Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Vangua

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Outafter20
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Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Vangua

Post by Outafter20 »

https://riabiz.com/a/2021/8/31/charles- ... -crossfire

Was thinking about moving our accounts over to Schwab, so I guess we would have to convert from mutual funds to ETFs first.We do have some Primecap that I will probably hold on to.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by nalor511 »

Outafter20 wrote: Fri Sep 03, 2021 11:21 pm https://riabiz.com/a/2021/8/31/charles- ... -crossfire

Was thinking about moving our accounts over to Schwab, so I guess we would have to convert from mutual funds to ETFs first.We do have some Primecap that I will probably hold on to.
Fidelity also charges $75. But Schwab will give you a fee waiver. I have some Admirals at Schwab from before I decided to convert to ETF

As you say, buy (or convert to) ETFs
Last edited by nalor511 on Sat Sep 04, 2021 2:01 am, edited 1 time in total.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by dodecahedron »

Outafter20 wrote: Fri Sep 03, 2021 11:21 pm https://riabiz.com/a/2021/8/31/charles- ... -crossfire

Was thinking about moving our accounts over to Schwab, so I guess we would have to convert from mutual funds to ETFs first.We do have some Primecap that I will probably hold on to.
No need to convert your existing VG holdings to ETFs. Schwab only charges for new purchases of outside funds, not for transfers of ones you already own. And they charge nothing to sell your holdings, if and when you decide to do that. Also automatic dividend reinvestment is free.

So the only fee you would face is if you decide to buy more VG funds after you open an account at Schwab. For those added holdings, buying VG ETFs rather than mutual funds would keep transactions costs to zero.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by 123 »

I have paid the $50 - $75 fee at Schwab and Fidelity to purchase large Vanguard fund positions in a couple of retirement accounts for funds-of-funds that don't have ETF equivalents. For large positions that we intend to hold through the RMD years a one-time payment of a transaction fee of $75 is a bargain to get a Vanguard fund with Schwab account support. But I definitely wouldn't repeatedly pay such a fee if I was accumulating a position with regular purchases. I would use an investment alternative and consolidate into my desired Vanguard fund after a number of years (retirement accounts).
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by fwellimort »

Personally, I'm more surprised brokerages are fine with using their brokerages to buy products from other brokerages.

Imagine having clients that use all your services but use none of your products. So the other company selling the product is quite literally piggy back riding off your own work (you pay for the book keeping, the customer service, etc. when the clients are buying products from your competitors).
It's basically outsourcing with extra steps (maintain lower fees by placing the burden on someone else), a concept I am against morally (though it seems I have no problems exploiting such system on my everyday purchases).

In general, I feel it's safer to just convert mutual fund shares to ETFs when moving out of brokerages. Makes things more 'future proof'.
Why risk otherwise?
I personally don't understand. What if the fee structure for mutual funds change in the future for the worse? As brokerages are becoming more accommodating for ETFs, I wouldn't be surprised if brokerages start to see maintaining mutual funds in their databases more as liabilities.
It seems mutual funds just create more headache whenever one decides to change brokerages.

But maybe that's just me. I just don't ever recall in Bogleheads people with Fidelity or Schwab mutual funds moving their funds to Vanguard brokerage and expecting to purchase future Fidelity/Schwab mutual fund products for free. Never understood why a lot of these expectations are so 1 sided at Bogleheads.
:confused

I think it's best to convert to ETF equivalents and move the ETFs that can be moved. And the mutual funds that cannot be converted could just stay at the Vanguard brokerage. That said, I do believe transferred funds generally don't charge fees. Future contributions might though. You should check up with the customer service (through phone) at Schwab before making judgements. If you have a large net worth, maybe you can strike a deal. Who knows. Doesn't hurt to ask. :)
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by beyou »

The linked article comments about Vanguard’s long standing policy to refuse payment to brokers who sell and custody shares of Vanguard funds. There are many Vanguard complaint threads asserting Vanguard wants you to move fund holdings to other brokers, and now you see why. They transfer burden of record keeping and customer service to other firms without any cost to Vanguard. Many higher ER funds will share those fees with brokers as they do see a benefit to having others sell their funds and handle service. The other side to this is that this highlights one of many ways Vanguard keeps costs low for it’s fund shareholders, but at the expense of making you choose to live with their declining service level or paying more for better service. No different than airlines unbundling to get low fares but then charge you for baggage, seat selection etc. Would you like some PAS with your fund ? Maybe some Schwab service ? Or just a plain burger without fries ?

Look at the NTF list at any broker. Those fund families are paying fees to the brokerage, at a cost to all shareholders even if you hold your fund shares directly with the fund. There is a reason the linked article lists Dodge & Cox along with Vanguard, as they are known as a low fee set of funds among actively managed funds. You don’t get something for nothing, at least not indefinitely. There are some brokerages (Etrade and firstrade) that still have zero fees on Vanguard funds, but seems unsustainable. Eventually they will decide either they can get those clients into higher fee products OR they will eventually impose fees (because if the competition does so, they can do so as well).
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by oldcomputerguy »

It should be noted in the interests of clarity that the full title of the linked article (which got chopped off by limitations of our forum software) is

"Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Vanguard, Fidelity and Dodge & Cox funds -- but RIAs dodge the crossfire"

and so the article is not Vanguard-specific (although the article does quote Alex Potts of Buckingham Strategic Partners as claiming that Vanguard is the likely target of the move).
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by sunnywindy »

The psychology of pricing really cracks me up. Schwab very easily could have set the price at $74.99 or $75, but to most $74.95 is thought to be a more palatable figure, so that is what they go with.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by oldcomputerguy »

sunnywindy wrote: Sat Sep 04, 2021 6:26 am The psychology of pricing really cracks me up. Schwab very easily could have set the price at $74.99 or $75, but to most $74.95 is thought to be a more palatable figure, so that is what they go with.
It's actually a 50% bump of $49.95, so it fits the topic title. However, I agree with you that there's a psychological factor at work there, including the difference between $49.95 and $50.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by Triple digit golfer »

I only invest in Vanguard mutual funds and only at Vanguard, so I'm ignorant here, but why is it okay/free/acceptable to purchase a different company's ETF but not mutual fund?

Why can I purchase VOO for free, but not VFIAX, at other brokerages?
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by MrJedi »

Triple digit golfer wrote: Sat Sep 04, 2021 6:41 am I only invest in Vanguard mutual funds and only at Vanguard, so I'm ignorant here, but why is it okay/free/acceptable to purchase a different company's ETF but not mutual fund?

Why can I purchase VOO for free, but not VFIAX, at other brokerages?
When buying ETF, it's just a marketable security like a stock. Your order is just matched with somebody else on the other side.

MFs I think are more involved. They have to take your cash and send it to the third party MF manager, receive the MF shares, and then book the shares against your account. Then reverse all of that when you sell your MF shares. So a lot more administrative/bookkeeping tasks involved with MF vs. ETF. I think this is why most brokers charge fees when using third party MFs.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by Triple digit golfer »

MrJedi wrote: Sat Sep 04, 2021 7:35 am
Triple digit golfer wrote: Sat Sep 04, 2021 6:41 am I only invest in Vanguard mutual funds and only at Vanguard, so I'm ignorant here, but why is it okay/free/acceptable to purchase a different company's ETF but not mutual fund?

Why can I purchase VOO for free, but not VFIAX, at other brokerages?
When buying ETF, it's just a marketable security like a stock. Your order is just matched with somebody else on the other side.

MFs I think are more involved. They have to take your cash and send it to the third party MF manager, receive the MF shares, and then book the shares against your account. Then reverse all of that when you sell your MF shares. So a lot more administrative/bookkeeping tasks involved with MF vs. ETF. I think this is why most brokers charge fees when using third party MFs.
Thanks for the explanation. So how does Schwab make money when I buy VTI, for example? Not the expense ratio, since I assume that goes to Vanguard.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by anon_investor »

Triple digit golfer wrote: Sat Sep 04, 2021 7:54 am
MrJedi wrote: Sat Sep 04, 2021 7:35 am
Triple digit golfer wrote: Sat Sep 04, 2021 6:41 am I only invest in Vanguard mutual funds and only at Vanguard, so I'm ignorant here, but why is it okay/free/acceptable to purchase a different company's ETF but not mutual fund?

Why can I purchase VOO for free, but not VFIAX, at other brokerages?
When buying ETF, it's just a marketable security like a stock. Your order is just matched with somebody else on the other side.

MFs I think are more involved. They have to take your cash and send it to the third party MF manager, receive the MF shares, and then book the shares against your account. Then reverse all of that when you sell your MF shares. So a lot more administrative/bookkeeping tasks involved with MF vs. ETF. I think this is why most brokers charge fees when using third party MFs.
Thanks for the explanation. So how does Schwab make money when I buy VTI, for example? Not the expense ratio, since I assume that goes to Vanguard.
Yes, via payment for order flow (PFOF).
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by alex_686 »

Triple digit golfer wrote: Sat Sep 04, 2021 6:41 am I only invest in Vanguard mutual funds and only at Vanguard, so I'm ignorant here, but why is it okay/free/acceptable to purchase a different company's ETF but not mutual fund?

Why can I purchase VOO for free, but not VFIAX, at other brokerages?
I have worked back office at both brokerages and mutual funds. ETFs are stocks. Stocks are so much easier to work with. Back when I was working in operations we spent almost as much time handling mutual funds as with stocks and bonds even though mutual funds were less than 5% of our asset base.

With stocks one size fits all. All stocks are treated exactly the same. Trading, settling, custody, reconciliation, preparing tax documents, dividends, etc.

Each mutual fund family has to be networked in. Each fund family and fund has its own quirks. You sometimes have to charge a commission on front loaded stocks, other times you reduce it, other times you waive it. You need special handling on large late trades. etc.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by grok87 »

"freeloading"...LOL
wrote: Today, that includes Vanguard funds, Dodge & Cox funds, and Fidelity investor share class funds available to retail clients," Schwab spokesman Peter Greenley confirmed via email.

It will increase profit margins on "buy" trades and potentially discourage freeloading by those companies by making it more expensive for Schwab retail clients to invest assets into their funds.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by Triple digit golfer »

alex_686 wrote: Sat Sep 04, 2021 8:19 am
Triple digit golfer wrote: Sat Sep 04, 2021 6:41 am I only invest in Vanguard mutual funds and only at Vanguard, so I'm ignorant here, but why is it okay/free/acceptable to purchase a different company's ETF but not mutual fund?

Why can I purchase VOO for free, but not VFIAX, at other brokerages?
I have worked back office at both brokerages and mutual funds. ETFs are stocks. Stocks are so much easier to work with. Back when I was working in operations we spent almost as much time handling mutual funds as with stocks and bonds even though mutual funds were less than 5% of our asset base.

With stocks one size fits all. All stocks are treated exactly the same. Trading, settling, custody, reconciliation, preparing tax documents, dividends, etc.

Each mutual fund family has to be networked in. Each fund family and fund has its own quirks. You sometimes have to charge a commission on front loaded stocks, other times you reduce it, other times you waive it. You need special handling on large late trades. etc.
Interesting stuff, thanks!
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by livesoft »

This appears to be the same change announced by TDAmeritrade recently.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by increment »

livesoft wrote: Sat Sep 04, 2021 8:45 am This appears to be the same change announced by TDAmeritrade recently.
TDA and Schwab are the same company now.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by nisiprius »

fwellimort wrote: Sat Sep 04, 2021 2:24 am...Personally, I'm more surprised brokerages are fine with using their brokerages to buy products from other brokerages...
Actually, this was a much-heralded Schwab innovation.

So it is disappointing to see them becoming mutual-fund-unfriendly.

Before the 1980s, the only way to buy a mutual fund was directly from the mutual fund company. There are still mutual fund companies that do not have brokerages--Dodge & Cox is an example. You can open a mutual fund account at Dodge & Cox. Before the 1980s this was the only option for any mutual fund. When you had a mutual fund account at company X, you could exchange freely within X's family of funds, but you had no way to buy anybody else's mutual funds. If you wanted mutual funds from both X and Y, you needed to open two accounts, one with X and one with Y.

It was also fairly difficult to discover the existence of no-load funds, because brokers would never tell you about them. They would only recommend load funds. Basically the only way most people ever invested in load funds was to read an ad in a print publication and write off to the fund company's address.

Schwab changed all this:
1984: Schwab introduces Mutual Fund MarketPlace® with 140 no-load funds
1986: Schwab becomes the first to allow clients to place mutual fund buy or sell orders 24/7.
1992: Charles Schwab Trust Company® is created. The company introduces no-annual-fee IRA accounts and the Schwab Mutual Fund OneSource service, which offers one-stop shopping for mutual funds from multiple fund families.
The emphasis on no-load funds in particular was a Good Thing.

In general, the purpose of a brokerage is to let you buy products from multiple sources. Although it is practically forgotten now, it was once not only possible but fairly common to hold stocks directly with the issuer. You held a physical paper stock certificate with your name and address on it--and a form to fill out on the back if you wanted to transfer it to someone else. You got physical paper mailed dividend checks mailed directly from AT&T. And if you wanted to reinvest dividends, you needed to choose a company that offered a "dividend reinvestment plan" (DRIP).

I've never knowingly seen one, but, yes, a "stock portfolio" was a physical leather portfolio designed to hold stock certificates.

A stockbroker is a convenience for someone who wants to buy and sell stocks from many different companies.

It has all gotten rather confused nowadays, when most of the big mutual fund companies also operate brokerages, and many of the big brokerages also operate mutual funds of their own.
Last edited by nisiprius on Sat Sep 04, 2021 10:28 am, edited 1 time in total.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by Cheez-It Guy »

I feel like I called this. More to come? Companies are not going to play nice forever.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by AZAttorney11 »

The solution to this is quite simple - use Vanguard, Blackrock, or Schwab ETFs. Schwab's index mutual fund lineup is quite good and some have a lower expense ratio than Vanguard.

As another posted noted upthread, ETFs are substantially easier for firms to administer. The future of investing is fractional share ETFs, not mutual funds, in my opinion.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by jeffyscott »

nisiprius wrote: Sat Sep 04, 2021 9:01 am
fwellimort wrote: Sat Sep 04, 2021 2:24 am...Personally, I'm more surprised brokerages are fine with using their brokerages to buy products from other brokerages...
Actually, this was a much-heralded Schwab innovation.

So it is disappointing to see them becoming mutual-fund-unfriendly.
I don't think they are unfriendly to mutual funds in general. They offer their own index mutual funds with lower fees than Vanguard. They charge the same expense ratios for their index mutual funds as for equivalent ETFs, unlike Vanguard. At least some of the NTF funds are low cost managed funds (not as low as Vanguard, but at least at about the Dodge and Cox level, in some cases they offer the institutional share class at low minimums (something neither Fidelity nor Vanguard do). There have been ways of getting waivers on these transaction fees at Schwab, some get them waived on a case-by-case basis others get a blanket waiver for a single fund family. I don't think Fidelity offers any transaction fee waivers, Vanguard does if you have enough assets in Vanguard funds to qualify.

Of course, Schwab, like everyone else, is more friendly to ETFs. I suspect there is some freeloading going on with ETFs, but maybe I am mistaken and keeping records, etc. for ETF investors really costs less than whatever the brokerage is collecting from spreads, payment for order flow, and whatever other sources of revenue there are with ETFs.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by galawdawg »

I'm so pleased with Schwab's service and benefits, and the way that company is structured and operated, that I am considering divesting from Vanguard funds in my tax-advantaged accounts and going either with Schwab's mutual funds or Schwab or Blackrock ETFs. Those funds have the same or even better long-term returns and offer lower expense ratios than what I pay for my Vanguard mutual funds.

I have a fee waiver for the purchase of Vanguard mutual funds so it won't be a significant difference as far as my costs or returns, but if divesting of Vanguard funds is neutral for me and reduces the expenses of my account currently absorbed by Schwab, then it makes sense for me to reward Schwab for providing the quality of service I receive. Plus, since Schwab is a publicly-traded company, if I can help them increase their profitability at no-cost to myself....why not! A win-win situation. :beer
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by Whakamole »

galawdawg wrote: Sat Sep 04, 2021 10:20 am I'm so pleased with Schwab's service and benefits, and the way that company is structured and operated, that I am considering divesting from Vanguard funds in my tax-advantaged accounts and going either with Schwab's mutual funds or Schwab or Blackrock ETFs. Those funds have the same or even better long-term returns and offer lower expense ratios than what I pay for my Vanguard mutual funds.

I have a fee waiver for the purchase of Vanguard mutual funds so it won't be a significant difference as far as my costs or returns, but if divesting of Vanguard funds is neutral for me and reduces the expenses of my account currently absorbed by Schwab, then it makes sense for me to reward Schwab for providing the quality of service I receive. Plus, since Schwab is a publicly-traded company, if I can help them increase their profitability at no-cost to myself....why not! A win-win situation. :beer
I'm doing just this, only at Fidelity. Lower ER, the option of funds tracking different indices so I can do TLH in my taxable account without running afoul of wash sale rules, and it helps pay for the excellent service I've received. :beer
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by lazynovice »

galawdawg wrote: Sat Sep 04, 2021 10:20 am I'm so pleased with Schwab's service and benefits, and the way that company is structured and operated, that I am considering divesting from Vanguard funds in my tax-advantaged accounts and going either with Schwab's mutual funds or Schwab or Blackrock ETFs. Those funds have the same or even better long-term returns and offer lower expense ratios than what I pay for my Vanguard mutual funds.

I have a fee waiver for the purchase of Vanguard mutual funds so it won't be a significant difference as far as my costs or returns, but if divesting of Vanguard funds is neutral for me and reduces the expenses of my account currently absorbed by Schwab, then it makes sense for me to reward Schwab for providing the quality of service I receive. Plus, since Schwab is a publicly-traded company, if I can help them increase their profitability at no-cost to myself....why not! A win-win situation. :beer
I came to this conclusion a couple of weeks ago. I am using services from Fidelity, so I am happy to have some of my ER on I-shares fund some of it. We own plenty of Vanguard ETFs I can’t divest of, but new money is going to I-shares. From our Schwab days we own a bunch of SWTSX and SCHB that do the job just fine.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by nisiprius »

"Freeloading?"

When a broker sells shares of Apple stock, does Apple pay the broker a fee to reimburse them for recordkeeping?
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by alex_686 »

nisiprius wrote: Sat Sep 04, 2021 9:01 am
fwellimort wrote: Sat Sep 04, 2021 2:24 am...Personally, I'm more surprised brokerages are fine with using their brokerages to buy products from other brokerages...
Actually, this was a much-heralded Schwab innovation.

...

In general, the purpose of a brokerage is to let you buy products from multiple sources.
To extend a bit, there was, and is, a sea changing on how these institutions worked.

There are actually 2 different business we are talking about. First are the "Asset Managers". These are the people who run the funds. Second there are the "Financial Advisors", or the retail side. And while discount brokers don't offer advisors to offer financial advice that is the industry lingo.

It used to be that they were joined at the hip. A firms brokers would sell you their firm's mutual funds. As you can imagine this lead to conflicts on interest and scandals. Brokers favoring their own firm's higher cost funds over rivals.

This is less true today and is regressing.

So the SEC drew up regulations that advisors (fiduciary or otherwise) had to street clients to the best funds. They also required firms to rejigger their compensation so advisors would not get extra payouts for selling the firm's product.
nisiprius wrote: Sat Sep 04, 2021 9:01 am So it is disappointing to see them becoming mutual-fund-unfriendly.
I have said this before and I will say it again - ETFs will eclipse mutual funds. From a operational viewpoint it is about 1/3 cheaper to run a ETF than a mutual fund. We could invert the question. How does a brokerage handle the more expensive mutual fund platform verse the cheaper ETF platform?

It used to be that mutual funds charged a higher expense ratio to gather money that they could kick back to the broker to run the mutual fund platform. Would you rather have low expense ratio mutual funds with explicate fees or a higher expense ratio where the fees are indirect and buried?
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by rgs92 »

I paid the $75 at Fidelity a couple of times to buy $20K+ positions at Vanguard for Balanced Index (VBIAX). It's just for convenience for me.
I like it better than target funds and, over time, the savings from the low 7-basis-point expense ratio will chip away at the commission; at least that's my rationalization.

There are very few (if any) sub-10-basis-point funds that do continuous rebalancing of index funds, and I don't want to open a separate Vanguard fund just for this just because it annoys me even though it's free.
Last edited by rgs92 on Sat Sep 04, 2021 1:16 pm, edited 6 times in total.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by LilyFleur »

sunnywindy wrote: Sat Sep 04, 2021 6:26 am The psychology of pricing really cracks me up. Schwab very easily could have set the price at $74.99 or $75, but to most $74.95 is thought to be a more palatable figure, so that is what they go with.
Yeah, I resist the psychology of it and I round up, both verbally when talking to anyone and in my head when I think about it.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by Northern Flicker »

Recordkeeping is the responsibility of the broker, not the back-end fund provider. High ER fund providers reimburse the 3rd party brokers for this because the more platforms they have offering the product, the more that may be sold to generate more profit from the higher ER.

This is a marketing expense from the point of view of the fund provider. I don't think it is accounted for in ER as a 12b-1 expense (making it a less than transparent kickback). Vanguard and Fidelity are basically taking the position that they don't need other brokers to make their mutual fund products available to achieve market share. Why should investors in their fund products indirectly bear the extra cost, subsidizing those who want to buy the fund at Schwab? Fidelity can offer a lower ER if more of that ER ends up as profit.

Brokers, not back-end fund providers do recordkeeping for ETFs. Why should fund providers bear the cost for mutual funds? Admittedly, it is more costly for brokers to do it for mutual funds than for ETFs.

Interestingly, this article is in an investment advisor trade rag. It appears to me that it is the investment advisors who want to do the freeloading-- include Vanguard, Fidelity, and Dodge & Cox funds in their portfolios on their preferred platform at their preferred cost, with the fund provider subsidizing the brokerage for recordkeeping.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by PersonalFinanceJam »

alex_686 wrote: Sat Sep 04, 2021 12:21 pm ...
nisiprius wrote: Sat Sep 04, 2021 9:01 am So it is disappointing to see them becoming mutual-fund-unfriendly.
I have said this before and I will say it again - ETFs will eclipse mutual funds. From a operational viewpoint it is about 1/3 cheaper to run a ETF than a mutual fund. We could invert the question. How does a brokerage handle the more expensive mutual fund platform verse the cheaper ETF platform?

It used to be that mutual funds charged a higher expense ratio to gather money that they could kick back to the broker to run the mutual fund platform. Would you rather have low expense ratio mutual funds with explicate fees or a higher expense ratio where the fees are indirect and buried?
I agree with you. The incentives for both broker and investor seem to be aligning towards ETFs. I think we only need one of the "big three" (Vanguard, Fidelity, Schwab) to bring automated investing in dollars for ETFs to market the way M1 has, then there will be a snowball effect.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by alex_686 »

Northern Flicker wrote: Sat Sep 04, 2021 1:08 pm Recordkeeping is the responsibility of the broker, not the back-end fund provider.
Maybe.

There are different levels of mutual fund networking. Under some levels it is the broker's responsibility. Under others it is the fund's responsibility. Each fund sponsor and broker negotiate what level of networking will be happening, who will handle what, and who will be paying the fees.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by ResearchMed »

PersonalFinanceJam wrote: Sat Sep 04, 2021 1:16 pm
alex_686 wrote: Sat Sep 04, 2021 12:21 pm ...
nisiprius wrote: Sat Sep 04, 2021 9:01 am So it is disappointing to see them becoming mutual-fund-unfriendly.
I have said this before and I will say it again - ETFs will eclipse mutual funds. From a operational viewpoint it is about 1/3 cheaper to run a ETF than a mutual fund. We could invert the question. How does a brokerage handle the more expensive mutual fund platform verse the cheaper ETF platform?

It used to be that mutual funds charged a higher expense ratio to gather money that they could kick back to the broker to run the mutual fund platform. Would you rather have low expense ratio mutual funds with explicate fees or a higher expense ratio where the fees are indirect and buried?
I agree with you. The incentives for both broker and investor seem to be aligning towards ETFs. I think we only need one of the "big three" (Vanguard, Fidelity, Schwab) to bring automated investing in dollars for ETFs to market the way M1 has, then there will be a snowball effect.
What is the situation these days about having ETFs without frequent (and definitely not daily) disclosure of holdings?
It would seem that keeping one's holdings close to one's vest would continue to be a positive for anything active.

Otherwise, what are the major advantages to financial firms to having mutual funds? Is it really just the ability to charge higher fees? (And presumably also the belief that they can, indeed, do better? Or do some of them not really even believe that themselves, especially those that are laggards day in, day out...?)
Or is it now mostly due to history, because that's how things used to be, hence lots of mutual funds already out there, and people accustomed to them?

RM
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by PersonalFinanceJam »

ResearchMed wrote: Sat Sep 04, 2021 1:42 pm
What is the situation these days about having ETFs without frequent (and definitely not daily) disclosure of holdings?
It would seem that keeping one's holdings close to one's vest would continue to be a positive for anything active.
This is some Morningstar commentary on the subject:

https://www.morningstar.com/articles/10 ... ctive-etfs
https://www.morningstar.com/articles/99 ... y-good-for

My read on it is we are still in a wait and see mode as to how all of this plays out for the true active non-transparent ETFs. Maybe active management is a place where mutual funds will continue to shine. I'm an indexer so it's not my thing, but more power to the people who want it.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by sycamore »

anon_investor wrote: Sat Sep 04, 2021 8:01 am
Triple digit golfer wrote: Sat Sep 04, 2021 7:54 am ...
Thanks for the explanation. So how does Schwab make money when I buy VTI, for example? Not the expense ratio, since I assume that goes to Vanguard.
Yes, via payment for order flow (PFOF).
I'm not sure, but that's not the only answer, is it?

Do brokerages get revenue by lending out clients' securities?

And then there are aspects beyond the immediate bottom line. E.g., an intangible benefit from having larger "assets under management" -- investors are impressed with larger AUM and therefore bid up the brokerage's own stock price.

And I'm guessing some brokerage's managers/executives are incentivized (with higher salaries or bonuses) to increase AUM. How that increases the company's bottom line I'm not sure. Maybe it makes the company more attractive overall and therefore a more likely takeover target?
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by Cheez-It Guy »

This linked article is a nice reminder of who started the brokerage commission war we all now enjoy (scooping the industry at large by over a year).

https://riabiz.com/a/2019/10/10/after-v ... m-showdown

Despite their leading directly to the current competitive environment (yes, even in the brokerage space), it's now commonly held that Vanguard offers nothing and no benefit. It's a bit of revisionist history if you ask me.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by alex_686 »

sycamore wrote: Sat Sep 04, 2021 2:21 pm Do brokerages get revenue by lending out clients' securities?
Yes and no. They do make money this way. However - generally speaking - they can only lend out 140% of the cash the client has borrowed. As such they make much more money on margin interest then securities lending.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by Bama12 »

Just another of many reasons to stay at Vanguard.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by bondsr4me »

Bama12 wrote: Sat Sep 04, 2021 4:36 pm Just another of many reasons to stay at Vanguard.
+1

As time rolls on, it’s gonna be very interesting to see who hollers “uncle” in the fees/commissions rates.

At some point in time, I would speculate that “zero” commissions won’t be zero any more. :moneybag

Have a safe, happy Labor Day weekend everyone.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by galawdawg »

Cheez-It Guy wrote: Sat Sep 04, 2021 2:22 pm This linked article is a nice reminder of who started the brokerage commission war we all now enjoy (scooping the industry at large by over a year).

https://riabiz.com/a/2019/10/10/after-v ... m-showdown

Despite their leading directly to the current competitive environment (yes, even in the brokerage space), it's now commonly held that Vanguard offers nothing and no benefit. It's a bit of revisionist history if you ask me.
Actually, you need to research further back (to the day Jack started Vanguard, which was a mutual fund company, not a brokerage...Vanguard didn't form a brokerage until 1983) to see who started the brokerage commission war...it was May 1, 1975, the day the SEC deregulated stock trading commissions. When many other brokerages raised their commissions as a result, Schwab cut commissions and opened the first discount brokerage. Where Jack was the low-cost leader for mutual fund investors, Charles Schwab was the low-cost leader for stock investors. The race to lower costs and commissions has gone back and forth ever since!

So while I give Jack credit for many investing achievements, Chuck Schwab is the one who gets the credit for starting the brokerage commission war....way back in 1975!
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by rockstar »

No idea why anyone is buying mutual funds over ETFs today.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by nalor511 »

rockstar wrote: Sat Sep 04, 2021 5:15 pm No idea why anyone is buying mutual funds over ETFs today.
As a previous huge MF and huge VG fan... +1
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by rockstar »

nalor511 wrote: Sat Sep 04, 2021 5:18 pm
rockstar wrote: Sat Sep 04, 2021 5:15 pm No idea why anyone is buying mutual funds over ETFs today.
As a previous huge MF and huge VG fan... +1
My understanding is that they're more tax efficient. Let me know if I'm wrong.

I don't have an option to buy ETFs in my 401k unfortunately.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by nalor511 »

rockstar wrote: Sat Sep 04, 2021 5:23 pm
nalor511 wrote: Sat Sep 04, 2021 5:18 pm
rockstar wrote: Sat Sep 04, 2021 5:15 pm No idea why anyone is buying mutual funds over ETFs today.
As a previous huge MF and huge VG fan... +1
My understanding is that they're more tax efficient. Let me know if I'm wrong.

I don't have an option to buy ETFs in my 401k unfortunately.
If you buy a VG fund then tax efficiency is equal and the ETF will have lower ER which saves you $. So the only downside to funds (VG only) is higher ER

With other families, ETF is usually more tax efficient, yes. If it's in a 401k then you do not care about tax efficiency, but you do care about ER
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by ResearchMed »

rockstar wrote: Sat Sep 04, 2021 5:15 pm No idea why anyone is buying mutual funds over ETFs today.
Many Employer-sponsored retirement plans only allow mutual funds, and nothing else.
In our case, not even CDs or high yield savings accounts. ONLY mutual funds.

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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by anon_investor »

ResearchMed wrote: Sat Sep 04, 2021 5:42 pm
rockstar wrote: Sat Sep 04, 2021 5:15 pm No idea why anyone is buying mutual funds over ETFs today.
Many Employer-sponsored retirement plans only allow mutual funds, and nothing else.
In our case, not even CDs or high yield savings accounts. ONLY mutual funds.

RM
We don't have mutual funds in my 401k, only Collective Investment Trusts...
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by nisiprius »

rockstar wrote: Sat Sep 04, 2021 5:15 pm No idea why anyone is buying mutual funds over ETFs today.
Do you place your ETF orders while you are at work? I did it occasionally, but I didn't like to do it, because it never seemed courteous to my employer.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by LilyFleur »

nisiprius wrote: Sat Sep 04, 2021 6:41 pm
rockstar wrote: Sat Sep 04, 2021 5:15 pm No idea why anyone is buying mutual funds over ETFs today.
Do you place your ETF orders while you are at work? I did it occasionally, but I didn't like to do it, because it never seemed courteous to my employer.
I don't ever place ETF orders at work. I set up a stop-limit order, and it goes on its own. I'm on the west coast, and once I bought an index fund position while I was sleeping. :mrgreen:
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by illumination »

Just switch to ETFs or buy Schwab's in-house mutual funds. Really easy to solve this problem.

If someone is really married to Vanguard mutual funds and their higher expense ratios, use Vanguard as your brokerage. Vanguard also doesn't want the mutual fund business and will hassle you to change over to ETFs.

I'm still astonished how "cheap" it is to do business with modern brokerages and how easy it is for a consumer that can basically pay almost zero to house their investments and get stellar customer service to boot.
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Re: Charles Schwab & Co. jacks up mutual fund commissions 50% to $74.95 on retail investors to counter freeloading by Va

Post by UpperNwGuy »

galawdawg wrote: Sat Sep 04, 2021 5:09 pm
Cheez-It Guy wrote: Sat Sep 04, 2021 2:22 pm This linked article is a nice reminder of who started the brokerage commission war we all now enjoy (scooping the industry at large by over a year).

https://riabiz.com/a/2019/10/10/after-v ... m-showdown

Despite their leading directly to the current competitive environment (yes, even in the brokerage space), it's now commonly held that Vanguard offers nothing and no benefit. It's a bit of revisionist history if you ask me.
Actually, you need to research further back (to the day Jack started Vanguard, which was a mutual fund company, not a brokerage...Vanguard didn't form a brokerage until 1983) to see who started the brokerage commission war...it was May 1, 1975, the day the SEC deregulated stock trading commissions. When many other brokerages raised their commissions as a result, Schwab cut commissions and opened the first discount brokerage. Where Jack was the low-cost leader for mutual fund investors, Charles Schwab was the low-cost leader for stock investors. The race to lower costs and commissions has gone back and forth ever since!

So while I give Jack credit for many investing achievements, Chuck Schwab is the one who gets the credit for starting the brokerage commission war....way back in 1975!
Yep, Chuck Schwab doesn't get enough recognition on this board for his significant contributions to the current investing environment. He's very fortunate that the company that he founded has treated him better than Vanguard has treated Jack Bogle.
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