Conversion from Investor Shares to Admiral Shares

[gkaplan]

With today's market run up, I passed the $100,000 Admiral shares requirement for one of my Vanguard funds (Emerging Markets Stock Index Fund). If I call Vanguard tomorrow morning and ask them to convert my Investor shares to Admiral shares, and the market drops such that my Investor shares fund falls below $100,000, will Vanguard still follow through on the conversion?

By the way, I should pass the ten-year Admiral shares requirement for this fund some time in the first quarter of 2011.

[sscritic]

Don't wait. Do it online right now.

https://personal.vanguard.com/us/conten ... iewJSP.jsp

Click on "Convert an Account" on the right, login, and do it.

You can also do it after logging in, but this is the link I can find without logging in.

P.S. They shouldn't treat you any differently than someone who bought $100,000 today. If the market drops tomorrow, the person who just purchased still has Admiral shares. I know, I bought in late April and just recently got back above $100,000.

[gkaplan]

Thanks for the quick response. I did just that. Very simple.

[Scott S]

Exciting stuff! I can't wait until my TSM holding gets there -- it'll be a couple years, yet.

- Scott

[jhh9327]

Exciting stuff! I can't wait until my TSM holding gets there -- it'll be a couple years, yet.

- Scott

I don't know when this may have changed, but you can get admiral shares for TSM at $10,000 now. Total bond market as well. Just was able to get admiral shares in my IRA accounts this morning. Maybe this is new, maybe I'm behind the times but it was a pleasant surprise today.

Edited to add: Just looked it up and Emerging Markets Stock Index Fund is another with a $10,000 initial requirement now for admiral.

[livesoft]

^ Well, that's kicking the ant pile pretty good. Watch what happens next.

[sscritic]

When did the change to $10,000 happen?

It is on the page I linked to before, but I didn't even notice it.

For an investment as low as $10,000, you can take advantage of our even lower-cost Admiral™ Shares, a share class of Vanguard mutual funds. The cost advantage can help you build wealth over time.

How to qualify

* Invest $10,000 or more in most Vanguard index funds that offer Admiral Shares.**
* Invest $50,000 or more in Vanguard actively managed funds that offer Admiral Shares.

** The minimum for certain sector index funds and tax-managed funds is $100,000.

P.S. The link on the right side that was there last night is no longer there this morning.
P.P.S. Just converted my EM. Thanks for the tip, jhh9327!

[jhh9327]

Go to the Accounts and Activity page and under the Total Assets listing is a link that says Convert to Admiral Shares. Go to that and Vanguard will tell you what funds you have (if any) that qualify to an admiral upgrade. I just noticed the link this morning and that is how I made my changes.

[jpsfranks]

It just let me submit a conversion request on a $93k TSM position. The first page in the process and a subsequent page both still mentioned generic $100k limits.

But the TSM "Fees and minimums" page does indeed now say $10k.

Great news if this isn't a bug. Although I confess in a way I feel cheated.

[sscritic]

I really think it is brand new. I haven't seen anything on this forum that I can remember, but this web page changed from last night to this morning in at least one respect, the link to making the conversion ("Convert an Account" is no longer there). I suspect the amounts changed as well. gkaplan, what do you remember from last night?

https://personal.vanguard.com/us/conten ... =VGFundsOV

[House Blend]

Here's the official announcement:

https://personal.vanguard.com/us/insights/article/fund-announcement-10062010

HB

[infecto]

Very awesome news. Going to change now.

[petrico]

That's HUGE.

Thanks!

--Pete

[Sidney]

May make more sense just to eliminate the regular shares.

[infecto]

May make more sense just to eliminate the regular shares.

I am assuming that along the curve the lower the account value the more accounts they have. So 20% of their accounts might be below $10k (accounts that people do not add money etc), so it might make sense to still charge the investor share fee for these accounts.

[gkaplan]

I just converted my REIT fund. I wish I knew this last night when I converted my Emerging Markets Stock Index Fund.

[Sidney]

May make more sense just to eliminate the regular shares.

I am assuming that along the curve the lower the account value the more accounts they have. So 20% of their accounts might be below $10k (accounts that people do not add money etc), so it might make sense to still charge the investor share fee for these accounts.

I guess another alternative (which I would prefer) is to create a new share class somewhere around $500K-1,000K with even lower ER. Or maybe tie lower ER to large total account status ($5M, $10M ?? pick a number) to get people to consolidate. The current Flagship benefits are fairly trivial and don't really drive behavior IMO. Probably hard to tie ER to total account size since each fund is probably a separate legal structure.

[Chuck]

I guess another alternative (which I would prefer) is to create a new share class somewhere around $500K-1,000K with even lower ER.

Fleet Admiral shares? Emperor shares?

[want2bedone]

Are there any tax consequences in coverting to Admiral shares?

[chaz]

I guess another alternative (which I would prefer) is to create a new share class somewhere around $500K-1,000K with even lower ER.

Fleet Admiral shares? Emperor shares?

Institutional shares.

[The Wizard]

Are there any tax consequences in coverting to Admiral shares?

No.

[sscritic]

Are there any tax consequences in coverting to Admiral shares?

Posters put links in posts so that you can read them.

Changes from Investor Shares to Admiral Shares of the same fund are tax-free.

[DSInvestor]

Are there any tax consequences in coverting to Admiral shares?

No tax consequences. I have converted to Admiral shares in IRA and in taxable accounts. In the taxable account, the conversion is not treated as sale but change of share class. The cost basis of the investor shares shifts to the admiral shares. I did not receive a 1099B for the conversion in the taxable account. If there is a difference in share price between investor and admiral shares, the treatment is similar to a stock split.

[petrico]

If there is a difference in share price between investor and admiral shares, the treatment is similar to a stock split.

Hi DSInvestor,

Having never owned individual stocks before, could you elaborate on this treatment? Say someone has a few dozen purchase dates over several years, and is using FIFO for sales. Assume also that the only software being used to track the cost basis is an Excel spreadsheet.

Will a new history of shares purchased have to be synthesized using historic price data, creating new share/share price entries for all the old purchases?

What would happen if admiral shares weren't even available when the first investor class shares were purchased?

--Pete

[sscritic]

If there is a difference in share price between investor and admiral shares, the treatment is similar to a stock split.

Having never owned individual stocks before, could you elaborate on this treatment? Say someone has a few dozen purchase dates over several years, and is using FIFO for sales. Assume also that the only software being used to track the cost basis is an Excel spreadsheet.

Will a new history of shares purchased have to be synthesized using historic price data, creating new share/share price entries for all the old purchases?

What would happen if admiral shares weren't even available when the first investor class shares were purchased?

Let's make it simple. Suppose the investor shares are $40 and the admiral shares are $20 on the day you convert. For every investor share you had before, you will now have two admiral shares. If you paid $100 for 20 investor shares on 4/23/1994, you will now have 40 admiral shares that you paid $100 for on 4/23/1994. Your basis for those 40 shares is $100.

[tfb]

Say someone has a few dozen purchase dates over several years, and is using FIFO for sales. Assume also that the only software being used to track the cost basis is an Excel spreadsheet.

Will a new history of shares purchased have to be synthesized using historic price data, creating new share/share price entries for all the old purchases?

What would happen if admiral shares weren't even available when the first investor class shares were purchased?

--Pete

Not using historical prices. Use the conversion ratio. Suppose 1,300 investor shares converted in to 1,000 Admiral shares, the ratio is 1.3. In your spreadsheet, for each purchase, divide the number of shares by 1.3:1, and multiply your purchase price by 1.3x.

[sscritic]

Say someone has a few dozen purchase dates over several years, and is using FIFO for sales. Assume also that the only software being used to track the cost basis is an Excel spreadsheet.

Will a new history of shares purchased have to be synthesized using historic price data, creating new share/share price entries for all the old purchases?

What would happen if admiral shares weren't even available when the first investor class shares were purchased?

--Pete

Not using historical prices. Use the conversion ratio. Suppose 1,300 investor shares converted in to 1,000 Admiral shares, the ratio is 1.3. In your spreadsheet, for each purchase, reduce the number of shares by 1.3:1, and raise your purchase price by 1.3x.

Raise the per share price, not the total price. If you paid $100 for a bunch of shares, you paid $100 for the equivalent bunch of converted shares, it's just that there are now a different number of shares.

Note: when you fill out Schedule D, you are not asked for the per share price. You are asked for the cost of the shares you sold. If you paid $100 for 10 shares and these convert to 13 shares, when you sell the 13 shares, you report that you paid $100 for them. The per share price is irrelevant.

Edit: I see I flipped tfb's example. His 10 shares converted to 7.6923 shares. These 7.6923 shares would still have a cost of $100.

[petrico]

Not using historical prices. Use the conversion ratio. Suppose 1,300 investor shares converted in to 1,000 Admiral shares, the ratio is 1.3. In your spreadsheet, for each purchase, divide the number of shares by 1.3:1, and multiply your purchase price by 1.3x.

Okay, thanks tfb! That makes sense, and will be simple to do.

@sscritic: sorry for being dense. I just wanted to make sure converting all the old share/share price entries needed to be done. If using FIFO or specific ID for sales, it will need to be done, just to properly account for which shares are actually being sold.

Thanks again,
--Pete

[larmewar]

Did VG lower the Admiral threshold for accounts (active funds) over 10 years old?

[livesoft]

^ Yes, from $50K to $10K.

[petrico]

^ Yes, from $50K to $10K.

Actually, no. The minimum holding time was removed, but the $50K limit still stands for active funds.

How to qualify

* Invest $10,000 or more in most Vanguard index funds that offer Admiral Shares.**
* Invest $50,000 or more in Vanguard actively managed funds that offer Admiral Shares.

--Pete

[livesoft]

Well, I am totally wrong then.

[petrico]

Well, I am totally wrong then.

Yeah, must bring your average way down to what, 0.999?

--Pete

[RJB]

Here's a Yahoo New Article entitled Vanguard Strikes Back in Mutual Fund Price Wars:
http://finance.yahoo.com/news/Vanguard- ... l?x=0&.v=1

More people can be admirals at Vanguard now.

Vanguard on Wednesday morning lowered the minimum initial investments for the low-cost Admiral Share classes of more than 50 active and passive funds. It dropped the ante for broad market index fund Admiral Shares to $10,000 from $100,000. Many of Vanguard's actively managed stock and bond funds also lowered their Admiral Shares minimums to $50,000 from $100,000.

[cjackson0]

Is it possible to exchange Investor shares for Admiral shares when the funds are held at a discount brokerage?

I paid a transaction fee when purchasing my investor shares. Will I have to pay a fee when i sell investor shares and again when i buy admiral shares or is there some type of redemption? Again, this is for Vanguard Mutual Funds held at another company.

[dbr]

Is it possible to exchange Investor shares for Admiral shares when the funds are held at a discount brokerage?

I paid a transaction fee when purchasing my investor shares. Will I have to pay a fee when i sell investor shares and again when i buy admiral shares or is there some type of redemption? Again, this is for Vanguard Mutual Funds held at another company.

It would be very unusual, in fact I think non-existent, that you can hold Admiral Funds at another company in a brokerage account.

Someone may have better information and there may have been an example of this cited but the option was discontinued?

[DSInvestor]

Is it possible to exchange Investor shares for Admiral shares when the funds are held at a discount brokerage?

I paid a transaction fee when purchasing my investor shares. Will I have to pay a fee when i sell investor shares and again when i buy admiral shares or is there some type of redemption? Again, this is for Vanguard Mutual Funds held at another company.

Be careful about terminology. An exchange is typically an order to sell one fund to buy another. If the admiral shares of your fund are available at your discount brokerage an exchange would sell the investor shares and buy the admiral shares. This would be a taxable event in a taxable account. It may trigger a wash sale if you sell for a loss.

What people are doing is changing the share class from investor to admiral shares. This would not be a taxable event.

[HawkeyeMike]

My "Simple IRA's" are not eligible for conversion

Have 3 Funds way past the $ Limits

Bummer

[Sunny Sarkar]

My "Simple IRA's" are not eligible for conversion

Have 3 Funds way past the $ Limits

Bummer

Can't it be rolled over to one of 'em "complex" lucky IRAs?

[DSInvestor]

My "Simple IRA's" are not eligible for conversion

Have 3 Funds way past the $ Limits

Bummer

Admiral shares are not available in SIMPLE-IRA but if you've had your SIMPLE-IRAs for over 2 years, you may be able to rollover to a TradIRA where you can get Admiral shares.

Here's something from IRS SIMPLE-IRAs:
http://www.irs.gov/retirement/article/0 ... 00.html#40

Can an amount be transferred from a SIMPLE IRA to another IRA in a tax-free trustee-to-trustee transfer?

During the 2-year period (described in Q&A 2 under the Distribution section above), an amount in a SIMPLE IRA may be transferred to another SIMPLE IRA in a tax-free trustee-to-trustee transfer. If, during this 2-year period, an amount is paid from a SIMPLE IRA directly to the trustee of an IRA that is not a SIMPLE IRA, the payment is neither a tax-free trustee-to-trustee transfer nor a rollover contribution; the payment is a distribution from the SIMPLE IRA and a contribution to the other IRA that does not qualify as a rollover contribution. After the expiration of the 2-year period, an amount in a SIMPLE IRA may be transferred in a tax-free trustee-to-trustee transfer to an IRA that is not a SIMPLE IRA.

bold = my emphasis

http://www.irs.gov/retirement/article/0 ... tributions

When does the "2-year period" described in the previous question begin?

The 2-year period described in the previous question begins on the first day on which contributions made by the individual's employer are deposited in the individual's SIMPLE IRA.

[livesoft]

Is it possible to exchange Investor shares for Admiral shares when the funds are held at a discount brokerage?

I paid a transaction fee when purchasing my investor shares. Will I have to pay a fee when i sell investor shares and again when i buy admiral shares or is there some type of redemption? Again, this is for Vanguard Mutual Funds held at another company.

Please do us all a favor and call up your discount broker and ask them. Or give us their phone number and we will do your work for you.

[petrico]

Say someone has a few dozen purchase dates over several years, and is using FIFO for sales. Assume also that the only software being used to track the cost basis is an Excel spreadsheet.

Will a new history of shares purchased have to be synthesized using historic price data, creating new share/share price entries for all the old purchases?

What would happen if admiral shares weren't even available when the first investor class shares were purchased?

--Pete

Not using historical prices. Use the conversion ratio. Suppose 1,300 investor shares converted in to 1,000 Admiral shares, the ratio is 1.3. In your spreadsheet, for each purchase, divide the number of shares by 1.3:1, and multiply your purchase price by 1.3x.

Well, that ended up being a little more involved than I envisioned, but not bad at all. To preserve the original records, and as a math check, I just copied the entire "No. of Shares"; Cumulative Shares"; "Price/Share"; and "Cost" columns into four new inserted "Admiral" columns. Then the conversion ratio was applied to the "No. of Shares" and "Price/Share" columns. The new "Cumulative Shares" and "Cost" columns automatically computed the revised values. Well, the new and old "Cost" columns were identical -- thus the check. (Now I can just "hide" the original columns.)

Is that close to what other people who don't use financial software do? What does Quicken or MS Money do with the records of the shares already sold? Does it adjust those also? They must all be consistent, right? Especially if there are wash sale shares sold that were matched with unsold shares bought in the wash sale period. But the printout I kept with the 2008 tax return will now be different from the record that will go into the return with the future sales.


(Note to self: wash sales are to be avoided.)

--Pete

[Electron]

If you convert from Investor Shares to Admiral Shares in a fund with a 1% Redemption Fee for sale of shares within the first year, do they retain the date of the original purchase in Investor Shares?

Thanks, KW

[HueyLD]

If you convert from Investor Shares to Admiral Shares in a fund with a 1% Redemption Fee for sale of shares within the first year, do they retain the date of the original purchase in Investor Shares?

Conversion is merely an internal transfer from one class (e.g., investor shares) to another class (e.g., admiral shares). You did not sell anything and no dates should change from the original purchase date(s).

p.s., I did talk to my VG rep and confirmed the above understanding.

[Electron]

Conversion is merely an internal transfer from one class (e.g., investor shares) to another class (e.g., admiral shares). You did not sell anything and no dates should change from the original purchase date(s).

Thanks for the help.

It does make sense that the clock on the redemption fees does not change, especially when you consider that the two statements only show Conversion Out and Conversion In. If the Conversion In said "Purchase" then it would be a different story.

KW

[Angst]

Now that I qualify for Admiral status on so many of the funds I hold, I'm a little unsure about things b/c I have already taken advantage of $0 Vanguard ETF trades to convert many funds to their ETF equivalents. It seems to me that having an Admiral fund might be preferable to ETF b/c of the simplicity of the buy/sell process; no spreads or premiums or discounts to have to think about. What else am I missing?

Does anyone have any strong opinions about Admiral vs. ETF?

[infecto]

Now that I qualify for Admiral status on so many of the funds I hold, I'm a little unsure about things b/c I have already taken advantage of $0 Vanguard ETF trades to convert many funds to their ETF equivalents. It seems to me that having an Admiral fund might be preferable to ETF b/c of the simplicity of the buy/sell process; no spreads or premiums or discounts to have to think about. What else am I missing?

Does anyone have any strong opinions about Admiral vs. ETF?

If the expense % is the same then I would vote Admiral. ETF's just add a layer of complexity that is not needed imo.

[wshang]

Honestly, I don't understand the excitement. If you own the ETF VWO, the expense ratio is exactly the same = 0.27%.

Also, you don't pay the Admiral Shares (VEMAX) or Investor Shares' Redemption fee 0.25%
Purchase fee 0.50%

[VictoriaF]

On Thursday, 14 October, BH9 participants attended a reception at Vanguard. During the panel discussion the question of the Admiral qualifications changes came up. The Vanguard crew members provided information as follows:
1. Vanguard reduced the Admiral qualifications, because they experienced cost reduction and wanted to share these savings with their customers. Significant reductions are the result of using the Internet for many transactions instead of telephone representatives.

2. This is not the first time Vanguard is lowering Admiral qualifications. The previous time they dropped it from $250,000 to $100,000.

3. Admiral qualifications could not be extended to funds of funds, because they do not carry separate expenses except those of the underlying funds. Other funds unaffected by the change were tax-managed index funds, where Admiral shares would add a layer of complexity.

4. The intent of the Admiral qualifications changes was NOT to remove the incentive to convert to ETF. Vanguard wants their customers to make decisions about funds vs. ETFs based on what best suits their needs, not on price.

5. One example of customers who prefer ETFs to index funds are some financial advisers, because it is easier for them to manage their customer accounts with ETFs. When advisers place an ETF trade they see the outcome immediately.

Victoria

[CompareContrast]

I confess to some unease. Expense ratios for the Admiral Tax Managed Growth and Income Fund were 0.10% from 2005-2008. In 2009 they jumped up to 0.15% and remained there. Now they're lowering the cutoff from $100,000 to $10,000. That's ok, but I should like to take a closer look at Vanguard's operations. Have expenses as a share of total assets under management increased? I'd be willing to take into account recent market volatility, but I'm curious about whether Vanguard has lost some efficiency under its new CEO. Then again, maybe I would pleasantly surprised.