Invest 100% in Vanguard Funds at Schwab

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oldie42
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Invest 100% in Vanguard Funds at Schwab

Post by oldie42 »

I was thinking of trying to stay under the SIPC limits of $500K by sending some assets to Schwab. If I transfer in-kind, how does Schwab (or Fidelity) make any money from my account? Do they try to get you to switch to an equivalent Schwab fund? Or can they still make money if I just leave it alone? Also, if I do switch to a Schwab fund and sell the Vanguard one, how does Schwab know what the original cost basis was so they can put the profit or loss on the tax forms?
Thanks
inverter
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Re: Invest 100% in Vanguard Funds at Schwab

Post by inverter »

FYI, Vanguard has additional, non SIPC coverage to protect your account. Think you are overthinking this.

https://investor.vanguard.com/investing ... protection
Topic Author
oldie42
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Re: Invest 100% in Vanguard Funds at Schwab

Post by oldie42 »

Yes, I saw that, but I figured (maybe incorrectly) that the aggregate of $250 million would not be enough to make all the Vanguard clients whole again. But I may not be looking at that correctly.....
Jack FFR1846
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Re: Invest 100% in Vanguard Funds at Schwab

Post by Jack FFR1846 »

Both Fidelity and Schwab make money with share lending for those who short. I have both Schwab and Fidelity and at the very most, I'd consider their pitches to be soft sell that get shut down the instant you stop it. With Schwab, I get perhaps one call a year and with Fidelity, every time they change my Private Client manager. It's always just an offer to review my portfolio. So no, you're not going to be fending off calls to move to high priced products constantly.

When you say "funds", if you're talking ETFs, the costs won't change from being at Vanguard. If you are talking Mutual Funds, there's a huge cost (relatively) to buy and you will be limited to investor shares for new purchases.
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Topic Author
oldie42
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Re: Invest 100% in Vanguard Funds at Schwab

Post by oldie42 »

Thank you for that reply. So is the same expense ratio that is part of the Vanguard mutual fund now being paid to Schwab? In other words, is Schwab now getting paid 0.04% of my assets at VTSAX if I switch this fund to Schwab?
retired@50
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Re: Invest 100% in Vanguard Funds at Schwab

Post by retired@50 »

oldie42 wrote: Fri Oct 16, 2020 7:32 am Thank you for that reply. So is the same expense ratio that is part of the Vanguard mutual fund now being paid to Schwab? In other words, is Schwab now getting paid 0.04% of my assets at VTSAX if I switch this fund to Schwab?
I don't think that's how expense ratios work.

As I understand it, the .04% goes to the fund manager, so Schwab gets nothing from being the custodian of your Vanguard funds. I suppose they get to hope you switch to Schwab funds at some point, or use their cash management account, which could make them a bit of dough.

Regards,
This is one person's opinion. Nothing more.
NYCaviator
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Re: Invest 100% in Vanguard Funds at Schwab

Post by NYCaviator »

oldie42 wrote: Fri Oct 16, 2020 7:07 am I was thinking of trying to stay under the SIPC limits of $500K by sending some assets to Schwab. If I transfer in-kind, how does Schwab (or Fidelity) make any money from my account? Do they try to get you to switch to an equivalent Schwab fund? Or can they still make money if I just leave it alone? Also, if I do switch to a Schwab fund and sell the Vanguard one, how does Schwab know what the original cost basis was so they can put the profit or loss on the tax forms?
Thanks
What is your concern of staying below the SICP limit?

Realistically with all of the money at Vanguard (or Schwab or Fidelity), if something happened and the brokerage fails, you’re going to have a lot bigger problems than needing 500k in SIPC coverage. I wouldn’t worry too much about it.
aristotelian
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Re: Invest 100% in Vanguard Funds at Schwab

Post by aristotelian »

The cost basis data *should* transfer over seamlessly. However, there is always the risk of glitches. Especially if these are funds that have been held a long time ("uncovered shares"). (I transferred uncovered shares from T Rowe Price a few years ago, and they only transferred average cost data, so I am unable to use SpecID to sell specific shares).

You could continue to hold the funds at Schwab and I believe you could sell shares at no cost. You would not want to add to them due to transaction fees Schwab would charge on third party funds.
AlohaJoe
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Re: Invest 100% in Vanguard Funds at Schwab

Post by AlohaJoe »

oldie42 wrote: Fri Oct 16, 2020 7:16 am Yes, I saw that, but I figured (maybe incorrectly) that the aggregate of $250 million would not be enough to make all the Vanguard clients whole again. But I may not be looking at that correctly.....
SIPC only has $3 billion. Do you think that's enough to make all Vanguard clients whole again? SIPC doesn't even have enough money to cover 1% of a single Vanguard fund -- Vanguard's TSM fund alone has over $900 billion in assets.

SIPC is not an agency or any part of the United States government, the way FDIC is. It is not backed by the full faith and credit of the government, the way FDIC is. From the SIPC website:
It is important to understand that SIPC is not the securities world equivalent of the Federal Deposit Insurance Corporation (FDIC)
It is basically just an not-for-profit insurance company no different than Prudential or Berkshire-Hathaway. It charges a fee of 0.25% of net revenue to provide the insurance to the broker. If someone files a claim for several billion dollars then they will file bankruptcy.

In reality, if there are problems at an institution like Vanguard with over $6 trillion in assets, Congress, the Federal Reserve, the Treasury Department, and everyone else will get involved. SIPC will be pretty moot. Vanguard is 10x the size of Lehman Brothers and all those actors got involved in Lehman.
RickyAZ
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Re: Invest 100% in Vanguard Funds at Schwab

Post by RickyAZ »

This. If something goes wrong and VGI is looking for an insurance bailout then there's probably a lot more going on in the economy where it won't really matter.
Tattarrattat
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Re: Invest 100% in Vanguard Funds at Schwab

Post by Tattarrattat »

If you grow your assets to 5 million dollars, will you spread that among 10 brokerages? Vanguard is the custodian for trillions of dollars.
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Doc
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Re: Invest 100% in Vanguard Funds at Schwab

Post by Doc »

Jack FFR1846 wrote: Fri Oct 16, 2020 7:18 am When you say "funds", if you're talking ETFs, the costs won't change from being at Vanguard. If you are talking Mutual Funds, there's a huge cost (relatively) to buy and you will be limited to investor shares for new purchases.
Just convert your mutual funds to ETFs at Vanguard and then transfer the ETFs to Schwab. The fractional shares if any, might be changed to cash.

About half of our Schwab assets are Vanguard ETFs.

Vanguard is an excellent fund/ETF provider and Schwab is an excellent broker.
A scientist looks for THE answer to a problem, an engineer looks for AN answer and lawyers ONLY have opinions. Investing is not a science.
Topic Author
oldie42
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Re: Invest 100% in Vanguard Funds at Schwab

Post by oldie42 »

Thanks for all of your thoughtful responses.
Based on what everyone has said, I will cross this off my worry list. It appears I have a better chance of being struck by lightning than losing assets over the SIPC limits at Vanguard.
000
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Re: Invest 100% in Vanguard Funds at Schwab

Post by 000 »

SIPC does not protect against fraud or theft by the manager of the underlying asset, just the brokerage.

So your plan to hold funds from the Vanguard fund family at Schwab would not seem to provide protection from "something bad" happening at Vanguard.
BogleFan510
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Re: Invest 100% in Vanguard Funds at Schwab

Post by BogleFan510 »

oldie42 wrote: Fri Oct 16, 2020 7:07 am I was thinking of trying to stay under the SIPC limits of $500K by sending some assets to Schwab. If I transfer in-kind, how does Schwab (or Fidelity) make any money from my account? Do they try to get you to switch to an equivalent Schwab fund? Or can they still make money if I just leave it alone? Also, if I do switch to a Schwab fund and sell the Vanguard one, how does Schwab know what the original cost basis was so they can put the profit or loss on the tax forms?
Thanks
I've been a Schwab Customer for 35+ years. They've never asked me to switch Vanguard funds or ETFs to their offerings. I believe brokers receive compensation for the tax reporting and customer service paperwork they manage from the funds. I also think there are other income steams and benefits like facilitating share borrowing or loans against the assets, plus a small cash float during distributions or from any cash that is not reinvested. One wants their broker solvent and at least marginally profitable, so I dont mind.
Willmunny
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Re: Invest 100% in Vanguard Funds at Schwab

Post by Willmunny »

AlohaJoe wrote: Fri Oct 16, 2020 7:54 am
oldie42 wrote: Fri Oct 16, 2020 7:16 am Yes, I saw that, but I figured (maybe incorrectly) that the aggregate of $250 million would not be enough to make all the Vanguard clients whole again. But I may not be looking at that correctly.....
SIPC only has $3 billion. Do you think that's enough to make all Vanguard clients whole again? SIPC doesn't even have enough money to cover 1% of a single Vanguard fund -- Vanguard's TSM fund alone has over $900 billion in assets.

SIPC is not an agency or any part of the United States government, the way FDIC is. It is not backed by the full faith and credit of the government, the way FDIC is. From the SIPC website:
It is important to understand that SIPC is not the securities world equivalent of the Federal Deposit Insurance Corporation (FDIC)
It is basically just an not-for-profit insurance company no different than Prudential or Berkshire-Hathaway. It charges a fee of 0.25% of net revenue to provide the insurance to the broker. If someone files a claim for several billion dollars then they will file bankruptcy.

In reality, if there are problems at an institution like Vanguard with over $6 trillion in assets, Congress, the Federal Reserve, the Treasury Department, and everyone else will get involved. SIPC will be pretty moot. Vanguard is 10x the size of Lehman Brothers and all those actors got involved in Lehman.
Joe - This is a very helpful explanation. Thank you.
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