Two upfront disclaimers:
1. Nothing in this post or on this blog should be construed as financial advice or a recommendation to take any action of any kind. Financial decisions should be made only after a careful review of your personal situation and in consultation with your tax and financial advisor.
2. I have a great deal of respect and admiration for the Vanguard organization. Across my base of individual and institutional clients I use a number of Vanguard mutual funds and ETFs.
That said Vanguard recently made a decision to lower the investment minimums on its Admiral Share class of funds for investors in these funds who hold their shares at Vanguard. The Admiral shares offer an even lower expense ratio than Vanguard’s Investor Share class which already has very low expenses. This is a great gesture on Vanguard’s part because they are essentially earning less by doing this. Other than the expense ratios, the fund portfolios are the same across all Vanguard share classes.
However, Vanguard did not initially extend this opportunity to Vanguard fund shareholders at other custodians such as Schwab or Fidelity. Though this did not impact a large number of my clients, I viewed this as unfair to clients of many financial advisors. Like many advisors, I use Schwab as my primary custodian for most of my individual clients and one of my larger retirement plan clients. There we hold mutual funds and ETFs from a variety of fund companies, including Vanguard.
The idea of Vanguard treating the clients of financial advisors holding their funds elsewhere differently (and worse) than shareholders who dealt directly with Vanguard really bothered me. This seemed very “un-Vanguard-like.” Most of my institutional clients are already in lower cost share classes; additionally I have tended to use Vanguard’s ETFs for most of my individual clients which carry a very low expense ratio that is generally comparable to Vanguard’s lowest expense mutual fund share class.
None-the-less I sent several Twitter messages to Vanguard saying in effect that it was wrong to treat our clients as second class shareholders and also asking them why they were anti-advisor. Evidently so did a number of my fellow advisors and consultants because a short time later I received an email saying that a similar opportunity would be made available to advisor clients at other custodians. The social media activity was mentioned to me in a conversation with a Vanguard rep.
The point is that Twitter and social media can be a powerful communications tool for financial advisors. In this case it proved to be an excellent vehicle for us to pressure Vanguard to do the right thing for our clients. Many mutual fund companies are using social media as a vehicle to engage advisors and shareholders. That’s great, the more we know the better able we are to make intelligent investment choices for our clients. The flip side is that the fund companies should expect to be called out when they do something as short-sighted as what Vanguard did recently.