converting Vanguard Admiral shares to ETF shares

[RustyShackleford]

I am contemplating converting my Admiral shares of VTSAX, held in a brokerage account at Vanguard, to ETF shares (VTI).

My prime motivation is simply a desire to simplify my portfolio. The majority of my portfolio, comprising not just a taxable account with my other equity holdings, but also a TIRA and a Roth IRA, is held at a different major brokerage. I can't see any reason to keep the Vanguard account open. But if I move the Admiral shares, the other brokerage charges a hefty fee for any transactions (although presumably not for DRIP purchases). If I first convert to ETF at Vanguard and move those to the other brokerage, there would be no further transaction fees.

Lest this sound like the tail wagging the dog, I note that the expense ratio for the Admiral shares is 0.04%, while it's 0.03% for the ETF shares (although when I do a comparison of the two at the Vanguard site, I see no real difference in performance). I'm aware of the issues with bid/ask spreads for ETFs versus mutual fund shares, but that doesn't concern me much.

My main concern is with basis numbers, especially as I intend to start a DRIP, regardless of what I do with the shares. But I believe this should be fine; the existing basis of the Admiral shares would be conveyed to the other brokerage and they'll keep track of the additions from DRIP purchases. (I still have a bad taste from years ago, when I got rid of some frontend-loaded American Fund shares and had to go through all the statements and compute the basis myself; things are different now though, I suppose).

I also like the simplicity of an average-cost basis policy, but I believe that is doable for Vanguard ETF shares.

Thoughts ?

[livesoft]

My thoughts are: your fears of basis are unfounded. Each dividend reinvestment of your ETF dividends will buy more ETF shares that will have their own cost basis (their actual cost) and your brokerage by law will keep track of them for you.

[H-Town]

I keep my assets at multiple brokerage firms to avoid putting everything in one basket. But your view could be different.

If you are afraid of Vanguard screwing up the cost basis, just export their cost basis before the conversion. That way you have the cost basis information on your computer before Vanguard does the conversion.

In taxable account, I would prefer Spec ID method. It's very simple to sell and indicate the lots you want to sell.

[nalor511]

Go for it, it takes 5 minutes. Set specID and screenshot cost basis before you call.

[PaunchyPirate]

OP, I just did exactly what you are thinking of doing. I made the request (via phone) to do the conversion. The next day it was done. And my cost basis was fully and accurately updated to reflect the change. Before doing the conversion, I would capture a screen shot of the cost basis details just in case.

After the conversion was done, I compared the new cost basis screens to what I had recorded. As I said, 100% accurate. It was an easy process to do.

[RustyShackleford]

I keep my assets at multiple brokerage firms to avoid putting everything in one basket. But your view could be different.

I wonder how much to worry about that. I think it's pretty far-fetched to think a major brokerage could go belly-up and that one would lose all their holding there, but all this federal debt-default nonsense gives one pause. I understand also that there's a program, somewhat similar to FDIC, that insures brokerage holdings, but only for $1/2 million, quite a bit less than I have.

I feel less vulnerable now that I've started my age-70 Social Security payment and a lifetime annuity of my TIAA Traditional holding. I could live reasonably comfortably on those alone. Still, it'd suck to have my remaining portfolio go up in flames.

[Wiggums]

The limit of SIPC protection is $500,000, which includes a $250,000 limit for cash. SIPC only protects the custody function of the broker dealer, which means that SIPC works to restore to customers their securities and cash that are in their accounts when the brokerage firm liquidation begins.

[H-Town]

I keep my assets at multiple brokerage firms to avoid putting everything in one basket. But your view could be different.

I wonder how much to worry about that. I think it's pretty far-fetched to think a major brokerage could go belly-up and that one would lose all their holding there, but all this federal debt-default nonsense gives one pause. I understand also that there's a program, somewhat similar to FDIC, that insures brokerage holdings, but only for $1/2 million, quite a bit less than I have.

I feel less vulnerable now that I've started my age-70 Social Security payment and a lifetime annuity of my TIAA Traditional holding. I could live reasonably comfortably on those alone. Still, it'd suck to have my remaining portfolio go up in flames.

I don't see Fidelity, Vanguard, or Charles Schwab could go belly up. But if there is a cyber attack on one or multiple of my accounts, the brokerage firm could temporarily put a hold on transfer out the fund (which is a great security feature in my view). I think it's more likely than not brokerage firm will make me whole; otherwise I'd call my lawyer. But it may take time for the dust to settle. By putting my assets at multiple brokerage firm, I reduce that risk somewhat. I also try to multiple my SIPC coverage by having assets at multiple firms.

[RustyShackleford]

I don't see Fidelity, Vanguard, or Charles Schwab could go belly up. But if there is a cyber attack on one or multiple of my accounts ...

Good point. Cyber-attack seems reasonably plausible, especially with all the conflict with Russia, and perhaps China. But as you say, that's likely to be only a temporary inconvenience, not a true black swan event.

[secondopinion]

I keep my assets at multiple brokerage firms to avoid putting everything in one basket. But your view could be different.

I wonder how much to worry about that. I think it's pretty far-fetched to think a major brokerage could go belly-up and that one would lose all their holding there, but all this federal debt-default nonsense gives one pause. I understand also that there's a program, somewhat similar to FDIC, that insures brokerage holdings, but only for $1/2 million, quite a bit less than I have.

I feel less vulnerable now that I've started my age-70 Social Security payment and a lifetime annuity of my TIAA Traditional holding. I could live reasonably comfortably on those alone. Still, it'd suck to have my remaining portfolio go up in flames.

I don't see Fidelity, Vanguard, or Charles Schwab could go belly up. But if there is a cyber attack on one or multiple of my accounts, the brokerage firm could temporarily put a hold on transfer out the fund (which is a great security feature in my view). I think it's more likely than not brokerage firm will make me whole; otherwise I'd call my lawyer. But it may take time for the dust to settle. By putting my assets at multiple brokerage firm, I reduce that risk somewhat. I also try to multiple my SIPC coverage by having assets at multiple firms.

I hold multiple brokerages because of the fact I prefer the money market and fixed income funds at Vanguard over Fidelity (which I just use ETFs). But yes, I do like the fact if one account is bogged down for any reason that I can pull money from the other. It is the same reason I have more than one credit card besides for benefits and more than one checking account. Beyond this, I think the benefits greatly diminish after having two brokerages (or checking accounts or credit cards).

[RustyShackleford]

Two other relatively minor factors:

1. Website of "major brokerage" is FAR better than Vanguard's, IMHO.

2. In my experience, Vanguard gets their 1099s ready almost a month earlier than "major brokerage" does.

[miket29]

The majority of my portfolio, comprising not just a taxable account with my other equity holdings, but also a TIRA and a Roth IRA, is held at a different major brokerage. I can't see any reason to keep the Vanguard account open.

One caution that will simplify the transfer a bit. We recently went thru a transfer and it turns out the ACATS system only transfers whole shares. When you convert your mutual fund shares at Vanguard to an ETF you'll likely end up with fractional ETF shares for each holding which Vanguard and several other brokerages allow for ETFs. So shortly before you transfer your account you might as well sell the fractional shares of each holding. If you don't, then when you do the transfer Vanguard will sell the fractional shares anyway and eventually transfer the cash but the cash transfer won't happen the same day as the first ACATS transfer. Instead the sale will happen that day.

[sycamore]

... So shortly before you transfer your account you might as well sell the fractional shares of each holding...

I don't think that's possible at Vanguard Brokerage Services. Last I checked you can only sell whole shares, and any fractional amount can/would be sold only if you sell all remaining shares.

Maybe VBS has better share selection abilities now?

[RustyShackleford]

One unfortunate thing, apparently you can't specify the "average" cost-basis method with the ETFs. I checked with both VBS and "major brokerage", and they said it was not an option.