Schwab False Ad (4X Cheaper than VG)

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Alexa9
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Schwab False Ad (4X Cheaper than VG)

Post by Alexa9 » Sun Apr 23, 2017 8:20 pm

Just saw an ad by Schwab on TV that their S&P 500 Fund (ER .03) was 4x cheaper than Vanguards (.14). Don't know where they got that (maybe investor shares? which is .16). Vanguard's ETF/Admiral is .05. They are really hurting since Vanguard has been dominating lately. https://www.nytimes.com/2017/04/14/busi ... rowth.html
I am sticking with Vanguard. They have been lowering fees quickly with all the new assets.

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Re: Schwab False Ad (4X Cheaper than VG)

Post by Impromptu » Sun Apr 23, 2017 8:48 pm

Their advertisements have all of the appropriate asterisks. I invest with Schwab and TD Ameritrade. They both have very user friendly interfaces.

I would encourage every Boglehead to promote low fee index funds, even if it isn't your particular brand of index funding. Schwab, Vangard, they will give you the same results.
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Re: Schwab False Ad (4X Cheaper than VG)

Post by willthrill81 » Sun Apr 23, 2017 8:52 pm

I remember reading the fine print, and the ad was indeed accurate. The FTC would be on them in a heartbeat if it was false advertising.

Regardless, I think it's good that Vanguard still has competition in this arena. Investors are the benefited party in this race to the bottom of ERs. I'm waiting for someone to come out with a fund or ETF with a 1 basis point ER.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Schwab False Ad (4X Cheaper than VG)

Post by avalpert » Sun Apr 23, 2017 8:55 pm

Vangaurds investor class S&P 500 fund (VFINX)'s expense ratio was .14 for the most recent fiscal year according to their annual report - so no, it wasn't a false ad.

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Re: Schwab False Ad (4X Cheaper than VG)

Post by Nate79 » Sun Apr 23, 2017 9:08 pm

Alexa9 wrote:Just saw an ad by Schwab on TV that their S&P 500 Fund (ER .03) was 4x cheaper than Vanguards (.14). Don't know where they got that (maybe investor shares? which is .16). Vanguard's ETF/Admiral is .05. They are really hurting since Vanguard has been dominating lately. https://www.nytimes.com/2017/04/14/busi ... rowth.html
I am sticking with Vanguard. They have been lowering fees quickly with all the new assets.
Sounds like you need to modify your false thread title. Ironic?

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JoMoney
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Re: Schwab False Ad (4X Cheaper than VG)

Post by JoMoney » Mon Apr 24, 2017 12:36 am

Alexa9 wrote:Just saw an ad by Schwab on TV that their S&P 500 Fund (ER .03) was 4x cheaper than Vanguards (.14). Don't know where they got that (maybe investor shares? which is .16). Vanguard's ETF/Admiral is .05. They are really hurting since Vanguard has been dominating lately. https://www.nytimes.com/2017/04/14/busi ... rowth.html
I am sticking with Vanguard. They have been lowering fees quickly with all the new assets.
I don't think Vanguard has updated the prospectus or made any announcement about it, but according to the annual report the expenses were .14 and .04 for admiral shares. This is what Morningstar shows for the ER as well.
As to Schwab's add claim, "Truthful Hyperbole" is rather popular these days.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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House Blend
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Re: Schwab False Ad (4X Cheaper than VG)

Post by House Blend » Mon Apr 24, 2017 8:56 am

The new prospectus should be out this week. Not just 500 index, but several of the big VG index funds will show modest ER drops. Expect disproportionate reactions here on BH, with multiple people starting threads about the same thing.

Speaking of truthiness, here's the tracking error comparing the total return of Vanguard 500 index Admiral vs. total return of the actual index, and the same stat for the Schwab fund SWPPX over the last 5 calendar years:

Code: Select all

        VG   Schwab
2016   .03    .14
2015   .02    .10
2014   .05    .12
2013   .06    .11
2012   .04    .09
An average of 0.04% vs. 0.11%. So in practice, VG is more than 2.5x cheaper.

Truthiness Part II: Anyone with an ounce of quantitative sense understands that differences between ERs are what matters, not ratios. (Or more accurately, in case ERs get YUUUGE, one should compare the ratio of 1 + ER to 1 + ER.)

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Re: Schwab False Ad (4X Cheaper than VG)

Post by Constant Chaos » Mon Apr 24, 2017 9:24 am

willthrill81 wrote: I think it's good that Vanguard still has competition in this arena. Investors are the benefited party in this race to the bottom of ERs.
Agree, vanguard and Schwab have both been lowering ERs and that is a tremendous boon to investors. I do give Schwab props for having lower minimum initial investment amounts. Schwab is now making their Target Date Index funds available to anyone with $100 for .08% which is outstanding!

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Re: Schwab False Ad (4X Cheaper than VG)

Post by Doc » Mon Apr 24, 2017 9:31 am

willthrill81 wrote:Regardless, I think it's good that Vanguard still has competition in this arena. Investors are the benefited party in this race to the bottom of ERs. I'm waiting for someone to come out with a fund or ETF with a 1 basis point ER.
Vanguard can never win the race to the bottom ironically because they started the race in the beginning with their "owned by the fund shareholders" business structure in the first place. The Schwab's, CD Ameritrade's, Fido's etc have business structures that allows for lost leaders. Vanguard's does not. Even Vanguard's increase in AUM might not help in the long run because they have to (or should have to) add more CSR's to their staff. If they don't add staff those new assets will start going to those other firms when it becomes apparent that Vg is no longer winning the race all the time.
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Re: Schwab False Ad (4X Cheaper than VG)

Post by TX_Man » Mon Apr 24, 2017 9:32 am

The negative attitude some on this forum towards Schwab is really interesting.

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Re: Schwab False Ad (4X Cheaper than VG)

Post by triceratop » Mon Apr 24, 2017 9:37 am

Doc wrote:
willthrill81 wrote:Regardless, I think it's good that Vanguard still has competition in this arena. Investors are the benefited party in this race to the bottom of ERs. I'm waiting for someone to come out with a fund or ETF with a 1 basis point ER.
Vanguard can never win the race to the bottom ironically because they started the race in the beginning with their "owned by the fund shareholders" business structure in the first place. The Schwab's, CD Ameritrade's, Fido's etc have business structures that allows for lost leaders. Vanguard's does not. Even Vanguard's increase in AUM might not help in the long run because they have to (or should have to) add more CSR's to their staff. If they don't add staff those new assets will start going to those other firms when it becomes apparent that Vg is no longer winning the race all the time.
Just to add, too, that I doubt Schwab matters terribly much as "competition" to Vanguard. Why should it? Vanguard isn't operating for profit so competition has to be defined along some other axis. Like: lower fees.
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Re: Schwab False Ad (4X Cheaper than VG)

Post by Doc » Mon Apr 24, 2017 10:31 am

triceratop wrote:Just to add, too, that I doubt Schwab matters terribly much as "competition" to Vanguard. Why should it? Vanguard isn't operating for profit so competition has to be defined along some other axis. Like: lower fees.
I don't get the point here.

We usually rank companies by profit or revenues. Since we rule out profit for Vanagurd lower fees (prices) or better service is just a few of the methods that the company uses to get those profits or revenues. In would be ironic for an investment firm whose costumers are driven by a profit motive to claim it was the "best" because it was the most "altruistic". :idea:

Low fees is a marketing tool not an end in itself and many other brokers are starting to use that tool.
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Re: Schwab False Ad (4X Cheaper than VG)

Post by triceratop » Mon Apr 24, 2017 11:17 am

Doc wrote:
triceratop wrote:Just to add, too, that I doubt Schwab matters terribly much as "competition" to Vanguard. Why should it? Vanguard isn't operating for profit so competition has to be defined along some other axis. Like: lower fees.
I don't get the point here.

We usually rank companies by profit or revenues. Since we rule out profit for Vanagurd lower fees (prices) or better service is just a few of the methods that the company uses to get those profits or revenues. In would be ironic for an investment firm whose costumers are driven by a profit motive to claim it was the "best" because it was the most "altruistic". :idea:

Low fees is a marketing tool not an end in itself and many other brokers are starting to use that tool.
Truthfully I don't know Vanguard's immediate aims: how does it help passive investors to grow the AUM of their active funds?

I do know that competition is only likely to make Vanguard's fees decrease slower: since they operate at-cost any assets going to Schwab don't serve to drive down prices for all in Vanguard funds.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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Re: Schwab False Ad (4X Cheaper than VG)

Post by Doc » Mon Apr 24, 2017 11:43 am

triceratop wrote:Truthfully I don't know Vanguard's immediate aims: how does it help passive investors to grow the AUM of their active funds?
I don't know what any of their aims are - immediate or otherwise. They basically are a not for profit so there is no profit motive. They are not a charity so their is no "fame" or sense of doing good for humanity there. One might speculate that AUM factors into management bonus but we don't know:
Bloomberg wrote:Vanguard Marketing Corporation does not have any Key Executives recorded.
https://www.bloomberg.com/research/stoc ... =217802527
Bloomberg - How Well Does Running Vanguard Pay? wrote:The company is owned by its funds, which in turn are owned by their investors. Yet Vanguard has been able to keep its own management’s pay private, including that of Chief Executive Officer Bill McNabb.
https://www.bloomberg.com/news/articles ... nguard-pay

It's all a mystery to me. :D
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Re: Schwab False Ad (4X Cheaper than VG)

Post by kolea » Mon Apr 24, 2017 12:43 pm

Non-profit seems like a squishy term. Isn't it always possible to find (or generate) sufficient expenses to balance income? Just issue some bonuses to all the execs and presto, no profit. In any event, with $4 trillion AUM, and an average ER of 0.10%, I am sure someone is making some money. I don't have a problem with that. VG is still a great company.
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Re: Schwab False Ad (4X Cheaper than VG)

Post by JoMoney » Mon Apr 24, 2017 12:55 pm

There are always principle-agent problems, and we don't really know what the "Vanguard Partnership Plan" is rewarding execs for completely, but from tid-bits I've found various places, it's supposed to be structured so as to reward for lowering costs.
http://investorplace.com/2012/06/vangua ... P46_vR97rc
https://www.bloomberg.com/news/articles ... y-vanguard
...
based largely on the total cost savings the company provides investors. Average expense ratios on Vanguard funds are compared with average ratios on rival funds, and the difference is multiplied by total assets under management.
...
Partnership Plan earnings are based on "relative fund performance, fund cost efficiency, and business results over a three-year period,"
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Schwab False Ad (4X Cheaper than VG)

Post by triceratop » Mon Apr 24, 2017 12:59 pm

kolea wrote:Non-profit seems like a squishy term. Isn't it always possible to find (or generate) sufficient expenses to balance income? Just issue some bonuses to all the execs and presto, no profit. In any event, with $4 trillion AUM, and an average ER of 0.10%, I am sure someone is making some money. I don't have a problem with that. VG is still a great company.
Are you talking about the non-profit industry as a whole, or Vanguard. :D I'm confused. :wink:
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Re: Schwab False Ad (4X Cheaper than VG)

Post by jhfenton » Mon Apr 24, 2017 1:14 pm

TX_Man wrote:The negative attitude some on this forum towards Schwab is really interesting.
I don't think the prevailing attitude toward Schwab is negative. It's just positive toward Vanguard. I applaud Schwab for reducing expenses on existing funds and starting with $100 minimums. If I were 22 and starting out, I'd probably go to Schwab.

But at this point, I am not rushing out to trade my Vanguard funds for Schwab funds. (1) The lower investment minimums don't affect me. (2) I tilt, and Schwab doesn't have low-cost funds in all of the categories. (3) I trust Vanguard to overcome a 1-3 bp advantage in expenses with better operations and incremental securities lending revenue.

I do think Vanguard needs to respond to the competition on Target Retirement funds. They are now clearly behind cost-wise. They need true Admiral Shares and true Institutional Shares of the Target Retirement funds.

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Re: Schwab False Ad (4X Cheaper than VG)

Post by willthrill81 » Mon Apr 24, 2017 1:30 pm

triceratop wrote:
kolea wrote:Non-profit seems like a squishy term. Isn't it always possible to find (or generate) sufficient expenses to balance income? Just issue some bonuses to all the execs and presto, no profit. In any event, with $4 trillion AUM, and an average ER of 0.10%, I am sure someone is making some money. I don't have a problem with that. VG is still a great company.
Are you talking about the non-profit industry as a whole, or Vanguard. :D I'm confused. :wink:
I think he's referring to non-profits in general, and I tend to agree with him. When you get down to it, all the term means is that the organization doesn't generate profits for owners. It can generate tremendous 'profits' for employees, though, and this is not an altogether rare occurrence.

I'm really not sure if Vanguard engages in this practice or not, but even if they do and I knew it, I would still do business with them.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: Schwab False Ad (4X Cheaper than VG)

Post by kolea » Mon Apr 24, 2017 1:35 pm

triceratop wrote:
kolea wrote:Non-profit seems like a squishy term. Isn't it always possible to find (or generate) sufficient expenses to balance income? Just issue some bonuses to all the execs and presto, no profit. In any event, with $4 trillion AUM, and an average ER of 0.10%, I am sure someone is making some money. I don't have a problem with that. VG is still a great company.
Are you talking about the non-profit industry as a whole, or Vanguard. :D I'm confused. :wink:
Vanguard is definitely not in the "non-profit industry" - doing so would mean filing as a 501(c)(3) with the IRS which it has not done. But my comments really were general to anyone who says he (or it) is not making a profit. If you look at 501(c)(3) filings it sometimes looks to me like "profits" are just redirected into salaries, which can be big.
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Re: Schwab False Ad (4X Cheaper than VG)

Post by triceratop » Mon Apr 24, 2017 1:37 pm

willthrill81 wrote:
triceratop wrote:
kolea wrote:Non-profit seems like a squishy term. Isn't it always possible to find (or generate) sufficient expenses to balance income? Just issue some bonuses to all the execs and presto, no profit. In any event, with $4 trillion AUM, and an average ER of 0.10%, I am sure someone is making some money. I don't have a problem with that. VG is still a great company.
Are you talking about the non-profit industry as a whole, or Vanguard. :D I'm confused. :wink:
I think he's referring to non-profits in general, and I tend to agree with him. When you get down to it, all the term means is that the organization doesn't generate profits for owners. It can generate tremendous 'profits' for employees, though, and this is not an altogether rare occurrence.

I'm really not sure if Vanguard engages in this practice or not, but even if they do and I knew it, I would still do business with them.

Yes, I was joking about this fact about the industry.
"To play the stock market is to play musical chairs under the chord progression of a bid-ask spread."

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