Debunking the Myth: Vanguard's Low-Cost Model and What It Means for Investors

Vanguard's Low Fees Come at a Cost

Vanguard has long been celebrated for its low fees and straightforward index-investing approach. However, as the adage goes, “cost is what you pay, value is what you receive,” and some consumers are starting to recognize the hidden costs of Vanguard's low-cost model. While Vanguard’s investment strategy remains sound, its customer service has left much to be desired. Here are some issues our clients have encountered recently:

Incorrect IRA Beneficiary Designations:

One client discovered Vanguard had the wrong beneficiary designation on their IRA. Thankfully, they had evidence of the correct submission, but if unnoticed, the error could have led to significant additional income taxes for their beneficiaries.

Resistance to Customized Beneficiary Designations:

Vanguard showed reluctance in accepting a customized beneficiary designation prepared by a client’s estate attorney and provided inaccurate advice regarding necessary language.

Exiting the Solo 401(k) Business:

Vanguard's decision to exit the solo 401(k) business left some clients scrambling for alternatives.

Mistakes in Asset Transfers:

Errors in executing asset transfers added unnecessary stress and complications.

The Wall Street Journal recently highlighted a surge in complaints from Vanguard customers on social media, review websites, and forums like Reddit. Theodore Wagenaar, a 75-year-old retired college professor, recounted years of frustration before moving his accounts to Fidelity. After being locked out of his account for days, he lamented, "The service is abysmal."

Vanguard ranked last among eight major brokerages for customer satisfaction with website performance and mobile apps, according to a survey by Investor’s Business Daily. For instance, Madeline Moonan, a 77-year-old from Stafford, Va., faced several significant issues with her retirement accounts, including a fund share transfer from a traditional IRA to a Roth IRA that took six months to resolve. This error cost her $350 in accountant fees to address tax consequences.

Furthermore, Vanguard has introduced new account closure fees, and transfers to other brokerages now incur a $100 processing fee. The company was also fined and censured by FINRA last year for overstating projected yields for some money-market funds due to a technical glitch.

For do-it-yourself investors, Vanguard remains a viable option. However, as many clients are discovering, the low-cost model comes with a price. While Vanguard’s fees may be minimal, the value received in terms of customer service and support often leaves much to be desired.