Is Vanguard a Scam?
If you’re thinking about opening an investment account at Vanguard, you definitely want to know what protections are available, and what guarantees are not in place.
Is Vanguard Safe?
Vanguard is a securities firm based in the United States. As such, it must be registered with a securities regulatory body in the country. Because Vanguard is a large firm with customers in all 50 states, it is registered at the federal level, meaning the Securities and Exchange Commission. SEC registration protects customers in all 50 states.
Vanguard’s SEC registration ID # is 8-21570 for its broking business. Vanguard also has an investment-advisory business, and this has a separate registration. The ID # is 801-49601.
The SEC has several important powers to make sure brokerage firms in America are following the myriad securities laws that Congress has passed over the years. It works with the FBI to bring criminal charges anytime they are warranted.
Then there is the Financial Industry Regulatory Authority. FINRA adds another layer of oversight and enforcement power. The organization investigates and imposes fines and other sanctions when necessary.
Vanguard’s FINRA ID # for brokerage services is 7452. For asset management, the ID # is 106715.
Vanguard Better Business Bureau
The Better Business Bureau does not regulate investment companies. It does, however, report on the
performance of companies (financial and non-financial) operating in North America. Vanguard has a BBB
profile with a grade of B. The highest possible grade is A+, while the lowest grade is F.
Customers sometimes file complaints against a company with the Better Business Bureau. There have been more than 200 complaints filed against Vanguard with BBB during the past 12 months. Vanguard has responded to every single one of these.
Examples of complaints that BBB helped to resolve include long hold times on the phone to reach a representative, long withdrawal times for 401(k) accounts, and accounts being locked.
Out of 53 customer reviews of Vanguard at BBB, the brokerage firm has a rating of 1.23 out of a possible
5.0. Keep in mind that 53 customers is a very small sample. Vanguard has over 50 million customers, more than 18,000 employees, and well over $9.3 trillion in assets under management. It’s a huge company.
SIPC/FDIC Insurance at Vanguard
Vanguard customers have two insurance policies to protect their investments. First is a policy from the Securities Investor Protection Corporation. SIPC guarantees each “separate capacity,” which is similar to each customer, not each account. The policy is good for $500,000. Half of this amount can be applied to cash.
The second policy is through Lloyd’s of London. This policy guarantees each customer up to $49.5 million. This policy will only kick in if the SIPC policy is exhausted. It also has a house limit of $250,000,000.
Top Rated Brokers
Is Vanguard Safe Judgment
It is quite clear that Vanguard is a legitimate operation with many safeguards in place. Keep in mind, however, that securities investing always involves a level of risk that is difficult, if not impossible, to avoid. No one at Vanguard claims to protect against a decline in securities prices. Vanguard, like all brokerage houses, has this risk.
Vanguard Review
Although Vanguard does clearly show its legitimacy as a brokerage firm, it nevertheless falters in some key areas. Here’s our appraisal of the company:
Vanguard Pricing and Minimum Deposit
| Investments | Commissions |
|---|
| Stocks and ETFs | $0 |
| Options | $1 per contract |
| Mutual funds | Vanguard mutual funds - free. All others: $0 or $20 |
| Certificates of deposit (CDs) | Purchase - $5 per $1,000, minimum is $50. Sale - $35 per transaction |
| Commercial paper | $50 per transaction; minimum purchase is $100,000 |
| U.S. Treasury | commission-free |
| Mortgage-backed securities | $50 per transaction; GNMA minimum purchase is $25,000 |
| Investments |
stocks, options, mutual funds, bonds, CDs, foreign securities, insurance,
commercial paper, ETFs
|
| Vanguard minimum deposit to open account | $0; most Vanguard mutual funds have a minimum investment of $3,000 |
| Fees | Vanguard fees |
Investments Choices
Vanguard offers both self-directed and managed accounts. The latter are available in multiple packages. The two main categories are robo and traditional. The automated services trades only Vanguard-branded funds, which is a noteworthy downside. It also does not offer tax-loss harvesting. Some of Vanguard’s old-school advisory packages do, although they have higher account minimums. Nevertheless, they deliver a lot of great services, like financial plans and investment coaching.
Self-directed accounts lose these types of services, but they have a wider selection of tradable assets. These include stocks, bonds, mutual funds, closed-end funds, and option contracts.
Vanguard has terminated most of its OTC stock trading service. It has never offered foreign assets, cryptocurrencies, futures contracts, precious metals, or forex.
As for account types, Vanguard does quite well. It offers individual and joint taxable accounts plus a lot of other choices, including:
Custodial accounts
Self-employed 401k plans
Personal IRAs
Small business plans
529 plans
Trusts
Customer Support
Vanguard’s website (which will be examined next) has no chat widget, either in robo or human format. The site does have internal messaging, however. On the day we conducted our research, there was a note warning, “A response may take up to 7-10 days.” For faster service, the site does have some decent self-help features. These will be found under the links at the very top of the site.
Phone support is available from 8 o’clock in the morning, EST, until 8 o’clock in the evening. Upset Vanguard clients online are reporting long hold times, so the website may be the only decent option during times of high volume. Branch locations won’t work, either, because Vanguard doesn’t have any.
Website
Vanguard’s website can be used to manage both self-directed and advisory accounts. The software does emphasize simplicity. Although Vanguard has made a few updates to it in recent months, self-directed tools are largely unchanged.
These include an order ticket with four order types (market, limit, stop, and stop limit) and two duration choices (day and GTC). The trade ticket shows bid, ask, volume, and last trade in real time. And there are links at the top of the ticket that describe the order types available and discuss how to place a trade. Somewhat surprisingly, there are discrete choices for sell short and buy to cover.
Charts on Vanguard’s website are rather basic. A graph cannot be displayed the full width of the screen, and there are only ten years of price data. There are just a handful of technical studies and no drawing tools at all. Despite these weaknesses, there are four plot styles, and a graph can be compared to any security.
There is no trade bar or browser platform on the Vanguard website, and these are probably the two biggest weaknesses. Nevertheless, there is a watchlist, and alerts can be enabled for a security.
Mobile App
Although we weren’t overly impressed with Vanguard’s website, its mobile app is on an even lower level. Charts for stocks are completely absent, and in fact, there are no stock profiles at all. There are profiles for Vanguard funds, and these have charts with zero tools.
Submitting an actual order is problematic for stocks and ETFS for the sheer fact that Vanguard hasn’t added a trade ticket for these assets. There is an order page that says, “Sorry, we haven’t gotten to this yet.”
The watchlist and alerts section we found on the website do not make appearances on the mobile app. It goes without saying that there are no advanced tools on the app for other activities, such as mobile check deposit, video news, or social networking.
Other Software
Vanguard does not have any other software to report on. There is no desktop platform, smartwatch app, iMessage, or Amazon Echo skill.
Pricing
Although Vanguard hasn’t managed to deliver very much thus far, it thankfully doesn’t charge much, either. Self-directed accounts have no fees or minimums when they sign up for e-delivery of statements and other account documents. Plus, they get zero-commission trading on stocks and ETFs.
Option trades in small accounts will have a per-contract fee of $1. Some bond trades, although not all, will also have commissions. Trades of transaction-fee mutual funds will cost either $20 or $8, depending on total investments made into Vanguard funds.
Advisory accounts eliminate commissions altogether, although they have minimums and annual fees. The robo service costs up to 0.20% per annum. The first 90 days are free. It does have a $3,000 deposit requirement.
The old-school service has a variety of fees and minimums, depending on the package chosen. The most common subscription requires $50,000 and costs 0.30%. The wealth management service requires a very steep $5 million to begin but will only cost 0.05% for accounts over $25 million.
Margin Borrowing
Self-directed accounts at Vanguard can trade using cash or margin. Unfortunately, the broker’s software doesn’t display margin details like maintenance requirement or number of shares available for shorting.
As for cost, Vanguard has a tiered schedule that is pretty pricey:
|
Debit Balance
|
Vanguard Margin Rates
|
|
under $19,999
|
12.75%
|
|
$20,000 – $49,999
|
12.25%
|
|
$50,000 – $99,999
|
11.75%
|
|
$100,000–$249,999
|
11.25%
|
|
$250,000–$499,999
|
10.75%
|
|
$500,000–$999,999
|
9.5%
|
|
above $1,000,000
|
call
|
Investment Education
Vanguard has a plethora of learning resources. These will be located on the website (and not on the mobile app) by going to the main menu at the top and clicking on Investor Resources & Education. This tab will produce many resources including:
- News & perspectives
- Taxes
- Tools & calculators
- Market summary
- Retirement
- Education savings
- Emergency fund
- Short-term goals
- How to invest
- Choosing investments
- Online trading
- Managing your portfolio
The downside is that some articles can be rather short, although the resources are a good starting point.
Vanguard’s YouTube channel has lots of videos on a variety of topics. Here are some samples:
- Balancing multiple savings goals
- When should you change your retirement savings plan?
- Buying a house? Watch out for hidden costs.
Security Research
Self-directed traders who need to find something to invest in can start with one of Vanguard’s screeners. It has search engines for stocks, mutual funds, bonds, and ETFs. During our testing of the bond search tool, we found just nine search criteria on the advanced tab and five on the basic tab. Some of the other screeners do a little better, although they’re not the most user-friendly we have tested.
Security profiles have limited details on the Vanguard website and even more limited on the mobile app. The broker provides stock reports free of charge from two analysts. Trade recommendations are available from many more.
Miscellaneous Services
Cash Management Features: Vanguard has retired VanguardAdvantage, a banking service that provided some nice cash management tools. There is no service at this time to replace it.
DRIP Availability: Dividends from stocks, mutual funds, and exchange-traded funds can be reinvested automatically.
Extended Hours Trading: Vanguard only offers after-hours trading. There is no pre-market session.
Recurring Mutual Fund Purchases: Vanguard offers autopilot purchases of (Vanguard-branded) mutual funds.
Initial Public Offerings: Not available at Vanguard.
Fractional Shares: For stocks and ETFs, Vanguard still has whole-share trading only.
Individual Retirement Accounts: Vanguard has Roth, Traditional, SEP, and SIMPLE retirement accounts. The business accounts have fees in some situations.
Recommendations
Mutual Funds: Using Vanguard’s mutual fund screener, we found 6,838 funds. We would go with
Firstrade, who has 16,577 funds (plus a better fund screener).
Retirement Savers and Long-Term Investors: We really like Vanguard’s advisory accounts,
especially the human-managed side of things. The robo account can’t be set up as a business IRA or a
few other account types. For self-directed investing, Vanguard does offer lifecycle mutual funds from
several fund families.
Beginning Investors: An advisory account with Vanguard in robo or human format would be a wise
way to start investing. Charles Schwab, however, offers a robo-advisor for free.
ETF and Stock Trading: Without robust software, Vanguard does not provide a great experience
for active equity traders. We suggest
Charles Schwab instead,
who delivers better research tools and the best desktop platform.
Small Accounts: Vanguard has always preferred large accounts. Although it has moved to $0
commissions on some trades for all customers, large accounts still get breaks in other situations. Plus,
the $3,000 minimum for robo investing is rather steep. We recommend
Robinhood
instead, who has no minimum for investing. Plus, it has fractional-share trading, so a single trade has
a low minimum, too (just $1).
Vanguard Review Final Judgement
While Vanguard showed quite clearly that it is a legitimate brokerage firm, it fails to offer very much in terms of active trading.
Updated on 1/16/2025.
Chad Morris is a financial writer with more than 20 years experience
as both an English teacher and an avid trader. When he isn’t writing
expert content for Brokerage-Review.com, Chad can usually be found
managing his portfolio or building a new home computer.
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