Vanguard faces pressure from its army of devoted customers to deal with its frequent technical difficulties after disruption to its website and phone lines during Wednesday’s market tremors.
Technical problems have proved to be the Achilles heel for the world’s second-biggest money manager as a series of glitches have led some commentators to question if the US investment company has grown too big too fast.
“They keep having these service problems,” said Daniel Wiener, a US financial planner and editor of the Independent Adviser for Vanguard Investors, a newsletter that tracks the company. “Their level of service simply cannot keep up with their growth — and that is a big problem.”
Vanguard is fast catching up on BlackRock as the largest fund company, with $5.2tn assets under management. Much of that growth is due to its popularity among loyal retail investors, who are attracted to its cheap products and emphasis on customer service.
Many clients, however, expressed anger on social media and in online forums last week after failing to access Vanguard’s website, phone app and support hotlines as the S&P 500 index shed 3.3 per cent on Wednesday, its biggest one-day fall for eight months.
Investors used Bogleheads, the popular web forum for devotees of the company, to vent their frustration.
“Did anyone ever see Vanguard apologise for these problems? I never have,” wrote one customer. “Vanguard always reminds that online trades may not be available. For the phone system not to work is another matter, for which there should be no excuse.”
Another said: “Vanguard’s phone system was down due to routine maintenance. What responsible company does ‘routine maintenance’ during normal business hours?”
A further forum member commented: “They are dusting off the ‘do not panic, stay the course’ scripts. Shouldn’t be too much dust on them since they were used only last February.”
In a statement to FTfm, Vanguard said: “We understand it is frustrating for clients when they do not receive the high standards of service that they expect and deserve from us, and we apologise.
“As we have grown, we have been able to not only continually lower the cost of investing but, importantly, reinvest considerably in technology and infrastructure to improve the overall investing experience for our clients.”
Vanguard’s investors have suffered service problems several times in the past few years, notably during the last significant US market sell-off in February. Some customers were also sent emails and texts giving incorrect information about their brokerage and retirement accounts this year.
Technical deficiencies are problematic for a company such as Vanguard, which has proved popular with younger investors through mobile phone apps and tools. These digital natives demand cheap and easy-to-use products but are less likely than older investors to tolerate technical glitches.
Chief executive Tim Buckley and his predecessor Bill McNabb have committed to invest in technology to improve customer service.
Mr Wiener, though, said the company had not been clear about how much it was investing to improve its systems. That lack of transparency stood it in contrast to Fidelity Investments, its US rival, which recently said it was spending $2.5bn a year on technology, he said.
“We do not know — and probably never will — if [Vanguard] are spending lots of money but not very well, or if they are not spending anything at all,” Mr Wiener said. “Either way, it is not working.”
Vanguard informed FTfm that 27 per cent of its overall operating budget was spent on technology and that it had increased spending by an average of 11 per cent a year over the past five years. It did not provide a figure for the investment.
It said the problems last week were due to overnight maintenance that had a knock-on effect for the following day. It added that it had received about 75 complaints from customers, most of which were resolved by midday on Friday.