About Those New Vanguard Fees: Allan Roth
I was one of millions of people who last week received an email from Vanguard introducing new fees. It created quite a stir on the Bogleheads Forum. Harry Sit, The Finance Buff, wrote on X:
"After investing with Vanguard for 20+ years, I'm submitting a request to transfer out my last account at Vanguard to Fidelity before Vanguard starts imposing a $100 transfer-out fee. I get the subtle message that Vanguard doesn't want me unless I have $5 million there."
Jeff Benjamin also wrote about these new trading fees last week for ETF.com. I’ve had some people contact me with misconceptions so I went directly to Vanguard for clarification. Here’s a summary of the fees, some clarification, and my thoughts as to why I’m not terribly concerned.
Summary of New Fees
Broker-assisted commission: A $25 broker-assisted commission will be charged for each Vanguard mutual fund and Vanguard ETF placed over the phone.
Certificate deposit fee: A $100 processing fee (per CUSIP) will be charged for the deposit of physical share certificates into your brokerage account.
Class action service fee: A fee of 20% will be deducted from these recovered funds prior to their deposit into your brokerage account.
Foreign securities and American Depositary Receipts (ADRs) dividends fee: A fee of 1% on the gross dividend amount will be charged when a dividend is paid on a foreign or ADR asset held in U.S. dollars.
Restricted security legend removal fee: A $250 processing fee may be charged for research and removal of a restriction on a security held in your brokerage account.
Increase in tax-filing fee for master limited partnerships (MLPs) held in an IRA: The fee will increase to $500 from $300 per account.
Account closure and transfer fee: A $100 processing fee may be charged for account closure or transfer of account assets to another firm.
Clarification of Fees
Broker assisted commissions for the most part are a thing of the past. A Vanguard spokesperson told me that the vast majority of trades occur electronically with no phone assistance. It’s simple and easy to trade electronically on the web or mobile app and I’m not sure why anyone would want to call and be on hold to buy or sell. If someone wasn’t sure how to trade, they could call Vanguard who would walk the client through the process without that $25 fee, a Vanguard spokesperson confirmed.
Certificate deposit fee is taking a paper security such as a certificate for 100 shares of IBM and depositing with a brokerage firm. I can’t remember the last time I had a stock certificate sent to me but I do admit I have a few that were bought decades ago in my safe-deposit box. It is not an additional fee for buying a bank certificate of deposit.
Class action service fee is charged for a new service where Vanguard will decide on the best course of action regarding your participation in a class action against a specific company in which you own that is custodied at Vanguard. You are not charged this fee when the stock is owned by a fund. I actually love this new service and fee. I sometimes spend hours researching and completing the paperwork for a class action suit only to collect something like $4.32. I’d gladly give Vanguard 20% of that amount to save the time and have it done right. A Vanguard spokesperson told me investors can opt-out of that service and I certainly won’t.
Foreign securities and American Depositary Receipts (ADRs) dividends fee isn't a charge for owning a fund such as the Vanguard Total International Stock ETF (VXUS), Vanguard confirmed for me. ADRs are U.S. dollar-denominated certificates that trade on American stock exchanges and track the price of a foreign company's domestic shares.
Restricted security legend removal fee. An example of this is a court-ordered action preventing the holder from selling a security. I suspect this is quite rare but also suspect there would be some significant costs involved to assure the restriction can be removed.
Tax filing fee for MLPs in IRAs. I’ve actually never seen an MLP held in an IRA. That’s because MLPs in an IRA can be taxable.
Account closure and transfer fee. The wording states the $100 fee MAY be charged. A Vanguard spokesperson told me this was only for the transfer of an entire account and not for moving a few securities to another firm (known as an ACAT) or writing a check from a money market account.
This is the one new fee that bothers me a bit. Over the past couple of decades, I’ve helped many people move from full-service brokerage accounts and those custodians have sometimes charged thousands of dollars as a not-so nice parting gift. On the other hand, it does counter the theory that Vanguard wants small investors to go elsewhere.
My Thoughts
While I think highly of Harry Sit, I won’t be joining him in moving my Vanguard accounts to another brokerage. Vanguard has historically priced its products based on its costs and these transactions cost more. It has long had a policy that minimizes where some investors are subsidizing others.
What these new fees have in common is that the services cost Vanguard more to process. So those investors like me, as well as the majority of investors to whom these new fees aren’t applicable, have been subsidizing those that have been using these extra resources. It’s a judgment call—I don’t want to subsidize those taking more resources from Vanguard. On the other hand, Harry Sit wrote me, “I'm happy to cross-subsidize those who need more help now and be cross-subsidized by other investors when I or my family need more help in the future.”
These fees won’t cause me to recommend to clients that they leave Vanguard. If you chose differently, Sit has a good piece on important steps to take in transferring accounts.