Vanguard recently celebrated the 40th anniversary of the Vanguard 500 Index Fund, the first index fund available to individual investors. If you are like me and have a significant portion of your net worth in Vanguard products and services, you should read this Morningstar article No Signs of Complacency at Vanguard which includes excerpts from interviews with Vanguard executives. Here are highly-condensed highlights:
- Vanguard is huge and getting bigger.
- Vanguard is still the only place where the firm is owned by the fundholders.
- Vanguard costs are low, but it will be hard to get much lower.
- Competitors can sell their products at a loss. Vanguard can’t, so they may not be the cheapest.
- So far, there are no signs of complacency, wasted money, or ego-driven moves.
- Vanguard’s next move will be focusing on better service for clients.
My thoughts. Vanguard has focused primarily on asset growth. This was okay, as bigger assets meant lower costs for fundholders. Now that costs really can’t go that much lower, I agree their next move should be to focus on customer service, both in terms of human interactions and online user experience.
Compared to Fidelity and Schwab, it has been in my experience more difficult to get specific, custom requests accomplished with Vanguard. This includes estate paperwork and large transactions. That means it is harder to get someone on the phone, the person on the phone is less responsive and/or knowledgeable, and overall it takes longer for the action to get done (if it is even allowed). These limitations are probably reflective of their focus on cost savings, but hopefully they can find a better balance. (I’d rather they spend money on this, than more advertising.) I do feel that Vanguard has been improving their technology, so I hope they keep that up.
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Jonathan, do you have any sources that explain the “firm is owned by the fund owners” structure of Vanguard? Are they not for profit? Do I as a Vanguard investor get to vote on the board members? Thanks
They are a mutual company http://www.investopedia.com/terms/m/mutualcompany.asp
No
Yes
You can read more about it directly from Vanguard:
https://about.vanguard.com/what-sets-vanguard-apart/why-ownership-matters/
While they are not a non-profit in the way that tax-exempt 501c3 charities are run, at Vanguard the fundholders ARE the shareholders. So while in a normal for-profit you have the customers and any profits flowing to the business owners, here the fundholders are the owners.
However, I do not believe fundholders get to vote on board members. I suppose we are passive shareholders as well.
Yes, you are passive shareholders, and Vanguard has the voting power of millions of shares to move forward with the agenda at any company that they think is appropriate. In addition, Vanguard is not a non profit, that is correct, and has never been exempted from paying federal income tax because it doesn’t have this non profit status (compare TIAA CREF a formidable competitor, their non profit status was taken from them in 1998 because Congress was looking for additional tax revenue and concluded that over a 10 year period they could collect 1.2 billion in federal tax revenue) Prior to David Danon’s Whistleblower filing in 2013, still open, stating Vanguard has evaded taxes since inception, Vanguard had paid zero federal income tax, operating under an ‘at cost’ model which had not and has not been given an exemption from federal taxes. There is zero transparency at Vanguard. You have no idea how much CEO or Managing Directors make, for all we know ‘at cost’ can include 80 million in CEO compensation/perks/benefits. And, companies that are truly owned by the public have to abide by SEC guidelines for public reporting. Vanguard touts being owned by the public but has zero accountability to the public that owns them. Big issues here and most people have tunnel vision and are narrowly focused on cost only, this is a big mistake, when the IRS issues the bill to Vanguard for tax evasion millions will be blindsided because of tunnel vision. regards, leigh ann
It’s amazing to think about how much investing has changed in the last half century. 50 years ago to invest in stocks at all someone generally had to be fairly wealthy, and to establish a truly diversified portfolio one would need to be extremely wealthy. Thanks to Vanguard’s work, and to an extent companies like Betterment that piggyback off of Vanguard, literally anyone with $100 can start investing and instantly be extremely diversified. It will be interesting to see how investing changes over the next half century.
robots – low cost robots – however for a conservative investor i have not met anyone, at least fidelity and morgan stanley that with a managed account can beat vanguards wellington and wellsley funds when they are held 50/50% – they roll along at 7% plus with low costs plus wellsley has a .60 or so beta
days of paying fund managers are ending for the average guy < 2m; my thoughts
This article was written in 2007, a lot has changed since then. You’re very, very wrong that havoc can not come upon Vanguard. At present there is a Whistleblower charge that has been opened with the SEC/IRS for 3 1/2 years stating Vanguard has failed to pay federal taxes, ever, prior to WB filing in 2013. Estimated federal tax liability from well renowned sources has been upward of $34billion. (they want be insolvent, they’ll raise fees to cover, the biggest thing is trust, they’ll lose investor trust for the tax evasion, because they have evaded taxes, that’s a fact, see my blog http://www.whyileftvanguard.com and how Vanguard IS NOT a non profit and has never been given an exemption to not pay federal taxes, they assumed they didn’t have to. Secondly, Vanguard has a footnote in the prospectus that the ‘mutual funds’ each owe the administrative company, The Vanguard Group, a collective tune of $3billion, so IF something were to happen the funds would each have to pay something to The Vanguard Group first before the separate accts liquidated and distributed to shareholders. And Vanguard is a private company that says it is ‘client owned’ by 20 million shareholders, last I checked any company owned by the public had to abide by public disclosure SEC guidelines. You and others really know NOTHING about Vanguard’s internal accounting practices, compensation of CEO and Managing Directors. For all you know or don’t know Bill McNabb could be making 80 million a year and that’s part of the ‘at cost’ doing business. Price Waterhouse is Vanguard’s auditor, PwC is in a lawsuit now for not catching fraud in the biggest bank meltdown in history, and what do they say, ‘our job is not to catch fraud’. You may want to review my website, I deal in facts, not speculation, can’t help the World seems to have tunnel vision and rose colored glasses on when it comes to Vanguard. Whew, lot of people getting ready to have the wind knocked out of them when the IRS levies billions of dollars tax bill to Vanguard, again, they can spread the cost and have minimal impact of fees rising, that want be the problem, the problem will be trust issues, and that is going to be huge….regards, leigh ann harris
The suit was tossed out
Dear Rodger, the ‘suit’ was tossed out of the legal system, the IRS has been investigating the tax evasions since January 2010 and has not closed the investigation. These are two distinctly different issues, pursuing justice in our legal system, which would have been specifically related to David Danon’s wrongful termination AND a separate, in my humble opinion, black and white, IRS claim for tax evasion for close to 40 years, which HAS NOT BEEN TOSSED out and is going on 4 years of being open. IF you do research you will see that most claims that are not legitimate close in 1-2 years, and the appeals process alone can be 2 years….why is the case still open going on 4 years if there is nothing to it? Why did the number 3 tax guy in the US, Reuven Avi Yonah write a statement that if the IRS pursues this case they will in fact prevail …these are facts that can easily be validated on whyileftvanguard.com or under vanguard insolvency at http://www.vanguardlawsuits.com, I posted Reuven’s statement and his impeccable credentials are page one. Tunnel vision, and perception is not reality….MANY in the public are going to have the wind knocked out of their sails when the IRS rules…the facts are out there for those who choose to do the research…it’s not speculation, it’s black and white tax code…NO COMPANY in the history of the US has done what Vanguard has done for close to 40 years to the scale that Vanguard has, it’s absolutely amazing. respectfully, leigh ann harris
QUESTION:
Does Vanguard have a FOX FIRST SERVICES located at 530 E McDowell Rd
Ste 107-242 Phoenix Arizona 85004 ????
I was contacted by an employee of Vanguard and asked me for investment capitol and wire money to Fox First
Is this legit? He said a $40,000 investment would be returned in 90 days and then residuals of approx $8,000 a month for 3-5 yrs
Sounds too good to be true
Any ideas?
Those numbers sound too good to be true.
I cannot find FOX FIRST SERVICES anywhere