Vanguard, known for its low-cost investing model, recently announced new fees that will be implemented starting on July 1. The firm, which manages $8.6 trillion in assets, will charge customers a $25 transaction fee for trading Vanguard ETFs and mutual funds over the phone. Additionally, a $100 processing fee will be imposed for closing an account or transferring assets to another firm. These fees are aimed at customers who still prefer to trade over the phone, particularly retirees who may not be as comfortable using the internet for transactions.
While the majority of Vanguard’s trades are already done online and remain commission-free, the new fees put Vanguard in line with its competition. Other firms such as Charles Schwab and Morgan Stanley’s ETrade also charge $25 broker service fees, and Fidelity has unspecified additional fees that may apply when trading with a representative. Vanguard’s $100 fee for closing an account will be higher than ETrade’s $75 and Schwab’s $50 for full transfers. The move marks a departure from Vanguard’s traditional reputation for being the lowest cost provider in the industry.
Founded in 1975 by Jack Bogle, Vanguard has prided itself on being different from its competitors, with low fees for its clients who share in the profits. While its average fees of 0.08% remain industry standard, other providers are now offering comparable or even lower fees for index funds. For example, Fidelity’s 500 Index Fund has a 0.015% expense ratio compared to Vanguard’s 0.04%. The new fees are not expected to significantly impact Vanguard’s revenue, as only a small percentage of customers will be affected.
Vanguard’s wealthiest clients will be exempt from the new charges, with those holding at least $1 million in assets able to trade commission-free with a live broker. Customers with at least $5 million will not have to pay the account closure fee. For the majority of clients, however, Vanguard seems to be nudging them towards more digital transactions and streamlining operations through the introduction of new fees. This marks a shift in the company’s approach towards using fees as a tool to influence customer behavior, as noted by industry experts.
The announcement of these changes comes on the heels of Fidelity’s decision to introduce transaction fees for buying ETFs issued by certain independent ETF managers. This move was met with criticism, as critics argue it will not significantly impact Fidelity’s revenue and may be an attempt to force ETF issuers to pay revenue shares. Ultimately, these changes in the industry signal a shift towards more fee-based models and a departure from the traditional low-cost investing approach that firms like Vanguard have been known for.
