First Union has dissed Vanguard but given the nod to TCW in its stead. Last month, the broker/dealer dropped Vanguard's US Growth Fund from its select list, moving $160 million in discretionary funds into the Galileo Select Equities Fund. The greater part of an estimated $380 million in non-discretionary funds is also expected to trickle over.

Why did Vanguard lose the business?

"If you look at Morningstar, you'll see that they've kept Russell Parker on as lead portfolio manager, but he's retired," said Melissa Beyer a research analyst for First Union's consulting services group. "We here view that as very misleading for Morningstar to do that, and it's actually Vanguard's fault for keeping that on there. That was our first warning."

Now, Morningstar's listing of the fund does in fact refer to the correct managers. Its updated "Inside Scoop" fund snapshot concurs with Beyer's observations about the fund.

"It's been underperforming for a while," continued Beyer. "When we got their holdings from them, they've shifted their portfolio from large core to being in tech. Two thirds of the fund were in high-octane tech stocks that are definitely not large cap, like amazon.com. When we were looking at it, it coincided with the time that Parker was selling back his shares."

The switch to the Galileo Select Equities Fund comes at an unfortunate time vis-a-vis the stock market, but First Union decided that doing so maintained the firm's fiduciary responsibility to its clients.

"Growth markets were down, so it was kind of a bad time to be selling out, but we just have no faith that they'll be coming back," said Beyer. "With the manager that we have hired, he will be down a lot less and, so far this year, it's proved to be the case."

First Union was already familiar with fund manager Glen Bickerstaff through TCW's separate accounts offerings. Although the firm considered Harbor Capital Appreciation and other funds, Select Equities clearly stood out of the pack to First Union.

"We use them on the separate account side, so we've known about [Glen Bickerstaff's] track record," said Beyer. "We were looking for a replacement and we were like, he's the only manager that's beaten [Legg Mason manager] Bill Miller. We had a couple of other funds in mind when we did that change, but he appears to be more consistent in returns."

Officials at Vanguard were not available to comment prior to publication. 

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