Screw-up at Vanguard

[soupcxan]

Has anyone had this problem? Any advice on how I can get them to fix this without having to eat the early redemption fee of $400? I spoke to a rep on the phone as soon as noticed it but he said everyone had already gone home for the day.

I have several vanguard funds held in a taxable account there. "Fund A" had a balance of $60k and I wanted to re-distribute it. On the first of the year, I put in an order to sell $40k of Fund A and transfer it to my external checking account. Then I put in an order to exchange $10k of Fund A into Fund B. Finally, I put in an order to exchange "all" of Fund A into Fund C(meaning, all that was remaining after the $40k and $10k were taken out - should have only been $10k but was not a precise amount due to dividends, etc.). I received an email stating that "your external bank transfer is in progress" so I assumed the $40k was on it's way.

When I checked the account today...what they actually did was tranfsfer $10k to fund B and $50k to fund C, and nothing to my checking account. And Fund C has a 1% redemption penalty if you hold it less than 5 years, so I can't just turn around and sell it without paying a $400 fee for something that I don't feel is my fault.

[KM]

I've never dealt with anything like this, but I would think that you could get them to reverse the transaction and waive the fee, seeing as it was their mistake. It would seem to me they would a have record of the orders. Were they online or by phone? If by phone, I would think they were recorded. If online, it might be trickier. Do you have a confirmation number? FWIW - I always try to do one transaction at a time for this type of stuff - just for this reason. I want to be sure the first one is complete before I start the next one.

[d]

you probably don't want to hear this, but it is not clear to me that this is Vanguards error. each of the transactions you wanted would occur at the close, so it's not at all clear that there is a sequence, though you intended there to be.

when doing multiple transactions which would close a fund i move all funds to my money market fund, and then move out of the money market fund to the desired destinations.

[JustCurious]

I agree with d on this. Vanguard did what you told them to do, so I don't see what they did wrong.

Assuming you entered the orders on the same day, what made you assume that each transaction would be done in a certain order? If the answer is that you entered them in a certain order and you expected that they would be executed in that order, then I don't think Vanguard did anything wrong, because you should not have assumed that each transaction would occur in exactly the same order that you entered them.

I'm not aware of any rule that says where a mutual fund company receives multiple transaction instructions on the same day, that they must execute each transaction in the order in which they were entered. Maybe there is such a rule, but I think the burden is on you to find the rule and cite it before you assign blame to Vanguard.

[JustCurious]

What probably happened was the instructions to transfer funds within Vanguard were transacted almost immediately since they can be done internally, whereas the instruction to transfer funds outside of Vanguard (which have to go through outside clearing houses and usually take at least one or maybe two business days) took some time to complete, and by the time the outside transaction was attempted, the internal transfers were already done.

[soupcxan]

I assumed, once I got the message from vanguard that said "your external funds transfer is in progress" that those funds are not available for any other transactions. If that wasn't the case, why did they tell me it was "in progress"?

If this is their policy, I still think VG should've at least put a notice up that said "if you execute an exchange before this bank transfer finishes, it may pre-empt it." How else was I supposed to know?

[Meadbh]

Most financial institutions have a "settlement period" of two business days (at least in Canada where I live and I believe also in the US). The trade may be done but the funds will not be credited to the destination account, and will not be available for secondary transactions, till the settlement date. I have learnt from experience to do these transactions one at a time, unless I am speaking in person to my own financial adviser.

I did run into one problem when I tried to cut it too close to the wire: I transferred funds electronically into a cash account to cover a credit card bill I was paying at the same time. However, I failed to notice that the account clearly indicated a hold. The credit card bill was not paid and I did not realize I had a problem till the next bill arrived with a hefty interest charge. Although this was one of those "shoulda known better" things, my private client customer relationship manager very graciously had a refund issued and also arranged that my account would not be subject to holds in the future.

The way I see it, Vanguard would not be obliged to compensate you and the response you get from Vanguard will reflect the value they put on you as a customer.

[JustCurious]

Quote:

Originally Posted by soupcxan I assumed, once I got the message from vanguard that said "your external funds transfer is in progress" that those funds are not available for any other transactions.

You should not assume.

[/quote]
If that wasn't the case, why did they tell me it was "in progress"?
[/quote]

Because it was in progress.

[/quote]
If this is their policy, I still think VG should've at least put a notice up that said "if you execute an exchange before this bank transfer finishes, it may pre-empt it."
[/quote]

I don't know what steps are involved in processing a bank transfer from Vanguard to your checking account. Maybe all bank transfer instructions are "in progress" before the system verifies that funds are available to be transferred, and only then, if the funds are not available, does the "progress" come to an end. The point is that you shouldn't assume the transfer is complete until it is.

[/quote]
How else was I supposed to know?
[/quote]

You weren't "supposed to know." You were supposed to "not assume."

They might agree to reverse the transaction out of the goodness of their heart due to your misunderstanding of the process, but I don't think they are obligated to do so.

[Texas Proud]

Just call them and tell them this story... I would be money if you are a good client (and maybe not even a good one) they would reverse the $40,000 and not charge a penalty... again... early call and all...

Would they legally have to? I don't know, but would guess not... they do put up warnings when you do it at Vanguard and ask you are you aware of the penalty...

[mickeyd]

When I am considering a complex transaction like this, I do it over several days so that I can view my accounts and see what happened as a result of the previous day's action. If step A does not reflect in my account as I wanted it to look, I research it and figure out what was done wrong.

I have made mistakes in processing Vanguard online transactions before and have caught it the next day. I could not reverse the transaction as I approved it, but at least I could devise a plan B to get the results as I wanted it.

If you had the assistance of a Vanguard rep and they gave you incorrect info, you can have them refer to the tape recording of the txn and prove your point or not. If you did it yourself online, I think that you are not going to get any help in reversing it.

[JustCurious]

So what happened today when you contacted Vanguard about this?

[soupcxan]

They are still researching it. Apparently I was not the only one who had problems, part of the issue was the fact that the market was closed on Monday (planned) then closed again on Tuesday for President Ford (unplanned). They said that the Tuesday closing may have thrown off my external transfer request, which was then processed out of sequence.

[saluki9]

Quote:

Originally Posted by Texas Proud Just call them and tell them this story... I would be money if you are a good client (and maybe not even a good one) they would reverse the $40,000 and not charge a penalty... again... early call and all... Would they legally have to? I don't know, but would guess not... they do put up warnings when you do it at Vanguard and ask you are you aware of the penalty...

Also, don't forget the at Vanguard the penalty is always paid directly into the fund assets, not to Vanguard. That way it isn't considered a load.

If they reverse the fee, the other shareholders will bear the cost.

[soupcxan]

Quote:

Originally Posted by saluki9 If they reverse the fee, the other shareholders will bear the cost.

First of all, this is a fee to discourage short term trading, not a fee to recover some cost that vanguard has incurred (that's what the expense ratio is for). Vanguard isn't going to have any out of pocket expense if they reverse it, so there's no impact to the shareholders.

Even if that were not the case, do you really think a $400 fee is going to have an impact on a fund with $1,580,000,000 in assets? : For someone who is so eager to throw me under the bus, I'm sure that you have been investing for 40 years and could give detailed lectures on the order in which Vanguard processes transactions. Maybe you could lighten up on those of us who have only been doing it a couple years.

[janeofalltrades]

soupcxan,

This isn't exactly the same problem you had however, last week I requested online a transfer from my checking account to my Vanguard MMF. It never happened. I called them and they have no record of my request. I never received a confirmation of my request. That should have been my first clue that something was wrong.

When I called them to get the status of the transfer they couldn't locate my account The customer service guy I was speaking to had to talk to his supervisor, he came back and told me that they were having computer problems and he was finally able to retrieve my account. Then when he told me that they have no record of my transfer request, I told him that it sounds like they are having some computer problems. He got very defensive and told me that "They are not having computer problems"

[saluki9]

Quote:

Originally Posted by soupcxan First of all, this is a fee to discourage short term trading, not a fee to recover some cost that vanguard has incurred (that's what the expense ratio is for). Vanguard isn't going to have any out of pocket expense if they reverse it, so there's no impact to the shareholders. Even if that were not the case, do you really think a $400 fee is going to have an impact on a fund with $1,580,000,000 in assets? : For someone who is so eager to throw me under the bus, I'm sure that you have been investing for 40 years and could give detailed lectures on the order in which Vanguard processes transactions. Maybe you could lighten up on those of us who have only been doing it a couple years.

1. I made a 100% factual statement, not a judgement of fault

2. Funds do incur costs when people sell them, that is why they charge early redemption fees. These fees are paid to the other shareholders because they are the ones that take the hit.


3. I wasn't aware that being old made you an investment expert

4. I've worked for a fund company in settlement, and the trading desk. How many mutual fund companies have you worked for? (Not Vanguard, but a large Chicago based company with a nautical theme) On top of that, my dayjob is running a nine figure aggregate series of portfolios. So yes, I probably could tell you something about bank transfers and settlement procedures.

[soupcxan]

Quote:

Originally Posted by saluki9 2. Funds do incur costs when people sell them, that is why they charge early redemption fees. These fees are paid to the other shareholders because they are the ones that take the hit.

So then why does the Vanguard website state: "To discourage short-term trading that could disrupt its tax efficiency, the fund charges a 1% fee ($10 per $1,000 invested) on redemptions of shares held less than five years." This fee isn't about recovering a cost, its about discouraging frequent trading.

Thanks for confirming that you ARE an expert in mutual fund transaction processing. You must be very proud of yourself.

[FinanceDude]

Quote:

Originally Posted by janeofalltrades soupcxan, This isn't exactly the same problem you had however, last week I requested online a transfer from my checking account to my Vanguard MMF. It never happened. I called them and they have no record of my request. I never received a confirmation of my request. That should have been my first clue that something was wrong. When I called them to get the status of the transfer they couldn't locate my account The customer service guy I was speaking to had to talk to his supervisor, he came back and told me that they were having computer problems and he was finally able to retrieve my account. Then when he told me that they have no record of my transfer request, I told him that it sounds like they are having some computer problems. He got very defensive and told me that "They are not having computer problems"

Blind faith in customer service, Vanguard or anyone else, is somewhat foolhardy...............

[FinanceDude]

Quote:

Originally Posted by soupcxan So then why does the Vanguard website state: "To discourage short-term trading that could disrupt its tax efficiency, the fund charges a 1% fee ($10 per $1,000 invested) on redemptions of shares held less than five years." This fee isn't about recovering a cost, its about discouraging frequent trading. Thanks for confirming that you ARE an expert in mutual fund transaction processing. You must be very proud of yourself.

SPin it any way you want, it's a deferred load..............

[saluki9]

Quote:

Originally Posted by soupcxan So then why does the Vanguard website state: "To discourage short-term trading that could disrupt its tax efficiency, the fund charges a 1% fee ($10 per $1,000 invested) on redemptions of shares held less than five years." This fee isn't about recovering a cost, its about discouraging frequent trading. Thanks for confirming that you ARE an expert in mutual fund transaction processing. You must be very proud of yourself.

If it didn't hurt the other shareholders, then why would they want to discourage it?