Customer, Support Thyself Vanguard's service reps spend their time teaching clients how to use the company's website. That makes for happy customers and an even happier CFO.
By Duff McDonald

(Business 2.0) – When crusading New York attorney general Eliot Spitzer demands that mutual fund companies lower their money management fees, Vanguard barely pays attention. It doesn't have to.

This isn't arrogance on the part of a behemoth that manages $690 billion in assets. It's because the company already charges the lowest fees in the industry: 0.26 percent of assets, vs. an industry average of 0.81 percent. Of course, Vanguard doesn't actively manage many of its mutual funds, which by definition means lower overhead. But it also keeps fees down by teaching its investors how to better use its website. For good reason: A Web login costs Vanguard mere pennies, while each call to a service rep is a $9 expense.

There's nothing new about companies steering customers to the Web. Usually, however, this ends up breeding disaffection. The typical scenario? You call customer service and sit on hold for an hour while being barraged with recorded messages urging you to visit the company website. Most of us have tried it--only to lose our place in line. Most online customer service doesn't work.

Vanguard worked hard to build a system that does. It starts with service reps who answer the toll-free calls and train customers, if necessary, to get them to use the Web effectively. "We're a virtual company," says Tim Buckley, Vanguard's managing director of information technology. "So our Web presence defines who we are."

When an investor calls Vanguard, the rep's priority isn't to fulfill the request quickly and move on to the next call, but to play Sherpa. The rep guides the customer through the site and teaches him how to use it. The goal: The customer never calls again--and instead goes to the Web.

Vanguard made the hand-holding easier for the rep by junking a customer-service system that required mastery of 14 software applications. With the new system, the rep's monitor displays a variation of what the customer sees on the website (along with just a bit of customer-relationship management software from E.piphany).

Since 1999, phone calls to Vanguard have dropped by 50 percent. And today 80 percent of Vanguard's 280,000 daily customer contacts occur through its website, up from less than 25 percent in 1999, when the company had half its current customer-service volume. Vanguard reaped impressive savings. It cut the call center staff by 50 percent, and it spends less on training and software maintenance.

Many of the call wranglers now handle tougher assignments like guiding customers through IRA rollovers, 529 college saving plans, or portfolio balancing. That increases Vanguard's profits because customers who use the Web and deal with reps just for sophisticated advice have average account balances 50 percent greater than others. The same customers show 20 percent greater retention and cost 95 percent less than those who don't use the online channel. Buckley forecasts a return on investment of 20 percent. "We're constantly making iterations to deliver quality service at the lowest possible cost to investors," he says.

If only the rest of the mutual fund industry thought the same way. -- DUFF MCDONALD