Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

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Paul Romano
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Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Paul Romano » Tue Sep 11, 2018 10:16 am

Vanguard Is Losing Battles on Two Fronts in Fee Wars

Barron's
https://www.barrons.com/articles/vangu ... 536663601
Vanguard is losing its crown as the king of low-cost index investing. Fidelity recently launched two index mutual funds with zero expense ratios, undercutting fees on even the cheapest Vanguard mutual fund: the Vanguard 500 Index Fund Admiral Shares (VFIAX), with an expense ratio of 0.04%.

Another battle is taking shape over investment minimums, and Vanguard is losing on that front, too. Fidelity now offers 18 index mutual funds with zero minimum investments, and they all have lower expense ratios than nearly identical Vanguard funds, many of which have $10,000 minimums.

As DeMaso points out, the Vanguard 500 Index fund and Total Stock Market Index fund (VTSAX) had combined assets of $12 billion. Vanguard reported costs of $16.8 million that year. In 2017, there was $1.3 trillion invested in those funds, and Vanguard reported costs of $551 million.

Sure, the funds have recordkeeping, shareholder reporting and other costs. But does it really cost Vanguard half a billion dollars when the company could run the same funds for less than $20 million in the early 1990s? “I don’t think that passes the smell test,” says DeMaso.

“We’re not going to comment on DeMaso’s speculation about Investor and Admiral shares,” Vanguard said in an emailed statement to Barron’s. “With that said, we will continue to lower the cost and complexity of investing as we’ve done for the past four decades, but we have no plans to engage in a loss-leader marketing strategy.”

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by UpperNwGuy » Tue Sep 11, 2018 10:33 am

Is Vanguard losing its mojo?

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by willthrill81 » Tue Sep 11, 2018 10:40 am

This is largely just a fluff piece.

There have already been very long threads discussing the first issue. My take on it is that a potential savings of .04% is certainly good but not the whole story. Vanguard has demonstrated that they tend to be superior to most other index fund providers in minimizing tracking error, for instance, which could easily more than make up for four basis points. Time will tell as to whether the after-fee returns of Fidelity's funds are actually better than Vanguards and by how much.

The minimum investment issue seems like a nonissue to me. Most people just getting started with investing do so in a 401k, where minimums do not apply in the first place. Beyond that, having to sit on the sidelines until one reaches $10k to invest isn't going to move the needle for anyone. Getting their savings rate up will should be their primary focus. I know of a couple of people who believe that people should not invest at all until they have tens of thousands in cash saved, and I see some value in that.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by CABob » Tue Sep 11, 2018 10:45 am

UpperNwGuy wrote:
Tue Sep 11, 2018 10:33 am
Is Vanguard losing its mojo?
I don't think so. Vanguard's ERs are low enough so that if a competitor beats them by a few basis points it is not very significant.
As far as fund minimums, I'm not sure it would be that much of a factor and higher fund minimums is one of the factors that keeps the ER low.
Bob

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by GammaPoint » Tue Sep 11, 2018 10:55 am

As has been noted many times on this forum before, Vanguard is also losing the fee battle in the solo 401k space, since they've long prevented individuals from holding admiral or ETFs there. This has caused lots of solo 401ks to go to Fidelity instead. I'm likely to move my wife's solo 401k to Fidelity next year as a result of that myself. Having said this, I still keep the rest of our investments at Vanguard because I trust the business model of the company and Fidelity saving a few basis points over my ETF/admiral funds in the rest of our accounts is not a big deal to me.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by noraz123 » Tue Sep 11, 2018 10:57 am

As DeMaso points out, the Vanguard 500 Index fund and Total Stock Market Index fund (VTSAX) had combined assets of $12 billion. Vanguard reported costs of $16.8 million that year. In 2017, there was $1.3 trillion invested in those funds, and Vanguard reported costs of $551 million.

Sure, the funds have recordkeeping, shareholder reporting and other costs. But does it really cost Vanguard half a billion dollars when the company could run the same funds for less than $20 million in the early 1990s? “I don’t think that passes the smell test,” says DeMaso.

It seems that Vanguard cut its expense ratio by about 70% (from 0.14% to 0.042% if my math is correct). Passes my smell test.

If Vanguard were losing the battle, they'd not have grown assets from $12B to $1.3T. Rather, Fidelity was losing the battle, with much of the passive investment dollars flowing to Vanguard that Fidelity had to offer these "no fee" mutual funds.

EDIT: Typo.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by sport » Tue Sep 11, 2018 10:59 am

The 10K minimum is not accurate. In most cases, the minimum is 3K. 3K will get you investor class shares. When the account reaches 10K, it can be converted to admiral class shares. The difference in ER does not amount to much (in dollars) for amounts under 10K.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by willthrill81 » Tue Sep 11, 2018 10:59 am

GammaPoint wrote:
Tue Sep 11, 2018 10:55 am
As has been noted many times on this forum before, Vanguard is also losing the fee battle in the solo 401k space, since they've long prevented individuals from holding admiral or ETFs there. This has caused lots of solo 401ks to go to Fidelity instead. I'm likely to move my wife's solo 401k to Fidelity next year as a result of that myself. Having said this, I still keep the rest of our investments at Vanguard because I trust the business model of the company and Fidelity saving a few basis points over my ETF/admiral funds in the rest of our accounts is not a big deal to me.
Your statement seems to assume that Vanguard is losing the battle on their primary front. Given that they've been receiving more inflows than everyone else combined for quite a while now, I don't think we can say that.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by MichCPA » Tue Sep 11, 2018 11:03 am

willthrill81 wrote:
Tue Sep 11, 2018 10:40 am
This is largely just a fluff piece.

....Most people just getting started with investing do so in a 401k, where minimums do not apply in the first place. Beyond that, having to sit on the sidelines until one reaches $10k to invest isn't going to move the needle for anyone. ....
Don't most here (and other finacial sites) recommend going to a Roth IRA right after the 401k match portion? My take is that the Vanguard minimums may not affect a normal boglehead with a 6 income moving toward a 7 or 8 figure net worth, but for a family making 60k this does come into play. With a Roth IRA you would have to save for almost 6 years to hit the minimums for a three fund admiral share portfolio. Even for investor shares you would need to wait a couple of years. On top of that, if you have a 50% match on 6% in a 401k, you may only be putting 6% (3,600) into a roth IRA to get to a perfectly reasonable (for an average person) 15% savings rate. That stretches the time horizon a bit more. I want don't want to over blow this because it is a small issue over a career, but at Schwab and Fidelity it is a complete non-issue.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by willthrill81 » Tue Sep 11, 2018 11:08 am

MichCPA wrote:
Tue Sep 11, 2018 11:03 am
willthrill81 wrote:
Tue Sep 11, 2018 10:40 am
This is largely just a fluff piece.

....Most people just getting started with investing do so in a 401k, where minimums do not apply in the first place. Beyond that, having to sit on the sidelines until one reaches $10k to invest isn't going to move the needle for anyone. ....
Don't most here (and other finacial sites) recommend going to a Roth IRA right after the 401k match portion? My take is that the Vanguard minimums may not affect a normal boglehead with a 6 income moving toward a 7 or 8 figure net worth, but for a family making 60k this does come into play. With a Roth IRA you would have to save for almost 6 years to hit the minimums for a three fund admiral share portfolio. Even for investor shares you would need to wait a couple of years. On top of that, if you have a 50% match on 6% in a 401k, you may only be putting 6% (3,600) into a roth IRA to get to a perfectly reasonable (for an average person) 15% savings rate. That stretches the time horizon a bit more. I want don't want to over blow this because it is a small issue over a career, but at Schwab and Fidelity it is a complete non-issue.
Vanguard has many funds with $3k minimums. An inability to invest until reaching that point is indeed a nonissue, even for those not saving large amounts.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by triceratop » Tue Sep 11, 2018 11:08 am

MichCPA wrote:
Tue Sep 11, 2018 11:03 am
willthrill81 wrote:
Tue Sep 11, 2018 10:40 am
This is largely just a fluff piece.

....Most people just getting started with investing do so in a 401k, where minimums do not apply in the first place. Beyond that, having to sit on the sidelines until one reaches $10k to invest isn't going to move the needle for anyone. ....
Don't most here (and other finacial sites) recommend going to a Roth IRA right after the 401k match portion? My take is that the Vanguard minimums may not affect a normal boglehead with a 6 income moving toward a 7 or 8 figure net worth, but for a family making 60k this does come into play. With a Roth IRA you would have to save for almost 6 years to hit the minimums for a three fund admiral share portfolio. Even for investor shares you would need to wait a couple of years. On top of that, if you have a 50% match on 6% in a 401k, you may only be putting 6% (3,600) into a roth IRA to get to a perfectly reasonable (for an average person) 15% savings rate. That stretches the time horizon a bit more. I want don't want to over blow this because it is a small issue over a career, but at Schwab and Fidelity it is a complete non-issue.
Assuming you implement all funds in each account, which is not necessarily what anyone would do.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by willthrill81 » Tue Sep 11, 2018 11:11 am

Further, the ability to buy many ETFs for around $100 or less means that fund minimums are largely a moot point these days.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Nate79 » Tue Sep 11, 2018 11:13 am

Vanguard has been trailing Schwab and Fidelity for some time in ultra low cost ER. This is nothing new. Fidelity's zero ER funds has just brought again to the front page that other providers are beating Vanguard at their own game.

Having lowest cost funds and getting the most inflows is not the same thing. Winning at fees and winning at getting the most money from investors is two entirely different subjects.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Mike Scott » Tue Sep 11, 2018 11:13 am

Vanguard also has several funds with 1K minimum entry levels. It does not seem that Vanguard needs a lot of advertising but having a few funds at the $1 entry level may make more sense than playing with loss leader expense ratios. There might even be a place for an entry level "robot" advisor for completely new beginners.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Alexa9 » Tue Sep 11, 2018 11:29 am

This reminds me of grocery store competition with "loss leaders" to get people in the store. It is a race to the bottom and Fidelity and Schwab have no choice but to lose money to gain customers and try to make money in other areas. The strategy might work for some customers and even get Vanguard to follow suit eventually. Anyways, the competition is good for investors.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by retiredjg » Tue Sep 11, 2018 11:34 am

What does it matter?

Vanguard is what it is. Fidelity is what it is. There is plenty of business for both. Having more than one choice is a good thing.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by bligh » Tue Sep 11, 2018 11:41 am

The minimums are a complete non issue. Just buy ETFs... If you MUST own a mutual fund, they are at most, a factor in the first year or three of an investors life and after that they become irrelevant. Even then there are decent Life strategy funds with low minimums.

The expense ratio is a small issue. In a tax advantaged accounts it is simple to switch between various ETFs to lower your Expense ratio, in taxable it is simply not worth it. I expect Vanguard to come along and lower their expense ratios some more shortly. Frankly when we are dealing with 0.02, 0.03 and such expense ratios they are quite literally a rounding error.
Last edited by bligh on Tue Sep 11, 2018 11:43 am, edited 1 time in total.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by whodidntante » Tue Sep 11, 2018 11:42 am

Alexa9 wrote:
Tue Sep 11, 2018 11:29 am
This reminds me of grocery store competition with "loss leaders" to get people in the store. It is a race to the bottom and Fidelity and Schwab have no choice but to lose money to gain customers and try to make money in other areas. The strategy might work for some customers and even get Vanguard to follow suit eventually. Anyways, the competition is good for investors.
Fidelity and Schwab are profitable. I also don't think we know that a zero ER fund has to lose money.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Alexa9 » Tue Sep 11, 2018 11:53 am

whodidntante wrote:
Tue Sep 11, 2018 11:42 am
I also don't think we know that a zero ER fund has to lose money.
How would it not lose money? (other than attracting more customers)

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by willthrill81 » Tue Sep 11, 2018 11:57 am

Nate79 wrote:
Tue Sep 11, 2018 11:13 am
Having lowest cost funds and getting the most inflows is not the same thing. Winning at fees and winning at getting the most money from investors is two entirely different subjects.
They are different subjects but not entirely different. Vanguard is beating the pants off everyone else in terms of inflows because, by definition, investors believe that Vanguard is providing them with the most overall value. Having the absolute lowest cost ER is clearly not the only source of such value or such massive inflows would not be occurring.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by MichCPA » Tue Sep 11, 2018 11:58 am

triceratop wrote:
Tue Sep 11, 2018 11:08 am
MichCPA wrote:
Tue Sep 11, 2018 11:03 am
willthrill81 wrote:
Tue Sep 11, 2018 10:40 am
This is largely just a fluff piece.

....Most people just getting started with investing do so in a 401k, where minimums do not apply in the first place. Beyond that, having to sit on the sidelines until one reaches $10k to invest isn't going to move the needle for anyone. ....
Don't most here (and other finacial sites) recommend going to a Roth IRA right after the 401k match portion? My take is that the Vanguard minimums may not affect a normal boglehead with a 6 income moving toward a 7 or 8 figure net worth, but for a family making 60k this does come into play. With a Roth IRA you would have to save for almost 6 years to hit the minimums for a three fund admiral share portfolio. Even for investor shares you would need to wait a couple of years. On top of that, if you have a 50% match on 6% in a 401k, you may only be putting 6% (3,600) into a roth IRA to get to a perfectly reasonable (for an average person) 15% savings rate. That stretches the time horizon a bit more. I want don't want to over blow this because it is a small issue over a career, but at Schwab and Fidelity it is a complete non-issue.
Assuming you implement all funds in each account, which is not necessarily what anyone would do.
It would require 9,000 across two accounts to get into the three fund investor class in less than one year and you still couldn't make it work on admiral for about 3 years. Even adding the extra account doesn't really change the fact that minimums add complexity you don't see at competitors. But getting back to my point on the average person, 9,000 is 15% of 60,000, so in order to make that happen in a year with the 401k contribution in the example you would have a 21% savings rate. That isn't realistic for most people (non-Bogleheads). If Vanguard can provide ETFs in smaller increments at low cost why can't they do the same for mutual funds? I don't have a good answer to that. As I originally mentioned it is a small issue, but I don't understand why it has to be an issue at all.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Jack FFR1846 » Tue Sep 11, 2018 12:02 pm

Alexa9 wrote:
Tue Sep 11, 2018 11:53 am
whodidntante wrote:
Tue Sep 11, 2018 11:42 am
I also don't think we know that a zero ER fund has to lose money.
How would it not lose money? (other than attracting more customers)
Securities lending. Fidelity does more of it on a percentage basis than Vanguard does.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by eye.surgeon » Tue Sep 11, 2018 12:09 pm

I wouldn't be sad to see Vanguard's market share stagnate or even decrease, and I'm not so sure they'd be sad either. Growth has been painful and if you listen to JB he often implies the company has gotten too big.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by 2 Tasty » Tue Sep 11, 2018 12:26 pm

Low fees are great, but what's behind the curtain? Looking through Fidelity's website, low fees for the couple of ZERO funds are more than offset by extravagant fees on the other 300+ funds.

Bottom line, with Vanguard I don't feel like their pricing is a gimmick.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Chuck » Tue Sep 11, 2018 12:26 pm

20 to 50 years from now, will Fidelity still have zero ER funds? (What will happen to your tax basis if they don't?) Vanguard's corporate structure is a big part of choosing Vanguard.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by yousha » Tue Sep 11, 2018 12:33 pm

I do not believe folks will leave Vanguard because of the fee situation. However, I believe that hey will lose customers if they force folks to go into the brokerage platform if they choose not to.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Fclevz » Tue Sep 11, 2018 12:36 pm

Vanguard now has commission-free trading on 1,800 ETFs, so its not like nothing good is happening there.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by JamalJones » Tue Sep 11, 2018 12:39 pm

bligh wrote:
Tue Sep 11, 2018 11:41 am
The minimums are a complete non issue. Just buy ETFs... If you MUST own a mutual fund, they are at most, a factor in the first year or three of an investors life and after that they become irrelevant. Even then there are decent Life strategy funds with low minimums.

The expense ratio is a small issue. In a tax advantaged accounts it is simple to switch between various ETFs to lower your Expense ratio, in taxable it is simply not worth it. I expect Vanguard to come along and lower their expense ratios some more shortly. Frankly when we are dealing with 0.02, 0.03 and such expense ratios they are quite literally a rounding error.
Yes, I agree. And, I believe, Vanguard doesn't have to match Fidelity's ERs in order to "keep pace." Like, if they lowered Vanguard Total International Stock Index Fund Admiral Shares (VTIAX) from 0.11% to 0.07% and Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX) from 0.04% to 0.03% and then bumped down some of the other popular funds/etfs a few basis points, I'm sure that would make their customers happy and at least get them to stop considering moving their money to Fido.....
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Jags4186 » Tue Sep 11, 2018 12:49 pm

With fees so low everywhere the returns of switching are too diminshed to consider switching brokers for the sake of 3 or 4 basis points. Say someone has $100k in Vanguard 500 fund—are you really going to go through the hassle to switch to Fidelity to save 4 basis points and potentially be no better off?

If we compare Fidelity’s FUSVX 500 fund to Vanguards 500 fund VSIAX since FUSVX’s inception, VSIAX has outperformed it by $71 total since 2005 despite FUSVX having a lower expense ratio. We’re looking at tracking error at this point. Now if Fidelity wants to offer me a $500 bonus for moving $100,000 over to them, I’m more than happy to oblige.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Leif » Tue Sep 11, 2018 1:44 pm

Fclevz wrote:
Tue Sep 11, 2018 12:36 pm
Vanguard now has commission-free trading on 1,800 ETFs, so its not like nothing good is happening there.
As a Vanguard mutual fund owner I'm not sure I like that. Who is paying for all this trading? Are enough people buying Vanguard ETFs that they make up the cost of the free trading for all 1,800 ETFs? Many ETFs non-Vanguard I presume. Or am I subsidizing the cost in my ER? If I found out that I'm subsidizing day traders I would not be happy.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by dollar_elbow » Tue Sep 11, 2018 2:03 pm

Why does Vanguard impose minimums on their funds? I thought the expense ratio was supposed to cover operating costs so why bother with minimums? They could capture even more of the market without them. They could offer a third slightly more expensive class of shares for balances less than $3k or enforce the $20 per year account fee to cover the cost of small accounts and it would seem to be a win-win.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by alpine_boglehead » Tue Sep 11, 2018 2:04 pm

Portfolio Visualiser says that from January 2009 to August 2018, $10,000 invested in VTSAX grew into $40,418.

Putting this in a calculator tells us that the CDGR (compound daily growth rate) for VTSAX was about 0.04% (0.03959% to be exact). So anyone publicly complaining about 0.04% yearly expense ratio obviously has some agenda.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by dgm » Tue Sep 11, 2018 2:38 pm

For me it comes down to this:

Do I trust a for profit corporation to look after my interests better?

Or do I trust a fundholder owned corporation to look after my interests better?

TIme and again, I have chosen a company because it "looked like a better deal no matter how you slice it" only to find that in subsequent years, they managed to sneak various fees in or do other shenanigans to get their pound of flesh while I was looking away.

With Vanguard, I don't worry about looking away.

I suspect that the lower fees translate into lower performance for FIdelity funds (funds don't track the index EXACTLY), and that lower minimums are a hidden cost paid for by lower performance for the funds as well.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by munemaker » Tue Sep 11, 2018 2:50 pm

Personally, I would not say they are losing any battle until there are outflows to other lower cost providers. As far as I know, that isn't the case, at least not yet.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by willthrill81 » Tue Sep 11, 2018 2:57 pm

MichCPA wrote:
Tue Sep 11, 2018 11:58 am
triceratop wrote:
Tue Sep 11, 2018 11:08 am
MichCPA wrote:
Tue Sep 11, 2018 11:03 am
willthrill81 wrote:
Tue Sep 11, 2018 10:40 am
This is largely just a fluff piece.

....Most people just getting started with investing do so in a 401k, where minimums do not apply in the first place. Beyond that, having to sit on the sidelines until one reaches $10k to invest isn't going to move the needle for anyone. ....
Don't most here (and other finacial sites) recommend going to a Roth IRA right after the 401k match portion? My take is that the Vanguard minimums may not affect a normal boglehead with a 6 income moving toward a 7 or 8 figure net worth, but for a family making 60k this does come into play. With a Roth IRA you would have to save for almost 6 years to hit the minimums for a three fund admiral share portfolio. Even for investor shares you would need to wait a couple of years. On top of that, if you have a 50% match on 6% in a 401k, you may only be putting 6% (3,600) into a roth IRA to get to a perfectly reasonable (for an average person) 15% savings rate. That stretches the time horizon a bit more. I want don't want to over blow this because it is a small issue over a career, but at Schwab and Fidelity it is a complete non-issue.
Assuming you implement all funds in each account, which is not necessarily what anyone would do.
It would require 9,000 across two accounts to get into the three fund investor class in less than one year and you still couldn't make it work on admiral for about 3 years. Even adding the extra account doesn't really change the fact that minimums add complexity you don't see at competitors. But getting back to my point on the average person, 9,000 is 15% of 60,000, so in order to make that happen in a year with the 401k contribution in the example you would have a 21% savings rate. That isn't realistic for most people (non-Bogleheads). If Vanguard can provide ETFs in smaller increments at low cost why can't they do the same for mutual funds? I don't have a good answer to that. As I originally mentioned it is a small issue, but I don't understand why it has to be an issue at all.
Again, one can buy almost any ETF for under $200.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by TwstdSista » Tue Sep 11, 2018 3:09 pm

There are many people who prefer mutual funds and do not understand ETFs. Saying "just buy the ETF" is not going to work for them, you're asking them to do something new and people don't like change. If I'm one of these people (and I am) and my choice is between Vanguard and ETFs or Fidelity mutual funds with no minimums AND lower fees, then Fidelity is going to win almost every time.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by GMacD » Tue Sep 11, 2018 3:31 pm

willthrill81 wrote:
Tue Sep 11, 2018 10:40 am
This is largely just a fluff piece.

There have already been very long threads discussing the first issue. My take on it is that a potential savings of .04% is certainly good but not the whole story. Vanguard has demonstrated that they tend to be superior to most other index fund providers in minimizing tracking error, for instance, which could easily more than make up for four basis points. Time will tell as to whether the after-fee returns of Fidelity's funds are actually better than Vanguards and by how much.

The minimum investment issue seems like a nonissue to me. Most people just getting started with investing do so in a 401k, where minimums do not apply in the first place. Beyond that, having to sit on the sidelines until one reaches $10k to invest isn't going to move the needle for anyone. Getting their savings rate up will should be their primary focus. I know of a couple of people who believe that people should not invest at all until they have tens of thousands in cash saved, and I see some value in that.

[+1] Zero ER for a couple of funds is loss leader bait. Fidelity should compare its weighted ER across all of its funds to the same for Vanguard. Besides, there should be a minimum required investment for non IRA accounts. Low balance accounts are virtually pointless and the maintenance expense has to be coming from somewhere. I'm sure these expenses are not covered via Abby Johnson's piggy bank.]

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by JackoC » Tue Sep 11, 2018 3:37 pm

Chuck wrote:
Tue Sep 11, 2018 12:26 pm
20 to 50 years from now, will Fidelity still have zero ER funds? (What will happen to your tax basis if they don't?) Vanguard's corporate structure is a big part of choosing Vanguard.
This is the reason that pricing gambits (or gimmicks or whatever you want to call them) by Fidelity are of little importance to me now. Most of my money is in taxable accounts (predominantly with Vanguard as far as mutual fund/ETF's) and has been for a pretty long time. Markets have generally done well. A slightly lower ER is not a good enough reason to pay big capital gains taxes to switch from one fund to another. Same goes for some non-Vang (and not particularly BH-ish) investments I've made in the past. They happened to work out, so CG tax makes it prohibitive to switch them just because expenses are a little high in some cases. I prioritize those to liquidate first when I need to, but they will also be around for awhile, probably mostly until the tax basis step up at death (assuming it's still the law by then).

People starting out now have to think about that too, assuming they don't believe max 401k, IRA etc contributions are going to fund a whole retirement. Which company is most likely to serve your interests best over the long run? You'll be committed to that company by tax considerations to the extent you invest in taxable accounts and things go reasonably well.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by David Jay » Tue Sep 11, 2018 3:59 pm

2 Tasty wrote:
Tue Sep 11, 2018 12:26 pm
Low fees are great, but what's behind the curtain? Looking through Fidelity's website, low fees for the couple of ZERO funds are more than offset by extravagant fees on the other 300+ funds.
And they deliberately hide some of their low cost funds. If you type in "Freedom Index 2040" (the low cost index version) in the search box on the Fidelity home page, the context sensitive help suggests "Freedom 2040" (the high cost version) and does not show the index result.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by MichCPA » Tue Sep 11, 2018 4:03 pm

willthrill81 wrote:
Tue Sep 11, 2018 2:57 pm
MichCPA wrote:
Tue Sep 11, 2018 11:58 am

It would require 9,000 across two accounts to get into the three fund investor class in less than one year and you still couldn't make it work on admiral for about 3 years. Even adding the extra account doesn't really change the fact that minimums add complexity you don't see at competitors. But getting back to my point on the average person, 9,000 is 15% of 60,000, so in order to make that happen in a year with the 401k contribution in the example you would have a 21% savings rate. That isn't realistic for most people (non-Bogleheads). If Vanguard can provide ETFs in smaller increments at low cost why can't they do the same for mutual funds? I don't have a good answer to that. As I originally mentioned it is a small issue, but I don't understand why it has to be an issue at all.
Again, one can buy almost any ETF for under $200.
I noted that (see bold). But why would you then have minimums on mutual fund shares? I am genuinely curious WHY there are still minimums because Schwab and Fidelity can operate without them. The response I am getting is basically "It's not a big deal" which isn't an answer to 'why'. Again, I did acknowledge it's minor, but I don't understand it. Keep in mind Vanguard has a general dislike for trading and Bogle prefers mutual funds over ETFs because they don't allow intra-day trading. I think that makes it a relevant question. Why not just simplify the process?

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by MichCPA » Tue Sep 11, 2018 4:10 pm

David Jay wrote:
Tue Sep 11, 2018 3:59 pm
2 Tasty wrote:
Tue Sep 11, 2018 12:26 pm
Low fees are great, but what's behind the curtain? Looking through Fidelity's website, low fees for the couple of ZERO funds are more than offset by extravagant fees on the other 300+ funds.
And they deliberately hide some of their low cost funds. If you type in "Freedom Index 2040" (the low cost index version) in the search box on the Fidelity home page, the context sensitive help suggests "Freedom 2040" (the high cost version) and does not show the index result.
To me, the biggest catch with the zero's is that you have to be at fidelity to own them. My understanding is that you can't take them with you if you decide to move to Schwab, Vanguard, etc. like you can with most other investments. If you build CG in a taxable account, you are building an anchor to hold you at Fidelity. Quite frankly, that seems user hostile. I am willing to pay an extra 1.5 bps on my taxable investments in order to not be held hostage.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by JamesSFO » Tue Sep 11, 2018 4:13 pm

MichCPA wrote:
Tue Sep 11, 2018 4:03 pm
...But why would you then have minimums on mutual fund shares? I am genuinely curious WHY there are still minimums because Schwab and Fidelity can operate without them...
All of us can only speculate. My guesses:

1) The ER's only cover the funds costs if each shareholder has a certain minimum. Thus the different $ levels for Admiral for different types of funds.

2) The ER's do not cover the account opening cost which is a one time fee. Fido/Schwab "eat that" cost in the hopes of more profit later

3) Customer selection device, customers with <$1K (which is the minimum for target date funds for example), may just be undesirable, e.g. they trade too much/whatever.

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by nisiprius » Tue Sep 11, 2018 4:46 pm

I don't really care whether Vanguard "loses" or "wins."

I don't want them to collapse.

I want them to keep operating the funds I personally use. I don't want the fees on Admiral shares of those funds to rise to above, oh, I don't know, 0.10%. I don't think it helps me for Vanguard to get more gigantic than they are, and if people are going to write articles saying that "passive investing is worse than Marxism" I'd like there to be a few other companies besides Vanguard pushing back.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by afan » Tue Sep 11, 2018 5:00 pm

Lots of speculation here on bogleheads but has anyone seen something from Fidelity about what they do with the income from securities lending for the zero funds?

For Vanguard many of the stick index funds bring in more money from lending than charged in the expense ratio. So the net cost is negative. If Fidelity keeps all or most of the lending revenue then it's costs could still be higher than Vanguard.

At this point I would not want taxable money at Fidelity. I agree there are too many games with expenses. But retirement money is fine
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by peppers » Tue Sep 11, 2018 5:21 pm

nisiprius wrote:
Tue Sep 11, 2018 4:46 pm
I don't really care whether Vanguard "loses" or "wins."

I don't want them to collapse.

I want them to keep operating the funds I personally use. I don't want the fees on Admiral shares of those funds to rise to above, oh, I don't know, 0.10%. I don't think it helps me for Vanguard to get more gigantic than they are, and if people are going to write articles saying that "passive investing is worse than Marxism" I'd like there to be a few other companies besides Vanguard pushing back.
Well said.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by Whakamole » Tue Sep 11, 2018 5:30 pm

David Jay wrote:
Tue Sep 11, 2018 3:59 pm
2 Tasty wrote:
Tue Sep 11, 2018 12:26 pm
Low fees are great, but what's behind the curtain? Looking through Fidelity's website, low fees for the couple of ZERO funds are more than offset by extravagant fees on the other 300+ funds.
And they deliberately hide some of their low cost funds. If you type in "Freedom Index 2040" (the low cost index version) in the search box on the Fidelity home page, the context sensitive help suggests "Freedom 2040" (the high cost version) and does not show the index result.
Are you certain? I just tried it and it shows the Index fund:

Image

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by alec » Tue Sep 11, 2018 5:52 pm

willthrill81 wrote:
Tue Sep 11, 2018 10:59 am
GammaPoint wrote:
Tue Sep 11, 2018 10:55 am
As has been noted many times on this forum before, Vanguard is also losing the fee battle in the solo 401k space, since they've long prevented individuals from holding admiral or ETFs there. This has caused lots of solo 401ks to go to Fidelity instead. I'm likely to move my wife's solo 401k to Fidelity next year as a result of that myself. Having said this, I still keep the rest of our investments at Vanguard because I trust the business model of the company and Fidelity saving a few basis points over my ETF/admiral funds in the rest of our accounts is not a big deal to me.
Your statement seems to assume that Vanguard is losing the battle on their primary front. Given that they've been receiving more inflows than everyone else combined for quite a while now, I don't think we can say that.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by alec » Tue Sep 11, 2018 6:02 pm

Leif wrote:
Tue Sep 11, 2018 1:44 pm
Fclevz wrote:
Tue Sep 11, 2018 12:36 pm
Vanguard now has commission-free trading on 1,800 ETFs, so its not like nothing good is happening there.
As a Vanguard mutual fund owner I'm not sure I like that. Who is paying for all this trading? Are enough people buying Vanguard ETFs that they make up the cost of the free trading for all 1,800 ETFs? Many ETFs non-Vanguard I presume. Or am I subsidizing the cost in my ER? If I found out that I'm subsidizing day traders I would not be happy.
Maybe Payment for Order Flow from the firm's who VBS routes the orders in ETFs.
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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by mervinj7 » Tue Sep 11, 2018 6:28 pm

afan wrote:
Tue Sep 11, 2018 5:00 pm
Lots of speculation here on bogleheads but has anyone seen something from Fidelity about what they do with the income from securities lending for the zero funds?
http://www.investmentnews.com/article/2 ... ndex-funds
But Fidelity pushed back on the talk of revenue from securities lending. "Fidelity's securities lending program is designed to benefit fund shareholders," the company said in a statement. "Fidelity is not receiving any revenue from the Fidelity ZERO Index funds for securities lending. Nor is Fidelity currently receiving any portion of the income that is generated from securities lent out."

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Re: Barron's--Vanguard Is Losing Battles on Two Fronts in Fee Wars

Post by iamlucky13 » Tue Sep 11, 2018 7:07 pm

Both an honest and a rhetorical question:

What does it mean for Vanguard to "lose" a war on fees?

Could this cause a share price collapse of Vanguard's stock (obviously, this part is strictly rhetorical)?

Can losing this "war" cause a decrease in profits to Vanguard's owners through any means other than if so many investors go elsewhere that their economy of scale is lost and expense ratios rise? Is that really a problem since Vanguard investors obviously have better investment options available that so many are already fleeing to?

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