Vanguard apologizes to 17,000 millionaires

Vanguard Group, the fast-growing Malvern-based investment company that manages nearly $4 trillion in other people's money, has prepared apologies for 17,000 millionaire clients of its Personal Advisory Services, who were sent emails urging them to contact the wrong person about their accounts.

The Jan. 30 mass email, titled "Put 2016 in Your Rearview Mirror," sought to reassure Vanguard Flagship Primary clients, who invest more than $1 million, and "UHNW" (ultrahigh-net-worth) clients, who invest more, that Donald Trump's election as president and other "hoopla" would have only "limited long-term impact" on Vanguard investments. The marketing note encouraged them to consider sending Vanguard more money.

But, the company acknowledged in a memo to more than 100 staff members who handle its wealthy clients, "when the email deployed, your name [in the signature line] was replaced by your manager's name," a person who wouldn't be expected to know the client.

Quickly aware of the error, Vanguard "explored the possibility of recalling the email, but this wasn't possible," as nearly half the recipients had already opened it. Vanguard charges advisory clients 0.3 percent of their assets as a yearly account-management fee.

The marketing email affected "a small subset of Vanguard clients," spokeswoman Emily Farrell said. The company says it has more than 20 million investors, including workers in company retirement-savings plans. 

"We immediately took steps to rectify the situation, and reached out to affected clients, apologizing for the inconvenience and to answer any related questions that may have resulted," she added.   

The advisers, who did not cause the problem, were told in the company's message that they will have to apologize personally and "reinforce your relationship with the client." 

Vanguard blamed "an error in the client file and a misstep in the auditing/quality-check process." The email was also sent to clients who had "opted out" of email notification.

Vanguard promised its advisers "a deep dive" to review in detail what went wrong, plus changes in the process "to prevent future occurrences."

Vanguard, a private, for-profit company founded by John C. Bogle, has grown since its 1975 founding to become the second-largest independent U.S. money manager (after BlackRock) by offering low-fee indexed mutual funds, which have outperformed popular actively managed funds in recent years and have rapidly replaced them.

It has attracted more than $200 billion in assets in each of the last three years, including about $300 billion last year. That's larger than most U.S. investment firms' total assets.

But Vanguard's largest rivals, firms such as BlackRock and Fidelity and specialized indexing firms such as Rhumbline, also have followed its lead and offer low-fee index funds, pressuring prices still lower and leaving less room for profit.

For example, the Pennsylvania and Philadelphia public-worker pension systems have increased their index-fund investing but are using state employees or rival firms to direct those investments, at costs their managers say are comparable to or less than Vanguard institutional rates.

To boost the company's income, Vanguard has been trying to build up its personal-advisory services to hold on to wealthy and elderly clients, as well as adding "robo-advisory" services for savers with smaller accounts.