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After establishing a reputation as the driver of low-cost mutual funds and ETFs, The Vanguard Group is shifting course slightly with new fees facing investors starting July 1.
The second-largest ETF issuer with more than $2.4 trillion in 86 exchange-traded funds, Vanguard is leaving fund expense ratios alone. Instead it's layering on fees at the brokerage platform level, which some critics say will hit smaller investors the hardest. The new fee announcement follows by two months Vanguard’s notice that Chief Executive Officer Tim Buckley will be resigning by year end, which has sparked some speculation about a connection.
“To me, it feels like they’re letting the bottom line drive decision making instead of common sense,” said Jeff DeMaso, editor of The Independent Vanguard Adviser newsletter.
According to a notice the Malvern, Pa.-based asset manager sent to customers last week, Vanguard is introducing $25 transaction fees for calling the company for assistance in trading mutual funds and ETFs.
The fees apply to both Vanguard and non-Vanguard funds for any account below $1 million. There are also new fees related to options trading and American Depository Receipts, as well as a $100 fee to close or transfer an account.
While competitors such as Charles Schwab Corp. and Fidelity Investments apply similar fees for using a phone rep to complete transactions, DeMaso and others see this is a potential turning point for a company like Vanguard that basically created the low-cost indexed investing wave.
“Vanguard is essentially using fees to encourage certain behaviors and to discourage other behaviors,” DeMaso said.
Rick Ferri, founder of Ferri Investment Solutions in Georgetown, Texas, described the new policy as “frustrating, nickel-and-dime fees,” but also called the fees “very Vanguardish, because they don’t want anyone else to pay for my costs.”
“The fees try to place the cost more directly on the investor who is creating the cost rather than other shareholders,” he added. “If you think about it, that’s fair.”
Vanguard declined an interview for the story.
"Investors can continue to trade Vanguard mutual funds and ETFs commission-free online,” the company said in an emailed statement. “Vanguard is committed to helping clients navigate toward secure, simpler, and more seamless digital pathways, and constantly evaluates our brokerage services and products, inclusive of the commissions and fee schedule."
The reference to commission-free online trading is the message Vanguard hopes to underscore, according to Eric Balchunas, senior ETF analyst at Bloomberg Intelligence.