Why is Vanguard switching all accounts to brokerage accounts?

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Doc
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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by Doc » Fri Jan 05, 2018 2:13 pm

RustyShackleford wrote:
Fri Jan 05, 2018 1:27 pm
Some minor annoyances, like the "settlement fund" which sometimes but not always get swept into Prime Money Mkt (which I use for my cash there).
Depends what the meaning of "there" is.
Vanguard wrote:Our Federal Money Market Fund**—which also seeks to maintain a stable $1 NAV—is now the only fund that can be used to settle brokerage trades. The fund isn't subject to the liquidity fee or redemption gate requirements.
https://investor.vanguard.com/mutual-fu ... et-reform/

I didn't think you should be seeing automatic "sweeps" to Prime Money Market anymore.
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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by RustyShackleford » Fri Jan 05, 2018 4:09 pm

Doc wrote:
Fri Jan 05, 2018 2:13 pm
RustyShackleford wrote:
Fri Jan 05, 2018 1:27 pm
Some minor annoyances, like the "settlement fund" which sometimes but not always get swept into Prime Money Mkt (which I use for my cash there).
Depends what the meaning of "there" is.
Vanguard.
Vanguard wrote:Our Federal Money Market Fund**—which also seeks to maintain a stable $1 NAV—is now the only fund that can be used to settle brokerage trades. The fund isn't subject to the liquidity fee or redemption gate requirements.
https://investor.vanguard.com/mutual-fu ... et-reform/

I didn't think you should be seeing automatic "sweeps" to Prime Money Market anymore.
I checked that link, and it wasn't obvious why.

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Doc
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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by Doc » Fri Jan 05, 2018 5:15 pm

RustyShackleford wrote:
Fri Jan 05, 2018 4:09 pm
Vanguard wrote:
Our Federal Money Market Fund**—which also seeks to maintain a stable $1 NAV—is now the only fund that can be used to settle brokerage trades. The fund isn't subject to the liquidity fee or redemption gate requirements.
https://investor.vanguard.com/mutual-fu ... et-reform/

I didn't think you should be seeing automatic "sweeps" to Prime Money Market anymore.
I checked that link, and it wasn't obvious why.
It has to do with the new SEC regs coming from the Lehman crisis. Click on some of the links on the reference page.

for example:
Understanding liquidity fees & gates
Liquidity fees and gates are tools to help money market fund managers keep the funds stable during times of extreme market duress. Under the rules:

A fund may impose a fee of up to 2% on redemptions if a fund's weekly liquid assets fall below 30% of its total assets.
A fund must impose a 1% fee on redemptions (with the option of imposing a fee of up to 2%) if a fund's weekly liquid assets fall below 10% of its total assets—unless the fund's board determines a fee would not be in the fund's best interest
I think "a fund must impose a fee" is the key issue. Imposing a redemption fee on a settlement fund would be a nightmare. Different MM funds have different rules. Prime MM falls into the "must" group I guess because of it having corporate securities. But the Federal MM fund does not because it is all guaranteed by the Guv. To avoid catastrophes Vg decided to change their settlement MM fund to those funds less like to cause problems.

FWIW Schwab is using another approach by requiring settlement funds to be in FDIC deposits at Schwab Bank in the future.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by senex » Tue Jan 09, 2018 5:57 pm

goshenBogle, congrats on winning that battle. If enough of us stick together I'm hopeful our legacy accounts will be safe indefinitely. For what it's worth, Vanguard told me (I called today) that there would be no forcible conversions. I'm trying to get it in writing. :)

I can't say why they're doing it. This thread has several reasonable hypotheses.

The people suggesting that the brokerage is equally-good-or-better are, I think, mostly speaking out of well-intentioned ignorance. There are certainly people for which the conversion provides benefits: new features or consolidation. But there are legitimate downsides that haven't been well-summarized yet. I'm not talking about transitional glitches and feature mismatches -- which are temporary technical issues that will be fixed in good time. I'm talking about long-term psychological and regulatory disadvantages of the brokerage accounts verses mutual fund accounts:
  • Asset Safety -- mutual fund accounts are held in trust that is safe from bankruptcy of both Vanguard and the custodian (see Investment Company Act of 1940). That is a huge level of safety. A brokerage that goes bankrupt can theoretically lose all your shares above the SIPC $500k. Vanguard has additional insurance from Lloyd's, but the text on their website is not clearly written or reassuring.
  • Paradox of Choice -- having more options increases anxiety and can lead to worse decisions. Brokerage accounts have more options.
  • Industry Employees -- employees in the financial industry may (a) be prohibited from having an external brokerage, or (b) be required to send brokerage statements to their employer, which creates a privacy issue. Mutual fund accounts have no such restrictions.
  • Lack of Annual Statements -- mutual fund companies provide a year-end statement in print (I'm not sure if this is required by ICA1940 or some other regulation, but it seems universal). Brokerages typically do not send a year-end statement, and sometimes send no statements at all -- which makes long-term record keeping very difficult.
  • Late Tax Forms -- mutual fund 1099s generally arrive quite early (Jan - mid Feb) and are correct the first time. Brokerage 1099s typically arrive later (Feb - Mar) and are frequently incorrect and thus amended as late as April. Also, brokerage 1099s are visually more complicated and difficult to parse. I don't know the source of the difference (the custodian issue may vastly simply mutual fund accounting?) -- but in decades of doing taxes it seems remarkably consistent (mutual funds = early & correct; brokerages = late & incorrect)

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by RustyShackleford » Tue Jan 09, 2018 6:13 pm

senex wrote:
Tue Jan 09, 2018 5:57 pm
b
  • Lack of Annual Statements -- mutual fund companies provide a year-end statement in print (I'm not sure if this is required by ICA1940 or some other regulation, but it seems universal). Brokerages typically do not send a year-end statement, and sometimes send no statements at all -- which makes long-term record keeping very difficult.
My new Vanguard brokerage account has been sending statements every month. But it appears that they will not send a statement showing the entire year's transactions, as the mutual fund account used to do. My solution is simply to go to the "View Transactions" tab, set a custom date range of Jan 1 through Dec 31 of the previous year (why they don't have a "previous year" option is a mystery), and export a CSV file which I then suck into an Excel spreadsheet. This better than the year-end summary in a way, because you can sort it in various ways (by date, by holding), and it's therefore just as good for long-term record keeping.

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by cb474 » Tue Jan 09, 2018 10:38 pm

I don't think anyone mentioned this yet in this thread. Another feature lacking in the brokerage accounts is that you cannot do automatic exchanges between funds, only automatic purchases (from your bank account) and sales.

When Vanguard bugged me about switching a year ago, I thought this was a feature they would eventually provide. But they haven't, so now I'm assuming they do not intend to allow this feature in brokerage accounts.

Anyway, I ignored the request that I switch and eventually they stopped bugging me.

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by wander » Tue Jan 09, 2018 11:02 pm

goshenBogle wrote:
Fri Dec 08, 2017 7:56 am
We fought hard and won - Vanguard agreed to keep our joint accounts as legacy - not brokerage - accounts since we have been with Vanguard over 30 years and have millions with them. We do not like the way Vanguard handles brokerage accounts. We had one brokerage account and every quarter the account statements consistently had errors that required multiple phone calls to resolve. Plus because we have multiple Vanguard mutual funds the brokerage statement design was hard to work with.

So, why does Vanguard want to switch all accounts to brokerage? What is the advantage for them? And why won't they give new customers the option of not having brokerage accounts?
Why did you have to fight? We have seen the upgrade button but left it alone and Vanguard didn't change anything to our joint account.

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by RustyShackleford » Sun Jan 14, 2018 5:25 pm

RustyShackleford wrote:
Tue Jan 09, 2018 6:13 pm
senex wrote:
Tue Jan 09, 2018 5:57 pm
b
  • Lack of Annual Statements -- mutual fund companies provide a year-end statement in print (I'm not sure if this is required by ICA1940 or some other regulation, but it seems universal). Brokerages typically do not send a year-end statement, and sometimes send no statements at all -- which makes long-term record keeping very difficult.
My new Vanguard brokerage account has been sending statements every month. But it appears that they will not send a statement showing the entire year's transactions, as the mutual fund account used to do. My solution is simply to go to the "View Transactions" tab, set a custom date range of Jan 1 through Dec 31 of the previous year (why they don't have a "previous year" option is a mystery), and export a CSV file which I then suck into an Excel spreadsheet. This better than the year-end summary in a way, because you can sort it in various ways (by date, by holding), and it's therefore just as good for long-term record keeping.
BTW, I just noticed that the December 2017 statement for my brokerage account is titled "December 31, 2017, year-to-date statement". But it's not; it's only for December. I wonder if they meant it to contain all the year's transactions (like the mutual fund EOY statement) but messed up ?

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by Finridge » Sun Jan 14, 2018 5:39 pm

For us, the change has been all downsides and no upsides. Or if there are any upsides, I haven't noticed them yet. Getting anything done takes longer. There was a transfer that in the past I would have been able to do myself online. Because of the "upgrade" this wasn't possible. It took multiple phone calls over multiple days. And they never to it to where it worked online. They had to do it manually. They said this was because of system changes that were part of it being made into a brokerage account. There have been other problems also, including account statements not showing all account activity.

In fact, these issues prompted me to open an account at Fidelity and move over some of our portfolio. Not all of it--we're playing both sides of the fence for now.

In setting up the new account, we encountered multiple "glitches" in the Fidelity system--so it turns out that the grass isn't always greener on the other side of the fence. Or maybe it is greener, but still not as green as we were hoping.

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Doc
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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by Doc » Sun Jan 14, 2018 5:41 pm

Every Saturday morning I download all my transaction data from 3 brokers and 2 banks to my financial software. I have no need for a year to date or qtr to date or even a monthly statement. I don't see an issue here.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by jebmke » Sun Jan 14, 2018 5:47 pm

RustyShackleford wrote:
Sun Jan 14, 2018 5:25 pm
BTW, I just noticed that the December 2017 statement for my brokerage account is titled "December 31, 2017, year-to-date statement". But it's not; it's only for December. I wonder if they meant it to contain all the year's transactions (like the mutual fund EOY statement) but messed up ?
One of the unfortunate characteristics of their brokerage statements is the lack of cumulative transaction data. This has been a feature for a long time - well before the upgrade season started. It is a real drawback - means you have to save the monthly brokerage statements.
When you discover that you are riding a dead horse, the best strategy is to dismount.

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by Mel Lindauer » Sun Jan 14, 2018 6:14 pm

The529guy wrote:
Sun Dec 10, 2017 12:41 pm
I can’t seem to use mobile check deposit after converting to brokerage. Sad.
Mobile check deposit is one former feature that was lost in the "upgrade" to VBS. (There are more.) This is sad indeed.
Best Regards - Mel | | Semper Fi

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by Mel Lindauer » Sun Jan 14, 2018 6:20 pm

RustyShackleford wrote:
Sun Jan 14, 2018 5:25 pm
RustyShackleford wrote:
Tue Jan 09, 2018 6:13 pm
senex wrote:
Tue Jan 09, 2018 5:57 pm
b
  • Lack of Annual Statements -- mutual fund companies provide a year-end statement in print (I'm not sure if this is required by ICA1940 or some other regulation, but it seems universal). Brokerages typically do not send a year-end statement, and sometimes send no statements at all -- which makes long-term record keeping very difficult.
My new Vanguard brokerage account has been sending statements every month. But it appears that they will not send a statement showing the entire year's transactions, as the mutual fund account used to do. My solution is simply to go to the "View Transactions" tab, set a custom date range of Jan 1 through Dec 31 of the previous year (why they don't have a "previous year" option is a mystery), and export a CSV file which I then suck into an Excel spreadsheet. This better than the year-end summary in a way, because you can sort it in various ways (by date, by holding), and it's therefore just as good for long-term record keeping.
BTW, I just noticed that the December 2017 statement for my brokerage account is titled "December 31, 2017, year-to-date statement". But it's not; it's only for December. I wonder if they meant it to contain all the year's transactions (like the mutual fund EOY statement) but messed up ?
This is another feature previously available that got lost in the "upgrade" to VBS. Each month's statement claims to be YTD, but it's not; rather, it's just a monthly statement.

As a result, we have to keep an entire year's worth of monthly statements instead of just one final December YTD as we did previous to the "upgrade" to VBS.
Best Regards - Mel | | Semper Fi

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by Nowizard » Sun Jan 14, 2018 6:28 pm

Ours have apparently not been switched yet since we have not received any notice. Will the change mean you can purchase ETF's and stocks through the account? We have never purchased a stock or ETF from Vanguard and have never completed any forms, if required, that would allow trades. Is this so onerous that anyone has moved accounts?

Tim

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by susze » Sun Jan 14, 2018 6:50 pm

I spoke with someone on the phone at VG regarding this and they are not switching or forcing people to switch. He did admit that the emails sent out did make it sound that way and they are definitely encouraging people to do it. Not that Vanguard is about getting or retaining customers but they would lose some if they forced people to. Certain professions do not allow brokerage accounts unless they are monitored

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Re: Why is Vanguard switching all accounts to brokerage accounts?

Post by midareff » Sun Jan 14, 2018 7:21 pm

I have brokerage accounts in both taxable and IRA. Nothing is in either of them as all funds are still in the prior accounts.

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