Wed, 3 May 2017
Morningstar's Russ Kinnel thinks massive inflows may be triggering the apparent increase in customer complaints.
Christine Benz: Hi, I'm Christine Benz for Morningstar.com. As assets at Vanguard have grown, Morningstar analysts have been hearing some complaints about customer service at the firm. Joining me to share some perspective on this topic is Russ Kinnel. He is director of manager research for Morningstar.
Russ, thank you so much for being here.
Russ Kinnel: Happy to be here.
Benz: Russ, let's talk about this, because over the years we have sometimes gotten questions or comments, customer service at this firm is really good, at this firm I feel it's lackluster. You feel like, as a firm, while we hear these things, we're not especially well-equipped to judge this situation.
Kinnel: That's right. I've been hearing more complaints about Vanguard, but again, they are anecdotal. From where we sit it's hard to say because we know Vanguard's market share has increased, has the number of complaints accelerated at a faster rate or is it really keeping pace? We're not in the best position to do that. We're not running surveys or extensive studies of customer service, but it is kind of a steady buzz in emails to us, I think, and also on the chat boards on Morningstar.com.
Benz: So, you think it has a lot to do with the fact that the firm has seen this gusher of assets where it's really taking market share at the expense of most other players in the industry and you think that may be responsible--that they are just dealing with a lot more incoming calls, a lot more incoming dollars?
Kinnel: That's right. So, just growing market share alone would naturally mean your proportion of complaints would grow. But I think also when you have as big a growth spurt as they've had, it's probably also natural that your service might occasionally slip because you just have a lot more support. And then I think there may also be a perception that as people may be switching from maybe higher-service-level places to Vanguard, there's also just a bit of a difference in that Vanguard has a little more of a do-it-yourself long-term ethos than some other places.
Benz: Well, let's talk about that, because I guess that's an interesting idea that some firms may actually be just more equipped to handle people who are very hands-on in terms of their trading activity. That's never been Vanguard's value proposition for investors.
Kinnel: That's right. If you think about the typical brokerage platform, you can buy funds, you can buy stocks, and in a lot of those formats each additional interaction, each trade you make, whether it's a stock or a fund, is generating more profits for that brokerage. So, even the ones that are long-term oriented, they also make a really nice profit if you're short-term. Then of course, some places are a little more short-term oriented.
That's not Vanguard. Vanguard preaches the long term. They are more do-it-yourself oriented. So, naturally, they have a little less incentive. They're not getting that profit from having the calls come in and do more trades. So, it's a little bit of a different culture.
Benz: Yeah. And you think the fact that Vanguard is seeing such dramatic inflows, that that says something. These customer service complaints, anecdotal complaints aside, investors at large appear to think that they've got a pretty good value proposition with Vanguard?
Kinnel: That's right. There may be more complaints, but they are voting very heavily with their dollars that at the end of the day, Vanguard has a very good value proposition. I think, generally, if the customer service issues are fairly minor, people are really looking at their bottom line. I think clearly there is a perception that Vanguard has been very good for their bottom line and so, as long as that's true, clearly overwhelmingly people are saying Vanguard is delivering a very good value because we're seeing massive inflows. So, if it was really an issue where people felt--I'm not getting good value from Vanguard, we wouldn't be seeing that. So, clearly, at the end of the day, one thing we can measure very accurately is overall people perceive Vanguard to be a tremendous value.
Benz: And you say for investors who really do prize that customer service aspect that maybe given the dramatic asset growth--even though I think the firm has been trying to scale up on the customer service side--if you really do need a lot of hand-holding then maybe it's not the firm for you?
Kinnel: That's right. Vanguard has some financial planning services you can get, but yeah, by and large, if you really want a lot of help if you're someone who likes to call in and talk about different ideas and things like that, then maybe Vanguard is not the right one. Maybe you want a planner, maybe even a planner who uses Vanguard, but can provide a little more service for you.
Benz: OK. Russ, thank you. Important topic I know for a lot of our Morningstar.com readers and users. Thank you for being here.
Kinnel: You're welcome.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.