May 30, 2024
Why I'm Pulling All My Money Out of Vanguard
Dear Subscriber,
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| By Nilus Mattive |
For many years now, I have recommended Vanguard as one of the best brokerages out there.
I always try to put my money where my mouth is, too — which is why I also used the company for my personal accounts.
Indeed, my family and I have had an array of accounts with Vanguard for more than a decade … traditional brokerage accounts, regular IRAs, Roth IRAs, a Coverdell ESA, as well as a solo 401(k) plan.
But now, precisely because we have such a wide array of accounts, I’m looking to move on to greener pastures.
And unfortunately, I think there are lessons in this for any investor whether they have accounts at Vanguard or not.
From the Vanguard to a Sinking Ship
Everyone is a “legend” or a “GOAT” these days.
But Vanguard’s founder, John C. Bogle, is one of the rare individuals who actually deserves such a title.
Bogle watched his family lose their money and their home during the Great Depression. I suspect that experience — along with his gift for numbers — are what shaped his view on the investment markets.
Like Warren Buffett, Bogle favored long-term strategies. He believed in lowering costs, particularly frictional costs like trading and maintenance fees, as much as possible. He thought regular investors would be best served by broad exposure to markets rather than trying to pick individual winners.
Vanguard, which he started roughly 50 years ago, was built on those principles.
Through his investment company, Bogle established the very first passive mutual fund — the Vanguard 500 Index fund.
At the time, simply trying to match the performance of a given market index was a radical idea.
Wall Street certainly hated the concept, especially since it diminished the importance of paying big fees for promised (but rarely delivered) performance.
Today, almost every Wall Street firm offers passive index funds, which are considered the default choice in retirement accounts worldwide.
But Bogle didn’t stop there. He also organized Vanguard in a way that minimized fees for its customers.
As Vanguard itself explains it …
“Vanguard is owned by its member funds, which in turn are owned by fund shareholders. With no outside owners to satisfy, this structure ensures business and portfolio management decision focuses squarely on meeting the investment needs of our investors.”
Essentially, Vanguard operates like a credit union while just about everyone else operates like a bank.
This is precisely why I loved the company both personally and professionally.
But Bogle died in 2019, and things seem to be changing over at Vanguard …
Why John Bogle Is Rolling Over in His Grave
It started when I received word that the company would be handing over my solo 401(k) plan to a third-party administrator.
Apparently, Vanguard no longer wanted to be bothered acting as Trustee for these accounts since they make up a relatively small portion of the company’s business. It is also selling other types of niche retirement accounts to Ascensus, too — including SEP and SIMPLE IRAs.
To add injury to insult, I was also told that Ascensus, the firm taking over Trustee duties, would start levying new fees. They include a $20 annual fee for running the account … a $25 account termination fee for anyone ending their plan … as well as annual account service fees of $20 for each mutual fund held in the account.
Only that last type of fee was an existing feature of Vanguard’s version of my plan. But it was also waived for anyone with a reasonable amount of money invested. That’s why there was a note in bold that said “exceptions or waivers of account service fees provided by Vanguard will no longer apply.”
On the surface, a couple hundred dollars in annual fees might not sound like much. But it’s sending my account in precisely the opposite direction of what John Bogle hoped for. And obviously, the smaller the investor, the greater the impact those fees have.
These changes alone already had me thinking about transferring the plan to another provider or rolling it into an IRA. Heck, WeBull will currently give me a 3.5% bonus on all the money I bring over!
Then the case for doing so only got more compelling …
I have maintained a Coverdell IRA with Vanguard, also known as an Education Savings Account, for my daughter ever since she was born back in 2007.
But when I recently went in to change her investment allocations, I was unable to switch any of the money between Vanguard’s fund offerings. It simply said I needed to call for more information.
After several length conversations, I found that Vanguard doesn’t want these types of accounts anymore, either. And while I had certainly been given notice, they would no longer accept new contributions.
They were now no longer letting me do any types of transactions inside the account at all!
Basically, I was told I could leave it exactly as it was currently invested … switch to a 529 Plan, which they pushed for me to do … or I could take the account somewhere else.
Since it was only a few days after these new account restrictions went into place, I asked for at least one quick chance to switch everything over to a money market, while I decided my next step. I was told quite firmly the answer was no.
Quite honestly, I did not receive the type of customer service I have come to expect from the company, and these are the type of strong-arm tactics I would expect from a traditional Wall Street firm … not a shareholder-owned firm like Vanguard.
I’m not done yet, either.
Based on other articles I’ve read, Vanguard is also instituting additional fees on customers that include a $25 fee anytime a customer uses phone assistance to make a trade … unless they have at least $1 million with the firm!
As a big proponent of dividend stocks, I’m also alarmed at another new fee that applies to any payment received from a foreign security or even an American Depositary Receipt (ADR).
It’s only $1, but then you have to ask why are they bothering to charge it in the first place. And also, how much higher might it go from here?
I could keep going, but the message is clear: The times are changing over at Vanguard.
I have to assume John Bogle is rolling over in his grave while I’m busy rolling over all my family’s accounts.
If you’re currently paying unnecessary fees to Vanguard or any other financial institution, I recommend taking a look at what else is out there as well.
Best wishes,
Nilus Mattive
P.S. Fortunately, not every type of investment needs a broker like Vanguard.
In fact, my colleague, Chris Graebe, is an expert at finding niche private investment ideas, which you can do directly or through a special platform.
He just found one that is so potentially lucrative that he recorded a quick video about it from his home studio to get it out to you immediately. Check it out here.
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