Massive market panic is like game day for the biggest brokerages in the financial industry. It’s their opportunity to show investors how the “big guys” perform: what differentiates them from the smaller brokerages, how their systems, technologies, and security measures are far superior, and why their clients are paying premium prices for their services.
During last week’s panic, Vanguard should have come out shining.
Instead, they completely dropped the ball.
On Thursday, when the Dow dropped more than -540 points a day after it had already collapsed by -831 the previous day, Vanguard's website glitched-out and froze.
Customers were not able to get through to customer service for an extended period, nor were they able to place orders via the trading platform to exit their positions manually. They were just forced to sit there, watch the market tumble, and take a massive loss.
Vanguard, with around $5 trillion worth of assets under management, is without a doubt one of the biggest players on Wall Street.
But this episode, which happened to be not the first time such a thing happened but the second, comes to show that with all of their sophisticated technologies and means, they are hardly doing enough to take care of their #1 priority: their customers.
Vanguard Customers Faced a Virtual “Cash Freeze” as Markets Tumbled
When customers can’t access their stock positions, which for some investors can make up a significant portion of their wealth, they effectively cannot access their money.
Call it what you like, but when an institution cannot give you access to your own money, intentional or not, it is essentially a “cash freeze.”
Some clients, like Brad Davis, took to social media:
Following this episode on Thursday, Vanguard made an announcement, calling the short-lived connectivity outage a blip. The term “blip” creates an image of an event on a “minimal” scale. But for some customers, the losses they had accumulated--losses they might have prevented had they been granted access to their positions--was undoubtedly far from minimal.
Vanguard’s Response Tells You Everything You Need to Know About Vanguard
According to a Vanguard spokeswoman:
“The issues were unrelated to yesterday’s U.S. equity market downturn, or associated call or online trading volumes...We know that it is frustrating when clients don’t get the high standards of service they expect from us, and we’re very sorry. We are investing considerably in technology to improve the client experience and ensure the accessibility of our sites and mobile platforms.”
The canned emergency response speech was either remarkably contrived or unsurprisingly unimaginative, or just too institutional to resonate on a sincere and human level. It’s sort of what you’d expect from a large financial company...like Vanguard.
They present a solution--“investing considerably in technology”--with an emphasis on just ‘how much” they are investing in fixing the problem (as if this emphasis might somehow provide relief through a promise to their customers). They can’t seem to admit any accountability on their part.
And note that their “apology”--”and we’re very sorry”--was not an admission of fault or error, but a calculated attempt at sympathy: as in, we’re sorry our customers were frustrated (read: we’re sorry for you).
But Weren’t Vanguard Customers Equally Accountable, Assuming the Risks of Technology and Self-Directed Investing?
First, if you’re an active investor, then you probably wouldn’t be using Vanguard’s platform. Vanguard’s platform functionalities are not necessarily known for keeping up to pace with the kinds of features that most active investors today need. Platform aside, their online commissions are around $8.00 per trade. Those kinds of commissions dating back to the late 1990s. Indeed, there were better choices that could have been made.
Second, if you are an active investor, then you would have been paying attention to the conditions surrounding the overall economy. In other words, you might have already taken action to not get sideswiped by the crash. There would have been no need for a panicked response as you would have already positioned your portfolio weeks or months ago.
So, it isn’t all Vanguard’s fault. Again, and perhaps with a bit of cynicism (and truth), Vanguard’s primary goal is to make money for Vanguard. Their self-directed clients’ priorities should have been geared toward their independent enterprise. But that entails accountability, and most people seem to have a difficult time with that concept.
As precious metals investors, the latest crash was not only not surprising; it was even anticipated (we’ve been monitoring the developments leading up to this crash--and the one still to come--for years). What we saw last week might just be the beginning of a much larger downturn. In other words, there’s still time to hedge your wealth and to position yourself for growth.
Not sure how to do it? Request our free Definitive Guide to Precious Metals Investing or contact us today. And remember: a market bloodbath is a bloodbath only to those who are not prepared for it.