Vanguard AUS personal investor fee changes

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asset_chaos
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Vanguard AUS personal investor fee changes

Post by asset_chaos »

Vanguard AU is changing the fees for its personal investor accounts. The 0.2% account fee goes away, but the free trades for Vanguard ETFs becomes A$9 per trade. Changes happen 18 August. The emailed table says,

Code: Select all

Investment Type		New Account Fee		Current Account Fee
Vanguard Cash Account	Nil			0.20% per annum
Vanguard managed funds	Nil			0.20% per annum
Vanguard ETFs		Nil			0.20% per annum
ASX direct shares	0.10% per annum		0.20% per annum

Investment Type		New Brokerage Fee	Current Brokerage Fee
Vanguard ETFs		$9 per trade		Nil
ASX direct shares	$9 per trade		$19.95 or 0.15% per trade 
Vanguard managed funds	Nil			Nil
In at least some cases this makes the traditional mutual fund more attractive than the equivilent ETF. For instance, VGS (International Shares Index ETF) and the equivilent fund both cost 18 bp ongoing, but the fund has no brokerage cost. On the other hand VAS (Australian Shares Index ETF) costs 10 bp ongoing, while the fund is 16 bp.

But it is good news that the 20 bp account fee is gone. That lops off a noticiable fee for investing directly through Vanguard AU.

I have a new investor that from their first job has $350 a week they want to invest. I was going to have them invest in VGS and VAS, but now for two trades the $18 brokerage is 5% of the investment. As saving up the 10% wanted to invest in VAS for one purchase every 6 months still results in 1% brokerage cost, I think now my advice will be to invest in the managed index funds and hope that increasing funds under management will bring down fees by the time their balance starts to become substantial enough to outweigh brokerage.

Edited: Just saw VanguardAU's answer to new investor's question. Clarified that every ETF purchase in personal investor accounts has a $500 minimum purchase amount, while the managed funds have a $500 initial purchase then any amount you like for additional purchases. With no brokerage, with the ongoing cost differences being zero or tiny, and with a $500 minimum on every ETF purchase, the managed funds seem easily to be the best way to go, especially for young investors looking to get started. Only a zero cost brokerage that let a minimum investment be the price of one share of an ETF would seem to beat that; and, last I looked, which admitedly was about 5 years ago, there weren't any of those in Australia.
Regards, | | Guy
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andrew99999
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Re: Vanguard AUS personal investor fee changes

Post by andrew99999 »

I would consider using OpenTrader, which is CHESS sponsored (individual HIN numbers, so in their own name) and offers trades for $5. This person could save up for 6 weeks and then make a single purchase - alternating, which means 0.25%.

Advantages:
1. ETFs are more tax-efficient
2. Shares held under their own CHESS HIN
3. Can transfer to other brokers without selling and having to realise gains, particularly if they change their fee model again
4. Cost is still very low
Hockey Monkey
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Re: Vanguard AUS personal investor fee changes

Post by Hockey Monkey »

To put the tax efficiency of ETFs into context

6 years of returns since VGS has existed.
VGS Growth 7.97% p.a., Distribution 3.28% p.a
Vanguard International Shares Index Fund Growth 5.76% p.a., Distribution 5.44% p.a.

Identical returns (except for minor fee difference) but very different after tax outcomes due to the higher distributions in the managed fund
2.26% difference in distributions x 23.5% CGT (50% discount at top tax bracket) = 53 basis points p.a.

11 years of returns since VAS has existed
VAS 2.68% Growth, 4.41% Distribution
Vanguard Australian Shares Index Fund 2.45% Growth, 4.60% Distribution
0.19% difference * 23.5% tax = 4.5 basis points p.a.

Much lower likely due to Australian equities having lower growth and higher liquidity.

For lower regular amounts, I'd suggest using Superhero. Non CHESS sponsored (just like Vanguard) but zero cost brokerage for ETF buy's and $100 minimum purchase. Can transfer to a CHESS broker as the balance and investment amounts grow
SR7
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Location: Down Under

Re: Vanguard AUS personal investor fee changes

Post by SR7 »

Thanks all, especially OP for starting, very interesting and useful.
I studied Physics not Finance, so best to ignore anything I say about money.
OzPixie
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Re: Vanguard AUS personal investor fee changes

Post by OzPixie »

Would the blended ETFs like VDHG, which tends to pay higher distributions, have a smaller difference between them and their managed fund equivalents in terms of what you might lose in basis points?

Still not as efficient as buying the ETF via a cheap broker, but coupled with no-fee investing and the ability to make smaller deposits, it could be attractive to some types of investors (ie. low maintenance, less paperwork, those not interested in managing shares, etc) if the basis point gap is smaller between VDHG and the growth fund.

I could be wrong. Don’t quote me on this.
Hockey Monkey
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Re: Vanguard AUS personal investor fee changes

Post by Hockey Monkey »

OzPixie wrote: Thu Jul 22, 2021 8:08 am Would the blended ETFs like VDHG, which tends to pay higher distributions, have a smaller difference between them and their managed fund equivalents in terms of what you might lose in basis points?

Still not as efficient as buying the ETF via a cheap broker, but coupled with no-fee investing and the ability to make smaller deposits, it could be attractive to some types of investors (ie. low maintenance, less paperwork, those not interested in managing shares, etc) if the basis point gap is smaller between VDHG and the growth fund.

I could be wrong. Don’t quote me on this.
VDHG already has tax efficiency issues as the underling holdings are also managed funds, but is still a little more efficient than the Vanguard High Growth Index Fund

Eg in the past 3 years
VDHG 3.72% Growth, 4.72% Distribution
High Growth Fund 2.19% Growth, 6.12% Distribution

This difference of 1.4% * 23.5% (top tax bracket 50% CGT discount) = 33 basis points p.a. tax inefficiency compounding each year.
OzPixie
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Re: Vanguard AUS personal investor fee changes

Post by OzPixie »

33 basis points is quite a tax drag. It would only be about, say, a decade before less frequent $5000 ETF parcels would outweigh the benefits of smaller regular investments into the managed high growth fund. Yikes. Even quicker if you use Superhero’s $0 ETF brokerage and transfer later to CHESS.
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andrew99999
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Re: Vanguard AUS personal investor fee changes

Post by andrew99999 »

OzPixie wrote: Fri Jul 23, 2021 8:51 am 33 basis points is quite a tax drag. It would only be about, say, a decade before less frequent $5000 ETF parcels would outweigh the benefits of smaller regular investments into the managed high growth fund. Yikes. Even quicker if you use Superhero’s $0 ETF brokerage and transfer later to CHESS.
That calculation isn't the cost though, becaus you would have had to pay that tax eventually. The cost is that you can not earn money on the otherwise delayed capital gains tax realised.
Hockey Monkey
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Re: Vanguard AUS personal investor fee changes

Post by Hockey Monkey »

andrew99999 wrote: Fri Jul 23, 2021 9:37 am
OzPixie wrote: Fri Jul 23, 2021 8:51 am 33 basis points is quite a tax drag. It would only be about, say, a decade before less frequent $5000 ETF parcels would outweigh the benefits of smaller regular investments into the managed high growth fund. Yikes. Even quicker if you use Superhero’s $0 ETF brokerage and transfer later to CHESS.
That calculation isn't the cost though, becaus you would have had to pay that tax eventually. The cost is that you can not earn money on the otherwise delayed capital gains tax realised.
And hopefully realize the capital gains when in a lower tax bracket in retirement
OzPixie
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Re: Vanguard AUS personal investor fee changes

Post by OzPixie »

Thanks. Yes, I should not have confused tax drag with paying tax sooner in my comment above.
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andrew99999
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Re: Vanguard AUS personal investor fee changes

Post by andrew99999 »

Hockey Monkey wrote: Fri Jul 23, 2021 8:22 pm And hopefully realize the capital gains when in a lower tax bracket in retirement
Yes, good point — makes it a much bigger difference.
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