Loyalty means that they do not exercise conflicts of interest in which they represent, say, the shareholders of the institutional fund in conflict with the shareholders of the retail fund. Duty of care means that they do not take actions that are harmful to shareholders.

In court, the plaintiffs lawyers will likely argue that the trustees failed on both counts. That is for the jury to determine.
The thing that is missed by comments like yours is that 99% of the shareholders exclusively benefited from the the change, and the remaining 1% received the same benefit, that is lower expense ratio by 40%. That 1% also had a consequential tax cost that varied greatly based upon individual circumstances. Vanguard, for that matter all mutual fund companies, is restricted by law from taking individual shareholder tax consequences as a factor. alex_686 who previously worked in mutual fund industry says for that reason, tax consequences for shareholders is considered as a very low priority if at all by fund managers.

It sounds like a pretty good argument that fiduciary duty was exercised.

BTW, I fully agree with WCI, holding target date funds in taxable accounts is inadvisable and this event is a just one in a series of example of why. You won't hear it mentioned here by the Vanguard bashers, but all of the major TDF providers (Fidelity, Capital/American Funds, TRowe Price) have seen extraordinary capital gains distributions out of their TDF fund in the past 5 years. The exact circumstances are different in each case: major outflows due to losing business, restructuring of their index funds or asset allocation. Because TDF's are funds of funds, and all have the vast majority of the assets held in tax-advantage accounts, you can expect this type of event to be a regular occurence.

Just don't own TDFs in taxable accounts unless you are willing and able to take occasional extraordinary tax bills.

On the varied tax impact. I have a family member who actually came out ahead due to the capital gains distributions. She had recently started a new job and started putting her savings in TDF's in Roth, 401K and taxable, but she was not making too much money yet as the job started mid-year after graduation. Well, this capital gains distribution was thus taxed at 0% rate so she effectively got a tax gain harvesting benefit from the distribution. Her cost basis was increased with no tax cost!

There was an entire conversation in a different thread about whether or not the underlying event by Vanguard was necessary and how it could have been avoided, but it was inconclusive. I will avoid making comments on that.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by rkhusky »

billaster wrote: Sat May 21, 2022 10:59 pm But in this case the trustees of both the institutional and retail funds were the same people. The conflicts of interest are obvious. If the trustees were acting in the best interest of the institutional fund, as you claim, then they were simultaneously not acting in the best interest of the shareholders in the retail fund who were harmed.
I don't know the laws governing serving as board members for different companies. But, if they are same the people, I expect that when the board members put their institutional hats on, they should act in the best interest of the institutional shareholders. When they put the retail hat on, they should act in the best interest of the retail shareholders. In this case, acting as institutional board members they took action in the best interest of their shareholders. As retail board members, they took no action. The actions that actually hurt the small percent of retail investors were the 401k managers that switched between retail and institutional funds. Neither Vanguard nor the independent board members directly took action that hurt that small percentage of retail investors. Is the lawsuit against Vanguard or the independent board members?
Last edited by rkhusky on Mon May 23, 2022 7:16 am, edited 1 time in total.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by zaboomafoozarg »

I've had Vanguard and Schwab accounts for almost 15 years and a Fidelity account for almost 10, and haven't noticed any major differences or had any problems with any of them.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

rkhusky wrote: Sun May 22, 2022 7:42 am In this case, acting as institutional board members they took action in the best interest of their shareholders. As retail board members, they took no action.
"As retail board members, they took no action."

We don't know that yet. Facts will come out at trial.

This mass exodus of institutional investors from the retail account wasn't some immaculate conception. Some 8000 CEOs didn't just wake up one morning and say "Hey, I think I'll check out the Vanguard Institutional Fund." It is almost certain that they were solicited by Vanguard sales reps by phone or email or letter to make the switch.

So where did these institutional fund sales people get the list of $5 million or greater clients, their email addresses, their phone numbers, to solicit? They obviously got it from their competing retail fund.

Client lists are proprietary information. Vanguard would never in a million years give their client lists to a competitor like Fidelity or Schwab. But it seems in this case the retail fund gave that proprietary information to their competing institutional fund which they used to poach the retail clients.

That would be collusion. The trustees of the retail fund colluded with the trustees of the institutional fund to transfer clients from one fund to another. And it just so happens that both fund's trustees are the same. That's an obvious conflict of interest and violation of fiduciary duty.

So your claim that "as retail board members, they took no action" -- that remains to be seen at trial. It would seem that "wearing their retail hats" they assisted in the mass exodus of clients.


And remember again, absolutely none of this was necessary. Vanguard eventually merged and reduced fees to both retail and institutional investors alike -- but after the damage was done.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by galawdawg »

rkhusky wrote: Sat May 21, 2022 8:41 pm The trustees of the institutional funds acted in the best interest of their shareholders. The trustees of the institutional funds should not be putting the interests of shareholders of the retail funds ahead of the interests of the institutional shareholders.
And when the trustees of the institutional target date funds are the same people as the trustees of the investor target date funds????
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by btenny »

I have a investing rule to limit any one fund or stock to 9% or less of my whole portfolio. This means more complexity but better diversification. It also means surprises like the Target fund problem are not a big issue. So I have bonds diversified across several funds including VFIDX, VFSUX, VWIUX, VMLUX, BIL, TIP, etc.. Likewise I have several stock funds including VTI, VYM,VINEX, VSUX, XOM, etc..

I was hit with a large tax bill when Kinder Morgan (KMI and KMP) sold out and reorganized. Richard Kinder made that decision to benefit his holdings versus stock holders. Kinder sold out with 30 days notice so no one had time to do any tax planning. I was mad but due to my limit rule it was not a big issue.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by lazynovice »

btenny wrote: Sun May 22, 2022 1:18 pm I have a investing rule to limit any one fund or stock to 9% or less of my whole portfolio. This means more complexity but better diversification. It also means surprises like the Target fund problem are not a big issue. So I have bonds diversified across several funds including VFIDX, VFSUX, VWIUX, VMLUX, BIL, TIP, etc.. Likewise I have several stock funds including VTI, VYM,VINEX, VSUX, XOM, etc..

I was hit with a large tax bill when Kinder Morgan (KMI and KMP) sold out and reorganized. Richard Kinder made that decision to benefit his holdings versus stock holders. Kinder sold out with 30 days notice so no one had time to do any tax planning. I was mad but due to my limit rule it was not a big issue.
But you are 100% or almost 100% Vanguard funds?
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by retiringwhen »

galawdawg wrote: Sun May 22, 2022 12:08 pm
rkhusky wrote: Sat May 21, 2022 8:41 pm The trustees of the institutional funds acted in the best interest of their shareholders. The trustees of the institutional funds should not be putting the interests of shareholders of the retail funds ahead of the interests of the institutional shareholders.
And when the trustees of the institutional target date funds are the same people as the trustees of the investor target date funds????
How can the trustees of one fund tell the trustees of another fund how to act with regard to their fund? That is not okay either even if they are the same people.

The decisions/actions of the institutional fund were made for the benefit of the their fund and shareholders exclusively without regards to uninterested third parties and that should be the standard.

Of course The Vanguard Group has responsibility to a degree for both and could have made different options available, but accusing the trustees of the institutional fund of violating the fiduciary duty to the shareholders of a different fund (retail) seems to be a bridge too far for me.

This whole mess does actually raise the question of who is actually in control in this situation, Vanguard Group is technically just the servicer of the administration of the funds and the executive role resides with the board. but the board is actually the same group of people for all of the funds including the Chester funds Trust, with exactly the same board for the actual Vanguard Group.
Here is interesting statement of the role of the Board in the fund operations from page B-38 of the SAI for Chester funds.
https://personal.vanguard.com/pub/Pdf/sai059.pdf?2210177849 wrote:Each Vanguard fund is governed by the board of trustees of its trust and a single set of officers. Consistent with the
board’s corporate governance principles, the trustees believe that their primary responsibility is oversight of the
management of each fund for the benefit of its shareholders, not day-to-day management. The trustees set broad
policies for the funds; select investment advisors; monitor fund operations, regulatory compliance, performance, and
costs; nominate and select new trustees; and elect fund officers. Vanguard manages the day-to-day operations of the
funds under the direction of the board of trustees.
I will make a bet that the Board of Trustees didn't even have a heads up on the minimum investment change by the fund managers.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by btenny »

The Vanguard funds are managed by many different companies like Wellington and Vanguard Fixed Income Group and others. So decisions like the Target Fund are also made by various boards and investment groups and advisors.

In my case I have accounts at TD Ameritrade and Wells Fargo but hold a lot of Vanguard funds in those. I also hold XOM and TIP and BIL and cash and PRHYX. So maybe 80% Vanguard funds.
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Re: Has Vanguard Lost Its Way? [White Coat Investor]

Post by billaster »

retiringwhen wrote: Sun May 22, 2022 1:51 pm but accusing the trustees of the institutional fund of violating the fiduciary duty to the shareholders of a different fund (retail) seems to be a bridge too far for me.
It was the trustees of the retail fund that failed in their fiduciary duties to their own fund, not the institutional fund, by cooperating and/or assisting in the mass exodus from their retail fund.

The fact that they are the same trustees in both funds just makes the conflict of interest more obvious.
I will make a bet that the Board of Trustees didn't even have a heads up on the minimum investment change by the fund managers.
If true, that would be dereliction of their duty. One of the primary explicit duties of trustees is to oversee the fees charged and this was all about fees.
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