VBS offers free VG ETF trades, qualify for Voyager with 50k

[mikep]

Good news Bogleheads!

VBS is now offering commission free Vanguard ETF trades: https://personal.vanguard.com/us/insigh ... s-05042010

Now Voyager eligibility is reduced to $50,000 assets so no account fee if you meet that requirement: https://personal.vanguard.com/us/whatwe ... Link=facet

[White Coat Investor]

Oooh. This is big news. I may just need to start doing ETFs now. I'm going to have to look into this. Do you know if the fee for converting from mutual fund shares to ETF shares is lowered too?

[Live Free or Diehard]

I'll have to move my brokerage account to VBS since all of my ETFs are Vanguard ETFs.

[mikep]

Oooh. This is big news. I may just need to start doing ETFs now. I'm going to have to look into this. Do you know if the fee for converting from mutual fund shares to ETF shares is lowered too?

Looks like the $50 fee for ETF conversion is eliminated too.
This is the last push I need to convert FTSE small to ETF shares, so I can stop paying those 0.75% purchase fees. I think I'll convert REIT too, to lower my ER.

https://personal.vanguard.com/us/conten ... sp#link_12

There is no fee for Vanguard Brokerage clients to convert conventional shares to Vanguard ETFs of the same fund. Other brokerage providers may charge a fee for this service. For more information, contact your brokerage firm, or call 866-499-8473.

[simplesimon]

The $50k minimum for Voyager eligibility is for all accounts combined? I have a Roth IRA and a taxable account.

[dphmd]

I just saw this on their website, and I'm stoked. I was contemplating opening a Fidelity account for my nascent taxable account, but now I don't have to.

My question: For a tax-advantaged account, is there any reason not to convert my mutual funds to the corresponding ETF? I'm thinking in particular of my traditional IRA, where no money is going in or out at the moment. Most of the funds are just sitting there, with rebalancing done in other accounts. I could sell the mutual funds and buy the corresponding ETF's without a tax hit or a commission.

I understand the issues with bid-ask spreads and so forth, but if I am literally going to buy once and hold forever, wouldn't the price advantage of the ETF's trump any slight disadvantage?

[Scorpion]

Aargh - this figures. I converted to three ETFs at VG within the last month, and I paid the fee on each conversion. For those of us with the PMA accounts at WellsTrade, I guess this news doesn't make much difference. I hold both VG ETFs and certain other ETFs (RZV, DGS) at WellsTrade. Good news if Wells ever changes their policies, though.

[Bob B]

It's good to see that VBS is now competitive with the rest of the industry. This is a substantial reduction in their commission rates.

[Live Free or Diehard]

The $50k minimum for Voyager eligibility is for all accounts combined? I have a Roth IRA and a taxable account.

Yes. This is from Vanguard's website:

Membership is based on total household assets held at Vanguard, with a minimum of $50,000 to qualify for Vanguard Voyager Services®, $500,000 for Vanguard Voyager Select Services®, and $1 million for Vanguard Flagship Services®. We determine membership by aggregating assets of all eligible accounts held by the investor and his or her immediate family members who reside at the same address, including investments in Vanguard mutual funds, Vanguard ETFs®, annuities through Vanguard, The Vanguard 529 Plan, and certain small-business accounts. Assets in employer-sponsored retirement plans for which Vanguard provides recordkeeping services may be included in determining eligibility if the investor also has a personal account holding Vanguard mutual funds. Note that assets held in a Vanguard Brokerage Services® account (other than Vanguard ETFs) aren't included when determining a household's eligibility.

[brick-house]

Holy smokes! Tremendous offering.

Voyager Services®

Voyager Services can help you manage your growing investing needs so you can work toward your goals with confidence.

Investors with $50,000 to $500,000 in Vanguard mutual funds

* Commission-free Vanguard ETF® trades and reduced commissions for stocks and non-Vanguard ETFs. No account service fees.*
* A detailed financial plan at a discount. A Certified Financial Planner™ professional from Vanguard will analyze your investments and saving strategy.

[HeatIndex]

Aargh - this figures. I converted to three ETFs at VG within the last month, and I paid the fee on each conversion. For those of us with the PMA accounts at WellsTrade, I guess this news doesn't make much difference. I hold both VG ETFs and certain other ETFs (RZV, DGS) at WellsTrade. Good news if Wells ever changes their policies, though.

I feel the same way. I am seriously considering opening up a WellsTrade account, but always in the back of my mind I think that they might change their policies. This news from Vanguard gives me a backup plan.

[Tristrex]

I guess they're taking the whole Vanguarding thing seriously .

Does this make converting to and using ETFs a no-brainer?

[edge]

Well, the trade rate reductions actually do make VBS competitive. Free ETF trades are nice also.

[mikep]

Apologize I realized I posted in Personal finance. This should probably go to investing theory.

Anyway, I really see ETF conversion of investor shares/brokerage account as a no-brainer especially if you are Voyager or higher. You get an ER competitive with admiral shares and you are just subject to the spread.

However, someone only holding admiral shares will probably not benefit much, as you would be subject to spreads without much reduction in ER.

I might wait a few days to see if VBS can really handle the onslaught of new accounts without any hiccups, but otherwise will probably make the switch soon.

[caklim00]

Good deal.

Now, if I ever have to leave Wells F. I will have my backup option. I could buy/sell any of my funds at Vanguard for free other than International SCV.

[caklim00]

Aargh - this figures. I converted to three ETFs at VG within the last month, and I paid the fee on each conversion. For those of us with the PMA accounts at WellsTrade, I guess this news doesn't make much difference. I hold both VG ETFs and certain other ETFs (RZV, DGS) at WellsTrade. Good news if Wells ever changes their policies, though.

I feel the same way. I am seriously considering opening up a WellsTrade account, but always in the back of my mind I think that they might change their policies. This news from Vanguard gives me a backup plan.

WellsTrade is still a better option if you plan on holding any non-Vanguard ETFs (or mutual funds that aren't NTF - IE. Bridgeway, Schwab RAFI, etc.). If you just want to hold just Vanguard funds, then I could see going with Vanguard now. Although I've heard some bad things about Vanguard's buying/selling interface. WF lets you identify specific lots when selling of stocks/ETFs (which is important if you want to TLH), not sure about Vanguard...

Its deifitetely a risk that WF changes their policies, but in this ultra-competitive world of free trading (Schwab, Fido, BOA, Zecco and now Vanguard) this would put WF at a competitive disadvantage. So, risk exists, but I thinkits lower than you might expect.

[ObliviousInvestor]

I just saw this on their website, and I'm stoked. I was contemplating opening a Fidelity account for my nascent taxable account, but now I don't have to.

My question: For a tax-advantaged account, is there any reason not to convert my mutual funds to the corresponding ETF? I'm thinking in particular of my traditional IRA, where no money is going in or out at the moment. Most of the funds are just sitting there, with rebalancing done in other accounts. I could sell the mutual funds and buy the corresponding ETF's without a tax hit or a commission.

I understand the issues with bid-ask spreads and so forth, but if I am literally going to buy once and hold forever, wouldn't the price advantage of the ETF's trump any slight disadvantage?

One small point of note is that if your Vanguard assets are < $50,000, you'd have to pay an annual $20 fee to have a brokerage IRA, whereas an IRA with just index funds won't have a fee (assuming you get email statements).

[Eric]

I don't mean to look a gift horse in the mouth, but there's one potential downside. This may prompt Vanguard to let its Admiral shares program wither on the vine. It will be harder now for a fund to reach the critical mass of large accounts that Vanguard uses as a trigger to introduce an Admiral share class.

[mikep]

One other thing it may not be the best for bond funds w/ reinvested dividends since you'd be subject to the spreads for reinvested amounts, especially if you can get admiral shares of the conventional fund.

[TheEternalVortex]

Does VBS let you specify lots when selling online?

[Random Musings]

For the Flagship people:

As a Flagship member, you're now eligible for unlimited, commission-free Vanguard ETF® trades, 25 free stock trades, and $2 stock trades after that.

Vanguard ETFs Unlimited, free trades*

Stocks & Non-Vanguard ETFs 25 free trades per year**

$2 for your subsequent trades

I think I'll never get to the $2 trade part.....

RM

[dave.d]

I would like it to be noted that I posted the following this past Sunday, May 2:

Now that both Fidelity and Schwab will offer free trading on reasonably complete sets of ETF['s], I'm wondering how long Vanguard can resist market pressure to offer free trading on its own set of ETF's.

(in this thread: http://www.bogleheads.org/forum/viewtopic.php?t=54433). So I expect a little more respect around here from now on.

Does VBS let you specify lots when selling online?

No, but they will do HIFO accounting for you, if you so elect.

[Prokofiev]

For the Flagship people:

As a Flagship member, you're now eligible for unlimited, commission-free Vanguard ETF® trades, 25 free stock trades, and $2 stock trades after that.

Vanguard ETFs Unlimited, free trades*

Stocks & Non-Vanguard ETFs 25 free trades per year**

$2 for your subsequent trades

I think I'll never get to the $2 trade part.....


RM

Does this mean I will go from my free 100 VG trades down to 25??

Would not really make any difference to me. But it's good to see VG going back to being the low-cost provider.

[nvboglehead]

I am glad that VG is staying competitive with its rivals. I have had an account with them for over 15 years, since the days when they were VDBS (Vanguard Discount Brokerage Services) - a terrible acronym - it is good that they changed that!

I have been satisified with their services over the years. They offered free US Treasury securities purchases at the auctions before it became a common practice. Their brokered cd rates now are some of the best if you are interested in doing cd ladders.

Dale

[Trebor]

1) Are trading cost being absorbed by the fund?
2) Some funds may never reach admiral status now.
3) Conventional share class may wither now?


For those who have converted to etf share class, how do you keep track of tax lots when you ultimately sell?

[jcompton]

Does this mean I will go from my free 100 VG trades down to 25??

No, "Flagship Enhanced" types get 100 free + $2/subsequent.

[Random Musings]

Prokofiev wrote:

Does this mean I will go from my free 100 VG trades down to 25??

Is that through Vanguard or another provider? If outside broker, I would keep the free 100. If from Vanguard, I would hope they honor it.

But for most Flagship people, all free Vanguard ETF's plus 25 free trades (that can include non-Vanguard ETF's) will make it less compelling to move.

Even investors in the Voyager Select category (with $2 trades for non-Vanguard ETF's or individual equities) will be less compelled to move.

I see this as an effort as a continuing strategy to increase Vanguard's market share in the ETF arena. However, some of that will growth will come as a result of cannibalization within their mutual fund lineup.

RM

[White Coat Investor]

For those who have converted to etf share class, how do you keep track of tax lots when you ultimately sell?

I'd like to know that too.

Also, how do reinvested distributions work with ETFs within a tax-protected account? Should you not do it if the ETF is trading at a premium? Also, any tricks on timing the conversion from mutual funds to ETFs?

It looks like I ought to do this at least for my intl small and EM funds, probably my taxable TSM, and maybe even bring my BRSIX over to VG brokerage services. Anyone know if the BRSIX transaction fee changes at all under these recent changes? Edit: Looks like it's still $20 a trade for BRSIX and other non-NTF funds through fundaccess. Someday perhaps.

[Jack]

Apparently they have not changed their redemption fee of 1%, up to $250, for selling non-Vanguard NTF funds held less than 180 days. In some cases it would be cheaper if they just eliminated the no-fee and charged a flat commission for all non-Vanguard funds. $250 for a trade is prohibitively expensive.

[mikep]

I wonder if this means that one could open a VG account for something like one share of VTI ETF if they were willing to pay $20 per year. Seems like this might be a good way for those new to get started so they didn't have to save $1000 for STAR fund or $3000 for conventional fund shares.

[KyleAAA]

Sweet. This is another nail in the coffin of the index fund vs ETF debate. For those meeting the minimum to obtain Voyager status, is there any reason NOT to own ETF shares now? I suppose there are still bid/ask spreads to contend with.

[psteinx]

(Mods - IMO this thread belongs in "Investing - Theory, News & General". Perhaps if it was there, fewer folks would be starting up duplicate threads.)

[mikep]

Mods, please move this thread to Investing Theory section and lock other threads on this and give pointer here. My fault for posting here (hadn't yet had the morning coffee... )
Thanks,
Mike

[natureexplorer]

WOW! That is great news.

Regarding the conversion to ETF, it (https://personal.vanguard.com/us/conten ... sp#link_12) says the following:

There is no fee for Vanguard Brokerage clients to convert conventional shares to Vanguard ETFs of the same fund. Other brokerage providers may charge a fee for this service. For more information, contact your brokerage firm, or call 866-499-8473.

Does that mean other brokerages (for example Wells Trade) can convert Vanguard index funds to ETFs? I thought this was only possible directly at Vanguard.

Of course this had to happen just a few months after I moved some index fund over to Wells Trade to consolidate. I would have converted them to ETFs first.

Heck, if the conversion is free for basically everyone, it might make sense to make a habit of investing in the mutual fund and then immediately converting to ETFs. You skip the bid-ask-spread cost when buying but still get the lower ER - the best of both worlds.

[integrity]

Does the 50K minimum apply to tax-sheltered holdings with vanguard as well? I have my 401k there...

[tfb]

Don't forget to say thank you to competition. Vanguard wouldn't have done this if Schwab and Fidelity didn't. Is TRP in trouble now?

[nisiprius]

TIPS! TIPS! What about TIPS? No TIPS. Darn.

I can't consolidate everything at Fidelity because I'm not prepared to substitute iShares ETFs for my Vanguard funds. On paper there's no really good reason why I couldn't, but I just ain't gonna. I'm not gonna pay commissions to buy Vanguard ETFs, either. Or pay a $75 transaction fee to buy Vanguard funds.

I can't consolidate everything at Vanguard because even though I have only sold a TIPS on the market once in my life, I might want to again someday.

This is starting to sound a little silly even to me. Well, it's not as if there were any big rush.

[linenfort]

My sentiments exactly. : - )

For the Flagship people:

As a Flagship member, you're now eligible for unlimited, commission-free Vanguard ETF® trades, 25 free stock trades, and $2 stock trades after that.

Vanguard ETFs Unlimited, free trades*

Stocks & Non-Vanguard ETFs 25 free trades per year**

$2 for your subsequent trades

I think I'll never get to the $2 trade part.....

RM

[Opponent Process]

I don't mean to look a gift horse in the mouth, but there's one potential downside. This may prompt Vanguard to let its Admiral shares program wither on the vine. It will be harder now for a fund to reach the critical mass of large accounts that Vanguard uses as a trigger to introduce an Admiral share class.

I think the concept of mutual funds is withering on the vine.

[caklim00]

I don't mean to look a gift horse in the mouth, but there's one potential downside. This may prompt Vanguard to let its Admiral shares program wither on the vine. It will be harder now for a fund to reach the critical mass of large accounts that Vanguard uses as a trigger to introduce an Admiral share class.

I think the concept of mutual funds is withering on the vine.

Is this really a bad thing though? Shouldn't these funds become more tax efficient as the ETF share class increases vs. conventional share class? Not that this hybrid model wasn't tax efficient to beign with, but if ETFs end up being 80% with conventional shares being 20%... Seems like a good idea to me.

[GammaPoint]

This is very interesting news. Had this been the case a month ago I wouldn't have moved my taxable account over to WellsTrade.

Still though, the WellsTrade tax lot accounting is awesome and I've heard that Vanguard doesn't do that. I wonder if that will change? And this makes me feel more safe in WellsTrade's deal. If WF ever gives up the free trades I could easily just go back to Vanguard.

But this is a big win for sure for the small investor. WTG Vanguard!

[johncgay]

I love that Vanguard makes the first trades cheaper than the later ones rather than other firms drug-dealer mentality of "the more you trade, the cheaper it gets."

[haban01]

This awesome news! Great Job Vanguard Crew under the leadership of Bill McNabb!!

What a great day! (despite our equities being down..lol

[Kenster1]

That is fantastic news. Free Vanguard ETFs for all VBS account holders!

Note that Vanguard isn't leaving the door open though to freely trade all day with their free commission ETFs:

"If you buy and sell the same Vanguard ETF in a Vanguard Brokerage account more than 25 times in a 12-month period, you may be restricted from purchasing that Vanguard ETF through your Vanguard Brokerage account for 60 days."

You can chop your expenses in half in some cases. For example -- VG Midcap Value Index Fund has 0.30% ER but the ETF is only 0.14% ER !!! Even more cost savings comes with the likes of the EM ETF and International Smallcap ETF.

Note for those opening a VBS account --- In general, Vanguard assesses the household assets in May/June and applies the $20 annual fee in June if you don't meet the Voyager status level, at a minimum, which now is set starting at $50k. However, Vanguard waives this assessment for the 1st year. So if you're opening say a VBS Roth account now and starting off with plopping down $2000 to invest or converting your $30k in VG mutual funds to etfs and have less than $50k in total VG funds & etfs to at least qualify for Voyager status.....Vanguard will not be charging you the $20 VBS fee this coming June --- it is waived for the 1st year for new accounts.

Once you meet the $50k household asset minimum - be sure to call Vanguard to upgrade your status to Voyager level.

Another note with regards to a VBS regular/taxable account -- you can specify to use HIGHEST COST FIRST cost-basis accounting method as the default for your VBS account which applies to ETFs & Stocks. So can be convenient for those who want the automatic convenience of this method in minimizing taxes when trimming or rebalancing ETFs in their taxable accounts.

[livesoft]

VBS will have to improve their statements, tax-lot tracking, specific-share identification, customer service, etc before I put new money with them.

However, I welcome the change for assets I already have at Vanguard.

Vanguard is moving in the right direction at least.

[Tramper Al]

Note that Vanguard isn't leaving the door open though to freely trade all day with their free commission ETFs:

"If you buy and sell the same Vanguard ETF in a Vanguard Brokerage account more than 25 times in a 12-month period, you may be restricted from purchasing that Vanguard ETF through your Vanguard Brokerage account for 60 days."

That's funny, because I think it is the first time I recall seeing a restriction on the "frequent" trading of a publicly traded security! I can understand, though. I hope none of you was planning to DCA into the same ETF weekly.

[Monk]

Does this mean that Bogleheads may diversify their portfolios in a cost effective manner at VBS, rather than purchasing New Zealand real estate or minor league ball teams, leveraging at a young age, or hoarding consumables?

[simplesimon]

Heck, if the conversion is free for basically everyone, it might make sense to make a habit of investing in the mutual fund and then immediately converting to ETFs. You skip the bid-ask-spread cost when buying but still get the lower ER - the best of both worlds.

Wouldn't you face the spread when doing this conversion?

[tfb]

Wouldn't you face the spread when doing this conversion?

Conversion is done at NAV. If the ETF sells at a premium you are better off with conversion.

[Trebor]

While it probably will be the end of conventional index mutual fund share class, many 401k plans do not have brokerage abilities. If Vanguard was to maintain market share, they had no choice but to match the competition. It may theoretically improve tax efficiency of funds. Frequent traders will not have negative impact on fund.

There are some negatives.

1) It will encourage even more foolish frequent trading of ETF shares.
2) There is no free lunch….who absorbs the cost of trading…are the spreads enough to make it cost neutral?
3) What if the experiment ends badly and trading costs ultimately rise later when you need to sell.
4) Other conventional index funds will never reach admiral status now. You will ultimately have to convert to ETF class. I am uncertain how to keep track of my tax lots after conversion. I fear this will prove cumbersome and difficult later. I hope those who have already converted can tell me how this works.
5) The end of year tax reporting is likely superior and easier with the mutual fund class (particularly with foreign funds) than the etf class.
6) Buying Vanguard etfs will require a Vanguard brokerage account in most cases. This is ok but Vanguard needs to improve their tax lot tracking to match competition.