Vanguard brokerage will not convert mutual fund to ETF

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Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

I was under the impression that Vanguard offered the possibility to convert a mutual fund to the corresponding ETF
https://investor.vanguard.com/etf/faqs
https://www.bogleheads.org/wiki/Exchang ... t_Vanguard
I called the listed number for this purpose 866-499-8473 and after a brief 15 minute wait, I got through to a person. I said I wanted to convert a mutual fund holding in my Vanguard brokerage (taxable) account to the corresponding ETF,
Vanguard Short-Term Corporate Bond Index Fund Admiral Shares (VSCSX) to
Vanguard Short-Term Corporate Bond ETF (VCSH)

The phone rep asked where I was seeing this and informed me that such a transaction was not possible. He informed me that I would need to sell the mutual fund, wait a few days for the funds to settle, and then buy the ETF! :oops: (This is a taxable account.)

I was quite stunned and politely excused myself. I feel like either I'm going insane or else Vanguard is.

Was I attempting a completely routine transaction, and calling the correct number on the Vanguard website to do so? Or am I misunderstanding something about what transactions can be done? (I did only recently "upgrade" to Vanguard brokerage accounts, (taxable and IRAs) so I admit I'm a neophyte at all this.) Someone please tell me what's going on here. What should I do now?

I can send a message to Vanguard to ask about this, so I should hear back in a couple of weeks, but in the meantime I'd like to hear thoughts here.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by SpringMan »

This is not new, Vanguard never would allow converting bond index funds to their corresponding ETFs. It was only stock funds Vanguard allowed. It still does allow stock funds as far as I know.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by JoMoney »

https://investor.vanguard.com/etf/faqs
Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF Shares?
Yes, most funds that offer ETF Shares will allow you to convert from conventional shares of the same fund to ETF Shares. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—don't allow for conversions.)
Conversions are allowed from both Investor and Admiral™ Shares and are tax-free if you own your mutual fund and ETF Shares through Vanguard.
Keep in mind that you can't convert ETF Shares back to conventional shares. If you decide in the future to sell your Vanguard ETF Shares and repurchase conventional shares, that transaction could be taxable.
If you have a brokerage account at Vanguard, there's no charge to convert conventional shares to ETF Shares. If you have questions, call us at 866-499-8473.
If you own your Vanguard mutual fund shares through another broker, keep in mind that some brokers may not be able to convert fractional shares, which could result in a modest taxable gain for you. Other brokers may also charge a fee for a conversion. Contact your broker for more information.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by livesoft »

I see that the FAQ about conversion at vanguard.com does list 4 bond funds that cannot be converted, but does not mention all the funds that cannot be converted. Chalk that up to Vanguard's low costs: They don't keep the web site up-to-date.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by alex345 »

You can sell the mutual fund and buy the ETF shares the same day. The mutual fund sell will settle (T+1) before the ETF purchase will (T+3) am I right?
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

SpringMan wrote:This is not new, Vanguard never would allow converting bond index funds to their corresponding ETFs. It was only stock funds Vanguard allowed. It still does allow stock funds as far as I know.
At https://investor.vanguard.com/etf/faqs they say
https://investor.vanguard.com/etf/faqs wrote: Can I convert my conventional Vanguard mutual fund shares to Vanguard ETF Shares?

Yes, most funds that offer ETF Shares will allow you to convert from conventional shares of the same fund to ETF Shares. (Four of our bond ETFs—Total Bond Market, Short-Term Bond, Intermediate-Term Bond, and Long-Term Bond—don't allow for conversions.)

Conversions are allowed from both Investor and Admiral™ Shares and are tax-free if you own your mutual fund and ETF Shares through Vanguard.

Keep in mind that you can't convert ETF Shares back to conventional shares. If you decide in the future to sell your Vanguard ETF Shares and repurchase conventional shares, that transaction could be taxable.

If you have a brokerage account at Vanguard, there's no charge to convert conventional shares to ETF Shares. If you have questions, call us at 866-499-8473.

If you own your Vanguard mutual fund shares through another broker, keep in mind that some brokers may not be able to convert fractional shares, which could result in a modest taxable gain for you. Other brokers may also charge a fee for a conversion. Contact your broker for more information.
There is no mention of VSCSX to VCSH being disallowed.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

alex345 wrote:You can sell the mutual fund and buy the ETF shares the same day. The mutual fund sell will settle (T+1) before the ETF purchase will (T+3) am I right?
Okay, this makes it clear that the person on the phone was incompetent about the timing issues. Were they also mistaken about the convertibility issue? Vanguard's website makes it clear that the conversion is possible.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by stlutz »

Call back and talk to somebody different. Converting to ETF is in general unusual so I'm guessing many reps. have never done it
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by JoMoney »

livesoft wrote:I see that the FAQ about conversion at vanguard.com does list 4 bond funds that cannot be converted, but does not mention all the funds that cannot be converted. Chalk that up to Vanguard's low costs: They don't keep the web site up-to-date.
I think this is likely the case.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by livesoft »

JoMoney wrote:
livesoft wrote:I see that the FAQ about conversion at vanguard.com does list 4 bond funds that cannot be converted, but does not mention all the funds that cannot be converted. Chalk that up to Vanguard's low costs: They don't keep the web site up-to-date.
I think this is likely the case.
I own VSCSX and VCSH. I just looked at the prospectus for VSCSX. It has an entire section on converting to the ETF share class, so if the OP wants to call up Vanguard again, just make sure you have the Prospectus open on your computer in front of you in order to facilitate your conversion. :)
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

stlutz wrote:Call back and talk to somebody different. Converting to ETF is in general unusual so I'm guessing many reps. have never done it
Really? When I called 866-499-8473 it said something like "Welcome to Vanguard's ETF hotline." It's a specialized ETF phoneline. Surely these people know about this.
livesoft wrote:
JoMoney wrote:
livesoft wrote:I see that the FAQ about conversion at vanguard.com does list 4 bond funds that cannot be converted, but does not mention all the funds that cannot be converted. Chalk that up to Vanguard's low costs: They don't keep the web site up-to-date.
I think this is likely the case.
I own VSCSX and VCSH. I just looked at the prospectus for VSCSX. It has an entire section on converting to the ETF share class, so if the OP wants to call up Vanguard again, just make sure you have the Prospectus open on your computer in front of you in order to facilitate your conversion. :)
Well that settles it. The conversion is allowed. I can understand not everyone here has the list memorized (or has a Vanguard work computer in front of them with precisely this information easily accessible), but surely a Vanguard brokerage rep answering Vanguard's ETF hotline, should be absolutely clear as to which funds can be converted, and should be able to efficiently take the instruction to execute the transaction.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by SpringMan »

alex345 wrote:You can sell the mutual fund and buy the ETF shares the same day. The mutual fund sell will settle (T+1) before the ETF purchase will (T+3) am I right?
You can't do this unless you have cash to buy the ETF sitting in your settlement account, or maybe if you have a margin account where you can borrow the cash. You also need to purchase ETFs in integer shares. Conversion of the mutual fund to the ETF will result in fractional shares. The big advantage of conversion is it is not a taxable event. Selling and buying will be a taxable event if done in a taxable account.
Best Wishes, SpringMan
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by SpringMan »

SpringMan wrote:This is not new, Vanguard never would allow converting bond index funds to their corresponding ETFs. It was only stock funds Vanguard allowed. It still does allow stock funds as far as I know.
This was true at the time when I did some conversions but that was before Vanguard introduced their Short Term Corp bond index and Intermediate Term Corp bond index funds and ETFs. If the prospectus states conversion is allowed as livesoft said, I would press Vanguard on allowing it.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by livesoft »

SpringMan wrote: If the prospectus states conversion is allowed as livesoft said, I would press Vanguard on allowing it.
I chose my words carefully. I didn't state the prospectus states conversion is allowed. I stated that the prospectus has a section on converting to the ETF share class. :)

We need the OP to get this settled.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

livesoft wrote:
SpringMan wrote: If the prospectus states conversion is allowed as livesoft said, I would press Vanguard on allowing it.
I chose my words carefully. I didn't state the prospectus states conversion is allowed. I stated that the prospectus has a section on converting to the ETF share class. :)

We need the OP to get this settled.
I got the prospectuses (VSCSX and VCSH have separate ones, each shared with some other bond funds).

In the "Vanguard Short-Term Corporate Bond ETF" section it says "Transaction Fee on Conversion to ETF Shares ... None through Vanguard".

In the MF prospectus there is a section "Conversions to ETF Shares" it says "Owners of conventional shares (i.e., not exchange-traded shares) issued by a Fund may convert those shares to ETF Shares of equivalent value of the same fund."

What am I to make of this? How can I get a definitive answer on which conversions are disallowed. There should be a list somewhere.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by livesoft »

*3!4!/5! wrote:What am I to make of this? How can I get a definitive answer on which conversions are disallowed. There should be a list somewhere.
I would call up Vanguard and ask them. :twisted: I await your report. Thanks!
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by mickroark »

The question for me would be why would someone want to convert from vscsx to vcsh. The expense ratio is the same , I think I would prefer to hold the mutual fund myself.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by livesoft »

mickroark wrote:The question for me would be why would someone want to convert from vscsx to vcsh. The expense ratio is the same , I think I would prefer to hold the mutual fund myself.
To transfer to a real brokerage in-kind where there are knowledgeable customer service reps would be one reason.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by Doc »

livesoft wrote:
mickroark wrote:The question for me would be why would someone want to convert from vscsx to vcsh. The expense ratio is the same , I think I would prefer to hold the mutual fund myself.
To transfer to a real brokerage in-kind where there are knowledgeable customer service reps would be one reason.
+1
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

mickroark wrote:The question for me would be why would someone want to convert from vscsx to vcsh. The expense ratio is the same , I think I would prefer to hold the mutual fund myself.
Good question. This. http://www.bogleheads.org/forum/viewtop ... 0&t=196884
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

livesoft wrote:
*3!4!/5! wrote:What am I to make of this? How can I get a definitive answer on which conversions are disallowed. There should be a list somewhere.
I would call up Vanguard and ask them. :twisted: I await your report. Thanks!
Thanks for the suggestion. But can you suggest how I could get a reliable answer. :confused

I found an "unofficial" website (from 2011 when the corporate funds were two years old).
http://investorplace.com/2011/12/conver ... nversions/
that says the 4 disallowed bond funds are not the corporate ones.
investorplace.com/2011/12/converting-vanguard-mutual-funds-etfs-share-class-conversions wrote: Four of Vanguard’s bond ETFs — the Vanguard Total Bond Market ETF (NYSE:BND), Vanguard Short-Term Bond ETF (NYSE:BSV), Vanguard Intermediate-Term Bond ETF (NYSE:BIV) and Vanguard Long-Term Bond ETF (NYSE:BLV) — do not allow the conversion of bond index fund shares to bond ETF shares of the same fund. However, the other eight Vanguard bond ETFs allow conversions.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

Doc wrote:
livesoft wrote:
mickroark wrote:The question for me would be why would someone want to convert from vscsx to vcsh. The expense ratio is the same , I think I would prefer to hold the mutual fund myself.
To transfer to a real brokerage in-kind where there are knowledgeable customer service reps would be one reason.
+1
But this brings up a whole new batch of questions about Admiral shares outside Vanguard. I had asked here
viewtopic.php?p=3039533#p3039533
Do any of these brokerages allow you to bring in Vanguard Admiral shares in kind, reinvest dividends, buy them, sell them, exchange them for Vanguard Admiral shares in other funds? I'm wondering about recent experiences since things change.
ETA: Misread what you 2 were saying. Yes it seems to be a problem transferring Admiral shares out, so that's a reason to convert to ETF.
Last edited by *3!4!/5! on Tue Sep 06, 2016 4:28 pm, edited 1 time in total.
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Re: Vanguard brokerage will not convert mutual fund to ETF

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livesoft wrote:
mickroark wrote:The question for me would be why would someone want to convert from vscsx to vcsh. The expense ratio is the same , I think I would prefer to hold the mutual fund myself.
To transfer to a real brokerage in-kind where there are knowledgeable customer service reps would be one reason.
Bingo!!!!! This is exactly how I liberated my Admiral shares of TMI. 8-)
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by livesoft »

*3!4!/5! wrote:
livesoft wrote:
*3!4!/5! wrote:What am I to make of this? How can I get a definitive answer on which conversions are disallowed. There should be a list somewhere.
I would call up Vanguard and ask them. :twisted: I await your report. Thanks!
Thanks for the suggestion. But can you suggest how I could get a reliable answer. :confused
C'mon, put on your big-girl panties and call them and ask them in no-uncertain terms to do the conversion. If they balk, turn on your Dale Carnegie charm (learned from reading How to Win Friends and Influence People) and present the prospectus and work your way up the food chain. Isn't this how you work out all problems with CSRs? Or are you telling me that you take "No" for an answer?

I'm sorry that I have no Dale Carnegie charm in my response, but not really. Go get this done. Thanks!

PS: You know Vanguard has a special set of employees who monitor the bogleheads.org forums. There is probably an internal corporate newsletter for employees with a column: What are Bogleheads saying about Vanguard this month?
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Re: Vanguard brokerage will not convert mutual fund to ETF

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*3!4!/5! wrote:I was under the impression that Vanguard offered the possibility to convert a mutual fund to the corresponding ETF
https://investor.vanguard.com/etf/faqs
https://www.bogleheads.org/wiki/Exchang ... t_Vanguard
I called the listed number for this purpose 866-499-8473 and after a brief 15 minute wait, I got through to a person. I said I wanted to convert a mutual fund holding in my Vanguard brokerage (taxable) account to the corresponding ETF,
Vanguard Short-Term Corporate Bond Index Fund Admiral Shares (VSCSX) to
Vanguard Short-Term Corporate Bond ETF (VCSH)
Strange. I did exactly this (i.e, VSCSX mutual fund shares to VCSH ETF shares) a couple of years ago. A simple phone call to Vanguard sufficed. I was Flagship at the time, in case that matters.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

dodecahedron wrote:
*3!4!/5! wrote:I was under the impression that Vanguard offered the possibility to convert a mutual fund to the corresponding ETF
https://investor.vanguard.com/etf/faqs
https://www.bogleheads.org/wiki/Exchang ... t_Vanguard
I called the listed number for this purpose 866-499-8473 and after a brief 15 minute wait, I got through to a person. I said I wanted to convert a mutual fund holding in my Vanguard brokerage (taxable) account to the corresponding ETF,
Vanguard Short-Term Corporate Bond Index Fund Admiral Shares (VSCSX) to
Vanguard Short-Term Corporate Bond ETF (VCSH)
Strange. I did exactly this (i.e, VSCSX mutual fund shares to VCSH ETF shares) a couple of years ago. A simple phone call to Vanguard sufficed. I was Flagship at the time, in case that matters.
Thanks. It's unlikely the list has changed. (Much more likely the phone reps are clueless.) I should have had the same experience as you - a quick simple phone call to get a standard transaction done. It would be much better if it could be done online. Having people involved add so much uncertainty.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by triceratop »

My experience with Vanguard brokerage CSRs has taught me they're allowed to do quite a lot more than they know, or at least let on. Typically if you insist that what you're doing is allowed they'll ask enough people to learn that what you want really is permitted.

Good luck, and please report back.
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Re: Vanguard brokerage will not convert mutual fund to ETF

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This issue is binary!! There is no gray area. If the fund prospectus allows for the conversion, then there is no further discussion. The prospectus trumps all. This is the law. Why is there still discussion? :oops:
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by triceratop »

FIREchief wrote:This issue is binary!! There is no gray area. If the fund prospectus allows for the conversion, then there is no further discussion. The prospectus trumps all. This is the law. Why is there still discussion? :oops:
Because the prospectus uses generic language on how share conversions work and does not ever explicitly state that this is allowed.

However, e.g. the Total Bond Market Index fund prospectus has no such generic language.

The OP is on good footing if they contrast the language and is forceful, but it is not assured. Hence, the discussion.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by TropikThunder »

triceratop wrote:
FIREchief wrote:This issue is binary!! There is no gray area. If the fund prospectus allows for the conversion, then there is no further discussion. The prospectus trumps all. This is the law. Why is there still discussion? :oops:
Because the prospectus uses generic language on how share conversions work and does not ever explicitly state that this is allowed.

However, e.g. the Total Bond Market Index fund prospectus has no such generic language.

The OP is on good footing if they contrast the language and is forceful, but it is not assured. Hence, the discussion.
Also, the consensus has been that it's allowed. Most of the discussion has been on why the first rep said "No." Your comment is better directed at the rep, not at the people on this thread.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by goingup »

Jeesh. Obviously the Vanguard rep was not correct. The conversion should have been allowed and completed.

OP- just call back tomorrow and speak to someone else. If this new rep balks, ask for a supervisor. Don't hang up until you accomplish your mission. It's frustrating and time consuming but the customer service universe is full of new hires, trainees, and second-stringers. It's disappointing though not unique to Vanguard. :|
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

After a couple more phone calls, and ongoing confusion, I may hear something tomorrow. I really didn't expect this at all. I expected a quick phone call to do a simple routine transaction.

I realize it's not just Vanguard, but maybe they could have a new slogan, in keeping with their nautical theme:

Vanguard - where our customer service representatives are all at sea!
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by abuss368 »

SpringMan wrote:This is not new, Vanguard never would allow converting bond index funds to their corresponding ETFs. It was only stock funds Vanguard allowed. It still does allow stock funds as far as I know.
I did not know this. Only bonds.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by Watty »

I would keep a close eye on your cost basis information just to make sure that gets converted correctly.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

abuss368 wrote:
SpringMan wrote:This is not new, Vanguard never would allow converting bond index funds to their corresponding ETFs. It was only stock funds Vanguard allowed. It still does allow stock funds as far as I know.
I did not know this. Only bonds.
It's not true. Most bond funds are allowed. Only 4 bond funds are disallowed.

However it seems that the CSRs were unaware that there was even such a thing as MF to ETF conversion, let alone being clear about which funds were allowed. They were also confused by funds with similar names.

Watty wrote:I would keep a close eye on your cost basis information just to make sure that gets converted correctly.
Absolutely. Even before this experience, that was something I planned to check carefully. Presumably it's software driven, so if there was glitch it would have been seen before.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by JDDS »

*3!4!/5! wrote:After a couple more phone calls, and ongoing confusion, I may hear something tomorrow. I really didn't expect this at all. I expected a quick phone call to do a simple routine transaction.

I'm sorry this happened to you. Perhaps it is not such a routine request though...I bet there would have been less confusion. Here's hoping you've reached the right person to get it done.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by jhfenton »

SpringMan wrote:
alex345 wrote:You can sell the mutual fund and buy the ETF shares the same day. The mutual fund sell will settle (T+1) before the ETF purchase will (T+3) am I right?
You can't do this unless you have cash to buy the ETF sitting in your settlement account, or maybe if you have a margin account where you can borrow the cash. You also need to purchase ETFs in integer shares. Conversion of the mutual fund to the ETF will result in fractional shares. The big advantage of conversion is it is not a taxable event. Selling and buying will be a taxable event if done in a taxable account.
This has not been my experience on the new combined brokerage platform. We have 5 Vanguard accounts: 1 taxable, 2 Roth, 2 rollover IRA. None are margin. I buy ETFs (T+3 settlement) without cash present on a regular basis in at least 4 of the accounts. I buy CDs (T+3) and treasuries (T+1) without cash present on a regular basis. I can cover the trade by the settlement date by contributing cash or entering a mutual fund sale order to generate the cash.

I also, on many occasions, have sold ETFs (T+3) and immediately entered mutual funds orders (T+1) with the proceeds. If it's a margin account, they will indeed ding you for two days of margin interest. In a cash account (taxable or retirement), they simply float the difference in settlement. (Our taxable account was originally a margin account, but the system had a glitch that prevented successful inter-account transfers from margin accounts to cash accounts, so we "de-margined" the taxable account.)
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by SpringMan »

jhfenton wrote:
SpringMan wrote:
alex345 wrote:You can sell the mutual fund and buy the ETF shares the same day. The mutual fund sell will settle (T+1) before the ETF purchase will (T+3) am I right?
You can't do this unless you have cash to buy the ETF sitting in your settlement account, or maybe if you have a margin account where you can borrow the cash. You also need to purchase ETFs in integer shares. Conversion of the mutual fund to the ETF will result in fractional shares. The big advantage of conversion is it is not a taxable event. Selling and buying will be a taxable event if done in a taxable account.
This has not been my experience on the new combined brokerage platform. We have 5 Vanguard accounts: 1 taxable, 2 Roth, 2 rollover IRA. None are margin. I buy ETFs (T+3 settlement) without cash present on a regular basis in at least 4 of the accounts. I buy CDs (T+3) and treasuries (T+1) without cash present on a regular basis. I can cover the trade by the settlement date by contributing cash or entering a mutual fund sale order to generate the cash.

I also, on many occasions, have sold ETFs (T+3) and immediately entered mutual funds orders (T+1) with the proceeds. If it's a margin account, they will indeed ding you for two days of margin interest. In a cash account (taxable or retirement), they simply float the difference in settlement. (Our taxable account was originally a margin account, but the system had a glitch that prevented successful inter-account transfers from margin accounts to cash accounts, so we "de-margined" the taxable account.)
My experience was prior to having accounts converted to VG Brokerage accounts so I could be wrong now I have been converted. I have sold ETFs (T+3) and immediately bought mutual funds (T+1) with the proceeds. Going the other direction, I see no solution that allows the proceeds to be fully invested because ETFs must be purchased in integer share numbers.
Best Wishes, SpringMan
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jhfenton
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by jhfenton »

SpringMan wrote:
jhfenton wrote:
SpringMan wrote:
alex345 wrote:You can sell the mutual fund and buy the ETF shares the same day. The mutual fund sell will settle (T+1) before the ETF purchase will (T+3) am I right?
You can't do this unless you have cash to buy the ETF sitting in your settlement account, or maybe if you have a margin account where you can borrow the cash. You also need to purchase ETFs in integer shares. Conversion of the mutual fund to the ETF will result in fractional shares. The big advantage of conversion is it is not a taxable event. Selling and buying will be a taxable event if done in a taxable account.
This has not been my experience on the new combined brokerage platform. We have 5 Vanguard accounts: 1 taxable, 2 Roth, 2 rollover IRA. None are margin. I buy ETFs (T+3 settlement) without cash present on a regular basis in at least 4 of the accounts. I buy CDs (T+3) and treasuries (T+1) without cash present on a regular basis. I can cover the trade by the settlement date by contributing cash or entering a mutual fund sale order to generate the cash.

I also, on many occasions, have sold ETFs (T+3) and immediately entered mutual funds orders (T+1) with the proceeds. If it's a margin account, they will indeed ding you for two days of margin interest. In a cash account (taxable or retirement), they simply float the difference in settlement. (Our taxable account was originally a margin account, but the system had a glitch that prevented successful inter-account transfers from margin accounts to cash accounts, so we "de-margined" the taxable account.)
My experience was prior to having accounts converted to VG Brokerage accounts so I could be wrong now I have been converted. I have sold ETFs (T+3) and immediately bought mutual funds (T+1) with the proceeds. Going the other direction, I see no solution that allows the proceeds to be fully invested because ETFs must be purchased in integer share numbers.
You are absolutely correct about buying fractional shares of ETFs. (Those are only available through dividend reinvestment.) I was merely referring to the differences in settlement dates. Vanguard is surprisingly liberal about differences in those now--and in allowing you to buy ETFs first and fund second, even in retirement accounts.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by Doc »

jhfenton wrote:Vanguard is surprisingly liberal about differences in those now--and in allowing you to buy ETFs first and fund second, even in retirement accounts.
I believe they are just complying with brokerage industry standards (SEC requirements?)
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by jhfenton »

Doc wrote:
jhfenton wrote:Vanguard is surprisingly liberal about differences in those now--and in allowing you to buy ETFs first and fund second, even in retirement accounts.
I believe they are just complying with brokerage industry standards (SEC requirements?)
We had the same 5 accounts with TD Ameritrade for nearly 20 years, until we transferred them to Vanguard a year ago, and we could never purchase an ETF in a retirement account and fund it after the fact with a mutual fund sale or bank transfer. (I don't know about a taxable, non-margin account, because our taxable account had had margin for many years. I never used it, except incidentally.)
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Archie Sinclair
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by Archie Sinclair »

I think we need to look deeper than the prospectus, at a long document called the Statement of Additional Information (SAI). SAIs are available on the webpage of each fund through the link "View prospectus and reports." Funds are grouped into several trusts, and each trust has an SAI. Below is language from SAIs that shows that mutual fund-to-ETF conversions are not allowed for Total Bond but are allowed for Short-Term Corporate Bond.

[quote="SAI for "Vanguard Bond Index Funds" (the trust that includes Vanguard Total Bond Market Index Fund)"]Conversion Rights. Shareholders of each Fund may convert their shares into another class of shares of the same Fund upon the satisfaction of any then applicable eligibility requirements as described in the Fund’s current prospectus. Shareholders may not convert into or out of a Fund’s ETF Shares."[/quote]
https://personal.vanguard.com/pub/Pdf/s ... 2210111845

[quote="SAI for "Vanguard Scottsdale Funds" (the trust that includes Vanguard Short-Term Corporate Bond Index Fund)"]Owners of conventional shares (i.e., not exchange-traded shares) issued by an ETF Fund may convert those shares to ETF Shares of equivalent value of the same Fund.[/quote]
https://personal.vanguard.com/pub/Pdf/s ... 2210111123
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by livesoft »

Archie Sinclair wrote:I think we need to look deeper than the prospectus, ....
I don't think we need to look deeper, but the managers of Vanguard customer service reps do need to look deeper. :)
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by Doc »

jhfenton wrote:
Doc wrote:
jhfenton wrote:Vanguard is surprisingly liberal about differences in those now--and in allowing you to buy ETFs first and fund second, even in retirement accounts.
I believe they are just complying with brokerage industry standards (SEC requirements?)
We had the same 5 accounts with TD Ameritrade for nearly 20 years, until we transferred them to Vanguard a year ago, and we could never purchase an ETF in a retirement account and fund it after the fact with a mutual fund sale or bank transfer. (I don't know about a taxable, non-margin account, because our taxable account had had margin for many years. I never used it, except incidentally.)
Schwab also allows the buy ETF first in ROTH. Just get warning.

Does anyone else have info on other brokers?
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*3!4!/5!
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

Update: The Good, The Bad and The Ugly.


The Bad: I tried calling "Vanguard's ETF hotline" 1-866-499-8473 a few times to do this conversion. It seemed the reps didn't know an ETF from a bar of soap, and were stumped by the concept of ETF conversion. They'd consult a more experienced colleague and come back with "you can't do this, you have to sell then wait then buy".

The Ugly: After trying HUCA (hang up call again) a few times, I followed the advice here to stand my ground and insist that they do it. Finally got someone knowledgeable sounding on the line, but then they proceeded to interrogate me as if I were engaging in some nefarious activity. Yikes!

The Good: I realized there was a different number to call 1-800-499-9829. The call was answered quickly, by a very professional rep who immediately understood what I wanted, confirmed that VSCSX to VCSH is allowed (not one of the four disallowed bond funds), quickly did what they needed to do on their computer, and then ran through several informative verbal disclosures about the process. All done in a few minutes and totally professional and pleasant (just like "dodecahedron" described above).
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by livesoft »

Congratulations. I am glad you got this taken care of.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by goingup »

Excellent! So glad you got this done, and so sorry it was so hard. As a longtime customer and Vanguard enthusiast, these tales of bad customer service pain me.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by *3!4!/5! »

I went through two days of hell trying to do a simple transaction. I'm not happy about this at all. At least I know the good phone number now, so hopefully can avoid this in the future.

I realize this can happen in almost any organization. I've had just as bad at TIAA and much much worse at Fidelity.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by livesoft »

Sorry, I have to ask: Was it really hell? C'mon, really? I didn't think I was that bad on getting you to work through this.

This article is pertinent: http://www.nytimes.com/2014/07/06/fashi ... trage.html Enjoy!
Ultimately, Internet outrage is the milquetoast cousin to direct action, a way to protest by tapping and clicking rather than boycotting and marching. It is a noble endeavor to become incensed about a cause and risk arrest or toil without acclamation for one’s deeply held beliefs. Less honorable is joining a digital pile-on as a means of propping up one’s ego, even if it comes in the form of entertaining zings.
I'm guilty, too.
Last edited by livesoft on Thu Sep 08, 2016 5:48 pm, edited 3 times in total.
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Re: Vanguard brokerage will not convert mutual fund to ETF

Post by FIREchief »

livesoft wrote:Sorry, I have to ask: Was it really hell? C'mon, really? I didn't think I was that bad on getting you to work through this.
Of course not! However, in terms of dealing with a financial institution who has "our money" but doesn't seem to understand their own rules, it is a pain in the......butt.

Liberating my TMI Admiral shares via this two-step (convert to ETF, xfer ETF in kind to a real brokerage) was met with some of the same challenges that the OP described. At one point I got the distinct impression that VG understood exactly what I was doing, and why I was doing it, but simply didn't want to be all that helpful because it was $$$ leaving VG. :annoyed
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