At Vanguard, Only Millionaires Need Apply

Sometimes, it’s the little things that mean the most. For many longtime Vanguard mutual fund holders, the introduction of a new, $20 “little account” fee is causing a big fuss.

Since its creation by John Bogle in the 1970s, Vanguard has built its name by being the low-cost leader, bringing investing to the masses by slashing management fees on its index funds. And so long as you held more than $10,000 at Vanguard, you could invest in as many of its funds as you liked without paying any additional administrative fees.  

That all changes starting next week. Beginning September 5, Vanguard mutual fund investors will be paying a $20 annual admin fee per fund, unless they hold at least $1 million in “qualifying” assets with the Malvern, Pennsylvania,  firm. (Most Vanguard accounts and securities do count as qualified, but be sure to check the fine print for your specific situation. Investors with Vanguard 529 plans or multiparticipant simplified employee pension plans or 403(b)s, for example, would also need to have a personal account at Vanguard for those assets to count towards their million-dollar threshold.)

There is at least one significant loophole to note: Abandon paper statements and agree to electronic delivery of reports, statements, proxies and other account updates, and Vanguard will waive the $20 per fund fee.

This new expense will impact investors using Vanguard’s fund-only, non-brokerage account system. It seems clear that Vanguard is doing this to nudge clients off its legacy system and onto its main brokerage platform. The firm’s notice to clients warned that in addition to racking up the new fees, those who cling to the mutual fund system “may lose certain [account] features and functionality over time.”

It’s understandable that Vanguard might want to channel clients away from what it views as an outdated platform. But the fact that clients are reluctant to migrate might be even more understandable. As we’ve covered many times, the word that comes to mind when it comes to Vanguard’s tech stack is “unreliable.”

If your fund holdings might be impacted by this new fee—or if you just can’t tell whether they will or not, as Vanguard’s announcements about the change have been confusing at best—this may be the time to consider moving your accounts to either Fidelity or Schwab. If you don’t have $1 million to invest, Vanguard doesn’t seem all that eager to keep your business.

Chart of the Week: The Recession Question (and Our Answer)

 Interim Chief Investment Officer Jeff DeMaso: 

Durable goods orders—think appliances, tools, computers, TVs, furniture, cars, trucks and airplanes—are looking strong. Not only did manufacturers ship a record amount in July, but orders for new durable goods came close to hitting a new high as well. Strip out the more volatile transportation component and orders are at a record level. It’s hard to call this a recession with that kind of economic activity.

On the other hand, the housing market has cooled substantially. Fewer new homes were sold in July 2022 than were sold in April 2020—when the full COVID-19 lockdowns were in effect. On top of that, the supply of new homes is near record highs as well. Yes, a lot of the new homes for sale are still under construction, but as they are completed, it should put downward pressure on prices. In short, the data coming out of the housing market is what you’d expect to see in a recession.

So, are we or are we not in a recession? Gross domestic product (the combined value of all goods and services produced in the U.S.) declined in the first two quarters of the year, and this is often pointed to as a sign of recession—but I think that signal is wrong this time around. We are still dealing with the aftershocks of the pandemic in both the data and in consumer behavior. Those who claim we are in a recession are guessing or simply being selective in the data they choose to highlight and the data they choose to ignore.

Adviser’s Takeaways

In recent Takeaways, Andrew Busa covered the cost-of-living increases to Social Security payments, while Senior Research Analyst Liz Laprade talked about the S&P’s latest stumble.

We hope you find these episodes engaging and accessible, and please let us know if there are any topics you’d like us to address by sending an email to info@adviserinvestments.com!

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.