Vanguard, the country’s second-largest financial-advisory firm, will start charging brokerage-account holders a slew of new fees starting July 1 — including a $100 processing fee to close an account or transfer assets to another firm. That fee, however, will be waived for customers with at least $5 million in assets.
The account-closure fee is a first for Vanguard, long a provider of low-cost investing options and a pioneer in passively managed index funds.
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The new fees aren’t sitting well with some customers.
Eric, a 39-year-old Vanguard customer who asked to be identified by his first name to protect his privacy, told MarketWatch he has had an account with the firm for more than a decade. “I was a big fan of [Vanguard founder Jack] Bogle and his philosophy around making a financial firm that was more centered on normal people, and less about trying to extract as many fees as possible. This seems like a step away from that, and that’s part of why I was disconcerted.”
While Eric doesn’t plan to cancel his account over the new fees, he noted that Vanguard has recently promoted managed accounts to him, which come with more fees, and has sent him surveys asking what services he would be willing to pay for. “It doesn’t seem like their heart’s in the right place, and they’re trying to find ways to drum up revenue,” he said. “I think Vanguard dragged the industry the right way, and now the industry seems to be dragging them the wrong way.”
Some say the new fees make them feel unwelcome at Vanguard. Harry Sit, who writes the Finance Buff blog, said on X, “After investing with Vanguard for 20+ years, I’m submitting a request to transfer out my last account at Vanguard to Fidelity before Vanguard starts imposing a $100 transfer-out fee. I get the subtle message that Vanguard doesn’t want me unless I have $5 million there.” Sit did not immediately respond to MarketWatch’s request for comment.
In a statement, Vanguard said it “is committed to helping clients navigate toward simpler and more seamless and secure digital pathways, and constantly evaluates our brokerage services and products, inclusive of the commissions and fee schedule. For clients seeking to transfer their entire account(s) to another brokerage firm, the processing fee helps to offset the costs of the asset transfer and aligns the cost to those clients making the change.”
Vanguard is not alone in charging customers to close their accounts. Charles Schwab SCHW charges $50 for a full transfer out of assets, while E-Trade MS charges $75. Robinhood HOOD charges $100 to transfer assets to another brokerage. Fidelity, meanwhile, does not charge a close-out fee.
But unlike other firms, Vanguard is owned by its U.S. funds and thus indirectly by its U.S. fundholders, “I think the $100 account-closure fee is best interpreted as Vanguard trying to make sure that the labor and other costs generated by closing an account are paid by those closing the account rather than spread across the rest of the business,” said Alec Lucas, director of manager research, active funds research, at Morningstar.
Account-closure fees “are common in the industry, but Vanguard’s rationale for imposing them would be different” because of its structure, Lucas said. “Efficiency is a priority for Vanguard, because it helps to keep costs low and allows the firm to serve their large and growing customer base.”
But some see Vanguard’s new fees as anti-customer. “Airlines say the same thing about baggage fees — ‘Why should everyone pay for this?’ It makes some of the tickets cheaper, I guess, but it’s more mental overhead,” Eric, the Vanguard customer, said.
In addition to Vanguard’s new account-closure fee, the company will also charge $25 for broker-assisted trades of Vanguard funds (unless the customer holds $1 million or more in Vanguard assets or is enrolled in a Vanguard advisory service); $100 to process the deposit of physical share certificates; a 20% fee on funds recovered from class-action settlements on clients’ behalf; a 1% fee on gross dividends paid on foreign or American depository receipt assets held in U.S. dollars; and a $250 processing fee for research and removal of a restriction on securities in brokerage accounts.
Of these six new charges, the new $100 fee to close and transfer accounts seems to be the most controversial. Some customers are questioning why they need to start paying to have control of their money when they didn’t have to do so previously.
“It’s not that $100 is going to bankrupt any of us, it’s a sign that they are losing their mission focus, it’s anti-customer,” wrote one Reddit user in a forum about financial independence.
“It shouldn’t cost you (or me) money to exercise our choice to not do business with them,” commented another.
The fee changes come as Salim Ramji is poised to take over as chief executive of Vanguard — and as the Biden administration and the Consumer Financial Protection Bureau have issued new rules to eliminate “junk fees,” which they define as “hidden, surprise fees that companies sneak onto customer bills.” A new CFPB rule, for instance, caps credit-card late fees at $8. The rule was blocked by a federal judge in Texas last month.
Asked about Vanguard’s new fees, White House spokesperson Jeremy Edwards told MarketWatch, “When it comes to surprise fees, the president has been clear: The American people are tired of being nickel and dimed by big corporations playing them for suckers. That’s why he has remained focused on taking action against corporate greed, price-gouging and hidden junk fees on products and services from retirement accounts to event tickets to credit cards.”
Sen. Elizabeth Warren, a Massachusetts Democrat, compared Vanguard’s new account-closure fee to “having to pay $100 to leave Six Flags once you’re in the gates. If your service is so bad that you have to charge people to keep them from leaving, you need to re-examine your business model.” She told MarketWatch that Vanguard’s move “shows why the CFPB’s fight against junk fees is critical. It’s outrageous to charge people $100 to close their bank account.”
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