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Vanguard and Wachovia’s Erroneous Decision



The other week I wanted to set up a direct deposit into my Roth IRA through work, so that a portion of every paycheck went into my Roth IRA. The experience was interesting, to say the least. It got me thinking… Why do large corporations make erroneous decisions?

To set up my direct deposit, I first had to get an account to have my payroll deposit into. I have my Roth IRA through Vanguard, so I logged into their site, and started the process. After walking me through some steps, Vanguard displayed a page that had a newly created Checking account number along with a routing number for Wachovia bank. The payroll department would deposit money into this account, and Vanguard would then take that money, and invest it into my Roth IRA. I brought the printout to payroll and thought everything was ready to go. But that was not the case.

I got a call from my payroll department saying the direct deposit was rejected. My company uses JP Morgan Chase as its bank; and Chase informed my company that Wachovia rejected the direct deposit because the account number had letters in it. I contacted Vanguard to inform them of the situation, and find out how to correct it. They said instead of using VAN at the beginning of the account, to use 826 (numbers that correspond to VAN). They said that some banks do not allow the use of letters in account numbers, and that this was the workaround.

I talked to my payroll and we changed the account number to use the numbers instead of letters. All this got me thinking; why would Wachovia be issuing an account number to their clients that they know was invalid? After all, it was Wachovia that rejected the transfer and it was Wachovia that issued the account number. With banking, I would think anything below 100% success rates on transactions would be unacceptable. Vanguard, or Wachovia, has a “workaround” for the Alpha characters in bank account numbers; why not use that as a standard? Why use something that is guaranteed to have a less than 100% success rate, when there is a known method that will produced a 100% success rate? It boggled my mind.

I thought I would have a talk with Vanguard to express my concern. I was rather irritated that they would be using a process that had known failures; enough of a failure rate to have a workaround process. My frustration was rather high. The failure not only increased Vanguard’s and Wachovia’s support call volume, but it required my company to troubleshoot the problem as well. There were at least 6 people involved, that I was aware of, in solving a problem that could have easily been avoided (1 Vanguard customer service rep, 1 Vanguard banking rep, 1 Wachovia rep, 1 Chase rep, 1 USG Payroll, and myself). I wanted to express to Vanguard that they had an opportunity to reduce the time spent on customer service calls, and in turn reduce their cost, as well as the fee that customers get charged on their investments. There was also an opportunity to increase customer satisfaction a great deal.

When talking with Vanguard, they explained that they really did not have a good answer on why they were using the letters instead of numbers. The only information they could give me was that the letters were used to designate Vanguard accounts from all the other Wachovia accounts. “But”, I explained, “those letters are translated into numerals in the background anyway; you already have people using the workaround with the numbers; why not use the numbers for all the accounts? They can act as an identifier just as well as the letters.” He agreed with me to a point, but still said they would have to discuss this internally.

I really do hope there is something else that influenced the decision to use the letters rather than number in the account number. And I hope the make the right decision to correct the problem. It seems like such a simple decision to me. How can such a large, well respected company, make such a bad judgment call? Was it Wachovia or Vanguard that made the decision? Did they know of the potential problem beforehand? Why have they not corrected the problem yet? Maybe I will never know. But, it undoubtedly leaves customer thinking: if the same decision making process that went on here, goes on with my investments or account security, should I trust this company with my assets?

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