Why Vanguard is the Best All-Around Financial Services Provider for Most Folks

When I was younger I had all my dentistry done at the U.C. San Francisco School of Dentistry. I did that because the price was right, and because I had more time on my hands than money.

Sitting in that chair, with my mouth propped open and dressed with dams and nip-tuckers and such, staring up at the dots in the drop-ceiling acoustic tile, trying to count them when I was especially bored, I had a lot of time to think. This was way pre-iPod. Why, it was almost pre-Walkman!

I like having my teeth worked on by folks not at all driven by profit-seeking, I thought to myself. The students here are motivated by just two things — by their desire to learn and by their desire to impress their professors — which is great, especially since their professors are judging them by the quality of their work rather than by their speediness. They’re taking their time and being careful, and they have a watchful eye over them.

*  *  *

I left my dental-school teeth-care ways behind many years ago now, and have been going for quite some time now to a dentist in Ess Eff Sea Eh whom I really, really like (ask me if you’d like to have her name — she’s near Union Square).

It took many tries to find that dentist, though, so I had quite a few dentists and dental assistants look at my teeth (that is, after all, the main thing they do all day long, right?), most of whom would see one piece of work in there in particular — an on-lay, courtesy of UCSF School of Dentistry — and say that it was a very, very impressive piece of handiwork. I felt abused afterwards . . .

I well remember getting that on-lay. It took many visits and many hours, and I very much liked the student who did the work. She came from a family of dentists and had a good combination of being very intense about her work while also being very friendly and good at the person-to-person level.

I liked her and her services so well, in fact, that I sought her out when I stopped going to UCSF dental school, and was happy to learn that she had set up her own practice in San Francisco after graduating some years earlier, so I started using her services. Wouldn’t’ch’ya know it, though, that after being a patient at her office for less than a year, I left because it was, overall, the worst experience I’ve ever had at a dentist.

What changed?

*  *  *

Vanguard has now twice asked me to spend a few minutes filling out an online survey telling them what I think of them. I’m fond of Vanguard as a company, so, after the second request, this morning I went ahead and did just that. Very few companies would get any of my time for this task.

I send a lot of folks to Vanguard. The main reason I do so is also one of the answers to one of the questions on the survey, which was, What can we do to have you continue recommending us? or something along those lines.

My response was, Continue being the least evil of the FSPs (by which I meant Financial Services Providers, an abbreviation I was happy to see them use in the survey as well). 

Vanguard was smart enough to provide a decent-sized text box, so I continued, Better yet, continuously improve your ability to help people — your ability to do-good.

*  *  *

Vanguard is a one-off sort of FSP. We don’t have time to go into all the detail about why this is so, so I’ll just point to one aspect of its uniqueness: it is, kinda, a non-profit. Technically it is not, as best I know, a not-for-profit organization as seen in the eyes of the IRS, the arbiter and be-all of that designation at the federal level.

But it is most assuredly an FSP that is not trying to maximize its profits in the way that most of them do, which is to try to absolutely and unconditionally and any-which-way-we-can maximize them.

Now please don’t get me wrong: I’m all for profit. I get it. I’m an MBA for Pete’s sake.

But I’m far more interested in working with businesses that seek to optimize their profits rather than maximize them.

Optimizing just about always comes from building mutually satisfactory relationships within your customer base over the long-run. Think about some local vendors whom you see face-to-face on a regular basis and are happy to support, even if their prices might be a bit higher than some mega-whatever can charge. Hopefully a few come to mind for you.

Maximizing profits, on the other hand, can come from many things. It can come from taking each customer as far up his or her willingness-to-pay curve as you possibly can as often as you possibly can (there’s that MBA-brain showing up . . . ). Think about the airlines and their unbundling of every service other than flying you from Point A to Point B. Are you willing to pay for having your luggage possibly lost and having to wait an extra 20 minutes (if you’re lucky) sucking on jet fuel vapors waiting for the carousel to make you happy before you’re able to get to where you’re going? Some folks are.

Profit maximizing can also come from making it difficult for your customers to leave you — on locking your customers in, who then in turn will allow you to raise your prices. Why do you think banks are so happy to have you set up all your regular payments in their electronic bill-paying systems? Maybe because it’s a real PITB (need I flesh that abbreviation out for you?) to up and move to a different bank and put all that information all over again into a new bank’s bill-pay system?

Profit maximizing can also come from not caring about ever doing repeat business with anyone, so all you care about is having a customer who can pay you now, and hopefully through the nose at that, because you’ll probably never see him or her again. Think of . . . hard money lenders and loan sharks, and think of tow truck operators who get your mommy-van out of the surprisingly deep sand that a dashed-road-on-the-map eventually turned into at the bottom of a hill in Joshua Tree.

And it can also come from being extraordinarily good and extraordinarily unique at what you do. Think of Apple in the iPod to iPhone to iPad Jobsian era.

*  *  *

Apple folks would, I think, unhesitatingly find this statement to always be true:

Our goal is to provide the very best products and services, and we’re happy to charge very high prices for those products and services regardless of how much money we have in the bank.

 Likewise, Vanguard folks would, I think, unhesitatingly find this statement to be true:

Our goal is to provide very good services at as low a cost as possible, and if we ever have more money in the bank than we could possibly need, we’ll look for ways to give that back to our customers.

So the V-folks ask:

What’s the least we can charge for this and still be in business with it?

And the A-folks ask:

What’s the most we can charge for this and still be in business with it?


One is right-neighborly, the other right-business’y, I reckon.

Which do you prefer?

*  *  *

Now, admittedly, this is over simplified. But like a good financial model, there’s a lot to be said for simple.

Financial Services Providers and their customers both benefit from scale. So you cannot Mom and Pop your way into an FSP that both thinks of you in a neighborly way and has the full ability to do what you need it to do. You need an FSP that’s big (why else would the Big Four Banks of BofA, Wells, Citi and Chase be thriving and the credit unions not?)

There’s only one FSP out there, that I know of, anyway, that has both the scale and the neighborly, optimize-not-maximize approach to their dealings with you: and Vanguard be thy name.

Ironically enough, the one thing that Vanguard is not in any way, in a literal sense, is neighborly, because Vanguard does not have branch offices. Your dealings with Vanguard will therefore be technologically-mediated (this is a fancy phrase for over the phone or via the Internet) and entirely with people living in Pennsylvania — Malvern for the headquarters, as well as the surrounding environs, all of which are within an hour’s drive of Philadelphia PA. Even if you live next door, though, as best I know you cannot just drop in and be customer-served.

So if you’re wondering which FSP to use for investing, and you have your choice, and if you are OK with them not having a branch near you, to my way of thinking there’s only one place to go, and that would be Vanguard.

*  *  *

Full disclosure: Vanguard is the main FSP I use for investing and the main FSP I recommend for self-directed investors. Other than by way of being a customer of Vanguard, I have never received anything of value from them. In fact, I pay them quid-pro-quo for the value I receive as their customer, so, in a sense, I have received nothing from them whatsoever. They’ve never even taken me out for coffee, let alone to lunch.

About 1600 words (less than a twenty-minute read sans links)


P.S. Here is a list of FSPs that Vanguard asked about in the survey, wondering whether I used any of them. When I look at this list, I see fewer than 10 that I would ever even consider recommending to someone.

A.G. Edwards
American Century
American Express/Ameriprise
American Funds
Bank of America
Charles Schwab
Edward Jones
JP Morgan Chase
Merrill Lynch
Morgan Stanley/Smith Barney
T. Rowe Price
TD Ameritrade
Wells Fargo
Credit union
Other (please specify)


Leave a Comment



  1. Posted by Tom J on Friday, December 14, 2012 at 8am
    Thanks for another good read. We've been happy with them too, and from your recommendation years ago.