Vanguard's "account service fee"

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Love2Golf
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Vanguard's "account service fee"

Post by Love2Golf » Tue Sep 08, 2009 11:55 am

I wanted to buy $5000 of the VBMFX Total Bond Fund for my IRA with Firstrade, but the Vanguard website says "Vanguard charges a $20 annual account service fee for each Vanguard fund with a balance of less than $10,000 in an account." Does this mean Vanguard charges the $20 fee if you buy the fund through the Vanguard brokerage, or do they charge the $20 fee regardless of which brokerage you buy from?

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SpringMan
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Post by SpringMan » Tue Sep 08, 2009 12:08 pm

Vanguard won't charge the fee for funds held elsewhere, only if the fund is held at Vanguard.
Best Wishes, SpringMan

gcturp
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Fee

Post by gcturp » Tue Sep 08, 2009 12:09 pm

I could be wrong, but: The fee is because it is through a firm other than Vanguard. Vanguard doesn't charge fees if you open an account with them (and sign up for e-delivery, etc).

DSInvestor
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Post by DSInvestor » Tue Sep 08, 2009 12:19 pm

When buying vanguard mutual funds at outside brokerages, be aware that they typically are not on the NTF (No Transaction Fee) list so so transaction fees may apply. Sometimes the fees can be quite high.

For example:
-Fidelity charges $75 transaction fee for each vanguard fund transaction to buy. No transaction fee to sell. If buying $5000, this would be like paying 1.5% front end load.

-Wells Fargo (Wellstrade PMA) offers 100 free trades per acct and those free trades can be used to avoid transaction fees for no load funds that are not on the NTF list. You must have 25K to qualify for PMA. Once you have used up 100 free trades, it is $5.95 per transaction for no-load transaction fee funds. If you do not qualify for PMA, there is a $35 transaction fee for online trading of no load transaction fee fund.

If you purchase VBMFX directly with vanguard, you can waive the account service fee if you sign up for electronic delivery of statements etc. I'm not sure if that fee applies if you hold the fund outside of Vanguard. A call to vanguard may be the best way to find out.

IMO, Vanguard is the best place to hold Vanguard Mutual funds. If you don't want to open an account with Vanguard, check to see if the mutual fund you're interested in has an ETF share class. ETFs can be purchased through any brokerage and will avoid these account fees and mutual fund transaction fees. However, ETFs will have brokerage commissions, bid/ask spread, and may trade at premium/discount to NAV. Vanguard Total Bond Market Index VBMFX has an ETF share class (BND). Vanguard Total Stock Market VTSMX has an ETF share class (VTI).

Here's a link to Vanguard's ETFs page where you can find out more.
https://personal.vanguard.com/us/funds/etf

Note that ETFs are quite a bit more complicated than regular mutual funds and I'd recommend studying up on them before making any purchases.

Here's something that Rick Ferri wrote on Richard Ferri on whether an investor should buy ETFs or mutual funds.

edit: Fidelity's mutual fund transaction fee applies for purchases only - Thank you stratton for pointing this out.
Last edited by DSInvestor on Tue Sep 08, 2009 2:48 pm, edited 1 time in total.

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stratton
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Post by stratton » Tue Sep 08, 2009 2:37 pm

DSInvestor wrote:For example:
-Fidelity charges $75 transaction fee for each vanguard fund transaction (buy or sell). If buying $5000, this would be like paying 1.5% front end load.

Only on buys at Fido. Sales are free.

Reinvesting distributions is free.

This is smart because it makes it very easy for people to sell and buy NTF funds if they bring in outside funds and want to add more money.

Paul

DSInvestor
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Post by DSInvestor » Tue Sep 08, 2009 2:46 pm

stratton wrote:
DSInvestor wrote:For example:
-Fidelity charges $75 transaction fee for each vanguard fund transaction (buy or sell). If buying $5000, this would be like paying 1.5% front end load.

Only on buys at Fido. Sales are free.

Reinvesting distributions is free.

This is smart because it makes it very easy for people to sell and buy NTF funds if they bring in outside funds and want to add more money.

Paul

Thanks Paul, you are correct. I had received different information when I spoke with a rep several months ago (or I misunderstood).

From Fidelity's Fees and Features page for VBMFX which is a transaction fee fund at Fidelity.
Transaction Fee:

A transaction fee is similar to a brokerage fee or commission which you pay when you buy or sell a stock. For some funds available through Fidelity you are required to pay a transaction fee. However, you will not pay a sales load on Transaction Fee (TF) funds. You will only be charged a transaction fee when you buy a FundsNetwork TF fund, not when you sell one. All other fees and expenses described in a fund's prospectus still apply. You can choose to buy or sell shares directly from the fund itself or its principal underwriter or distributor without paying a transaction fee to Fidelity.

Sales load:

A sales charge added to the price of the fund. Funds have different sales charge structures, including front-end loads,back-end loads (deferred), and no loads. Sales loads can either be charged when a fund is purchased, commonly known as a front-end load, or when a fund is sold, known as a deferred load. Not all funds charge a load. Refer to the Loads, Expense and Minimums section of the fund's prospectus for details on these amounts. Although no load funds do not have a front-end or deferred load, they may incur other fees, such as a 12b-1 fee.

Online: $75 flat fee

Fidelity Automated Service Telephone (FAST): 25% off representative-assisted rates, Maximum: $187.50, Minimum:$75
Representative-Assisted: 0.75% of principal, Maximum: $250, Minimum: $100
Automatic Investment: $5 per transaction, after the initial investment.

Love2Golf
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Post by Love2Golf » Tue Sep 08, 2009 3:00 pm

I went ahead and called Vanguard, and the rep said the $20 annual account service fee only applies if you have an account with Vanguard and your account has Vanguard funds with less than $10K each (unless you sign up for e-statements, etc.). If you have an account with another brokerage and buy the Vanguard fund through the other brokerage, the $20 account service fee doesn't apply (although you have to pay that brokerage's commissions/fees, of course. Firstrade's is $9.95 for mutual fund transactions, and no account fees for IRAs).

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