Critics point to lagging customer service as a downside of the inflows
Vanguard Group Inc. plans to add hundreds of new employees to its institutional staff to accommodate its continued growth — and to mitigate customer service problems.
Vanguard is projecting to hire about 1,700 full-time employees in total this year, said company spokeswoman Laura Edling. This is roughly the same number of full-time employees the firm hired last year. Ms. Edling did not break down how many of these employees would be in customer service roles.
The Malvern, Pa.-based manager has approximately 15,000 employees globally. Ms. Edling also did not disclose how many work in the firm's institutional vs. retail businesses.
Martha G. King, managing director and head of the institutional investor group at Vanguard, said in a phone interview that, of this estimated 1,700 new staffers, the company plans to add “hundreds of new crew members” to the institutional division. She declined to provide a specific number.
Vanguard's growth has been at least partially due to successfully selling itself as a low fee provider. And it continues to do so.
After reaching more than $4 trillion in assets under management at the end of January, Vanguard announced Feb. 24 that it cut expense ratios on 68 mutual funds and exchange-traded funds — the third round of fee cuts the firm has made in three months.
Critics note, however, that due to the company's cost-cutting alongside rapid growth, Vanguard is perhaps ill-equipped to handle the demands from so many clients.
Daniel P. Wiener, editor of the Potomac, Md.-based newsletter Independent Adviser for Vanguard Investors, which has no affiliation with the company, said “there have been huge service issues” at Vanguard.
“Their computer systems can't handle the pressure; their people can't handle the pressure. If you're going to be bringing in a lot of money and cut costs everywhere, something's going to give, and what's giving is service,” Mr. Wiener said.
Jeff DeMaso, director of research at Newton, Mass.-based manager Adviser Investments and contributor to the Independent Adviser for Vanguard Investors newsletter, also noted that some of the complaints he's heard from Vanguard's clients — which include DC participants — “relate to long wait times” on the phone “or issues with the website being down.”
“All of this is related to size,” Mr. DeMaso said.
In response, Ms. Edling said in an email that although Vanguard's growth has challenged the firm's “ability to provide the premier service that our clients expect and deserve,” this growth has enabled the company “to continue to lower costs for (its) clients, while also making considerable investments in people and technology.”
Added Ms. Edling: “We've invested heavily the past few years in our plan sponsor technology platform, My Plan Manager, and will continue to enhance plan participant experience through ... digital initiatives aimed at improving retirement outcomes for millions of participants who invest with Vanguard through a DC plan.”
Ms. King added the firm is growing “across the institutional business in the call centers” to benefit DC plan participants. Vanguard is also continuing to invest “in the web experience.”
In addition to having to serve more clients, Vanguard said client calls are increasing because of economic uncertainty brought about by the nascent presidential administration.
In fact, the day following the presidential election in November, Vanguard experienced an approximate 20% increase in call volumes, representing more than 41,000 calls.
Ms. Edling explained that during busy periods like these, the firm takes “an all-hands-on deck approach, reassigning crew members to provide additional support to reduce call wait times and speed account processing.”
Vanguard also continues to add staff to call centers, which support record-keeping plan participants.
“The environment we find ourselves in is one that's a bit more uncertain than it was a year ago, which is contributing to increases in phone calls,” said Ms. King. “We need to be prepared to serve (clients who want to call us) properly.”
Not everyone in the industry shares Messrs. Wiener's and DeMaso's skepticism. In fact, despite the customer service issues the firm has been facing with its individual and DC participant clients, institutional investment consultants are saying these problems have not transferred over to Vanguard's plan sponsor clients.
“I'm not aware of any service-related issues on the DC plan sponsor side,” said Jeffrey H. Snyder, vice president and senior consultant at Cammack Retirement Group Inc., Wellesley, Mass.
Mr. Snyder suggested that perhaps the reason these issues haven't really seeped into the DC side is because DC plan sponsors use Vanguard as a separate and distinct record-keeping system. So, if there's an issue with the retail side, it's because either the client doesn't have access to such a system, or they do, but the system has gone down for some reason, he said.
That said, Mr. Snyder did point out there are significant challenges with managing DC systems.
“There are more data needs and challenges, which puts strains on IT departments that are already stretched thin,” he said. “When a system goes down, it requires a reallocation of resources.”
Michael A. Rosen, a principal and chief investment officer at investment consultant Angeles Investment Advisors LLC, Santa Monica, Calif., also has not heard any complaints about Vanguard.
“We've not seen any hiccups. They've always been very responsive,” said Mr. Rosen. “They have a dedicated team for institutional consultants that remains helpful and efficient.”
Michael W. Kozemchak, managing director at Institutional Investment Consulting in Bloomfield Hills, Michigan, said that from his vantage point, Vanguard isn't experiencing any more challenges than other service providers and asset managers of its size.
He also noted that, based on his interaction with plan sponsors, Vanguard's investors and record-keeping clients tend to be very loyal.
“For an organization that's historically been lean and philosophically opposed to fluff, it's not surprising that retail investors are experiencing service challenges most likely attributable to Vanguard 2016 successes,” he said. “But retail investors are quite different from retirement plan investors.”
Mr. Kozemchak added: “Plan investors are long-term investors, most looking at their investments only quarterly; they're not at all reactive.”
This article originally appeared in the March 6, 2017 print issue as, "Vanguard goes on hiring binge to support big boom in growth".