Vanguard’s Mysterious New Fees

Vanguard’s Mysterious New Fees

July 6, 2022

A few months ago, Vanguard added a line item to its funds’ fee breakdown: “Other expenses.” What are they? It’s not clear. What is clear is that these fees are growing, and that’s beginning to affect the funds’ bottom line.

The explanation provided to our chairman, Dan Wiener, about the source of these “other expenses” makes some sense: The new fees “relate to professional services provided by a third party…to handle certain fund administration services.”

The new fees went into effect beginning late last year and were first revealed in filings this spring. In May, when we first noted them, most funds were reporting around $7,000–$8,000 in these “other expenses.” Given the size of most of the funds—the Vanguard Short-Term Treasury Index, which holds $14.8 billion in its Admiral share class alone, was one of those reporting $7,000 in other expenses—the new fee barely amounted to a rounding error.

Things have changed more recently. Tallying up Vanguard’s fund filings, “other expenses” jumped from $64,000 across all Vanguard funds in September to $467,000 in November. Now a new batch of filings has landed: More than 30 funds with fiscal half-years ending in April just reported their financials. And while some showed “other expenses” still at $7,000, the firm’s Total International Stock Index reported $998,000 in these new fees—a heck of a lot for outsourcing admin.

In addition, Vanguard has now listed a separate line item for “professional services” for one of its funds (European Index) and another called “professional fees” for each of its three new Advice Select funds. The firm has made no public statement on what these new fees are meant to cover.

And they’re beginning to affect the funds’ bottom line. Shareholders in the European Index fund shouldered $3.6 million in these new “professional services” expenses. Perhaps that explains why operating expenses rose a full two basis points for each of the fund’s five different share classes, ranging from 0.09% to 0.25% versus the prior fiscal year’s range of 0.07% to 0.23%.

“Transparency” has never been Vanguard’s middle name. But its rise was built on one steady maxim: Serving the interests of its shareholder owners by lowering costs. Not a single Vanguard index fund reporting in the six-month period between Nov. 1, 2021 and April 30, 2022 saw its fund fees decrease. Only one reported a change—the aforementioned European Index fund. Clearly the days when Vanguard strove solely to reduce its fund fees are long gone. Is the old Vanguard ethos going with them?

Chart of the Week: Why Home Prices Are So High

Note: Chart shows monthly relationship between existing home prices (monthly change was calculated using the S&P CoreLogic Case-Shiller U.S. National Home Price NSA index) and the inventory of existing homes for sale from January 1999 through April 2022 along with the linear average trend over the period. Sources: S&P CoreLogic, the National Association of Realtors, Adviser Investments.

Director of Research Jeff DeMaso:

We often get asked when home prices will stop rising. The short answer: When more houses come onto the market.

This week’s chart was inspired by Bill McBride’s Calculated Risk blog—my go-to resource on the housing market. The chart neatly shows the Econ 101 relationship between supply and demand. When supply (the inventory of homes for sale) is low, prices go up. When supply is high, prices fall (or rise less quickly).

The darker blue circles in the chart represent the relationship between the number of existing homes for sale and the average price of homes sold nationwide each month from 1999 through 2021. On average, home prices rose 0.4% each month over the past two decades or so. And while it’s not perfect, the trend—shown in the dashed berry-color line—is clear.

The light blue diamonds represent the first four months of 2022, showing we’ve been in nearly uncharted territory this year. Inventory (supply) has been extremely low and—surprise, surprise—prices have risen more than usual: 1.9% on average each month since the start of the year.

Like Bill, I’m watching for signs of inventories rising, and when they do, I expect to see home-price increases slow.

Podcast: Practical Steps to Beat the Bear

In markets like these, about the only investment most people can agree on is a big bottle of antacid. But in this episode of The Adviser You Can Talk To Podcast, Interim Chief Investment Officer Jeff DeMaso and Portfolio Manager Charlie Toole offer a few practical steps you can take to help protect your portfolio—and your peace of mind—from the worst of the bear’s claws.

Topics include:

  • How to not panic when losses strike
  • Understanding volatility drivers
  • The profitability of thinking long term

Toughing it out when markets are sliding is no easy task. But Jeff and Charlie have seen this movie before, and they provide some stats to back up why your best defense is staying on track toward achieving your long-term goals. Listen now!

Adviser Investments’ Today’s Market Takeaways

In a recent Market Takeaways video, Portfolio Manager Steve Johnson offered his thoughts on the two sides of the recession debate.

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 managementfinancial and tax planningmanaged 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.


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