Morningstar suggests Vanguard strayed from Jack Bogle’s vision

A new Morningstar report has raised questions about the Vanguard powerhouse’s investment, with analysts questioning whether competitive pressures have eroded the company’s customer service and forced it to switch to funds and advisory services. proprietary and private equity.

In the final analysis, they ask, is the company still upholding the values ​​of founder Jack Bogle?

“The problem is, Vanguard has attracted too many imitators,” John Rekenthaler, Morningstar vice president of research, said in a report released this week. “The Avant-garde no longer walks alone. Today, BlackRock, State Street, Fidelity, and Schwab, among others, offer comparably priced ranges of index funds. True, Vanguard remains the industry leader, attracting around 40% of net index fund sales this year, but it faces stiff competition, putting pressure on its funds’ expense ratios. As with the rest of the industry, Vanguard has been forced to cut the costs of its index funds on several occasions.

In fact, if trends persist, BlackRock and its iShares ETF business in 2021 will receive more fresh money than Vanguard’s US funds for the second year in a row.
The financial pressure manifests itself in two ways, said Rekenthaler. First, customer service at the company that boasted of answering every phone call within all three rings has suffered, with some investors claiming it takes 45 minutes or more, according to the report.

The second change that gives Rekenthaler a bigger break from Vanguard’s motivation and irritates some advisers is the company’s foray into the consulting business.

Rekenthaler said the aggressive promotion of the company’s consulting platform, Personal Advisor Services, which launched in 2015 and charges 30 basis points, “reinforces the suspicion that the main reason is money.”

“The service has been a complete success,” he said. “With around $ 250 billion, it thrived in the market, easily becoming the world’s largest digital consulting platform.… And the platform’s revenue has surely been to Vanguard’s liking, reaching nearly $ 750 million. dollars per year. “

But two recent announcements from Vanguard “surprised observers,” he said. “This spring, Vanguard promised to bring private equity funds to qualified PAS clients. Then, last month, the company launched three actively managed Advice Select funds, available exclusively to program clients.

Private equity funds “directly contradict Vanguard’s existing brand, being expensive, complex, illiquid, rather than cheap, simple and easily tradable,” he said.

Even more surprising, however, are the Advice Select funds, which are actively managed and proprietary, which means that once you’ve invested in them, you can’t transfer them to another broker or fund platform.

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