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Vanguard's average fee is now 0.07% after biggest-ever cut

ilamont

Not mentioned in any of the coverage I've seen (or the interview with Vanguard's new CEO in the WSJ) is Fidelity.

Fidelity used to be known for actively managed funds, but has been eating Vanguard's indexing lunch for the past 10 years or so. Part of this relates to its dominance in workplace accounts, but Vanguard hasn't helped itself with some bad customer-facing software updates and a perception that its service levels are poor compared to Fidelity.

Cutting fees helps, but Fidelity has shown its willing to do this, too, including no fee "Zero" index funds: https://www.fidelity.com/mutual-funds/investing-ideas/index-... (note Fidelity is very clear about who it's competing with)

Gshaheen

One other differentiation that Vanguard has is that it is owned by the fund holders

“Vanguard set out in 1975 under a radical ownership structure. Our company is owned by its funds, which in turn are owned by Vanguard’s fund shareholders. We focus on meeting the investment needs of our clients.”

So in short, vanguard is customer-owned, where fidelity is owned by mostly the founding family (the Johnson’s).

https://corporate.vanguard.com/content/corporatesite/us/en/c...

londons_explore

But does that structure confer any realistic chance of voting control by any real humans who aren't already employed by vanguard?

Funds aren't known for being voting activists.

ElevenLathe

Even so, I think the incentives are still for the Vanguard management to make as little profit as possible so that they can compete and have more funds under management. Controlling more billions of dollars of stock shares is kind of its own reward and brings many opportunities for enrichment, and if they don't have to worry about making money for shareholders, they can pretty much always engineer the lowest fees.

Gshaheen

Starting end of Nov 2024, Vanguard is actually beginning to roll out proxy voting capabilities to fund holders (in the US). This looks to be the beginning of deeper proxy voting capabilities, but not much information out there yet.

https://corporate.vanguard.com/content/corporatesite/us/en/c...

feoren

Would you rather be a dairy cow on a farm owned collectively by the dairy cows, or owned by one billionaire family? Is it that hard to see how that's immediately a huge positive even if you can't identify individual instances of the billionaire abusing their position?

fallingknife

This is academic. I have equal control over both, which is to say none whatsoever. Capacity to influence a company falls to the following (in order)

1. Executives

2. Large shareholders (usually institutional and rarely individuals)

3. Customers

4. Employee unions (if present)

The tech industry is an anomaly where 1 and 2 largely overlap, but this is not true in most industries. Unless you are super rich, you will never be able to have more influence over a large company than you do in the role of a pissed off customer ready to take his money elsewhere.

richid

This alone is why I will always choose Vanguard if possible.

wing-_-nuts

TBH, I trust vanguard more, even if their website is absolutely worse. There's a saying, 'if you're not the customer, you're the product'. I expect trades on those index funds are getting 'front run' much like robinhood is getting front run. You might have a lower ER but your nav might effectively be higher when buying and lower when selling.

Of course, I'm a 'buy and hold' investor so this doesn't really effect me much, but it's the principle of the matter.

bombcar

Fidelity uses those funds as marketing, and they make up for it with all the other services and funds they offer. It's intentional, and it's working.

Vanguard is more and more becoming a group that just wants to run ETFs and if you want to use them, they're making it harder and harder. They recently dumped all their 401(k) and similar plans from being in-house to some other provider.

Saves costs, makes support annoying.

Of course, you can use a Fidelity account to own Vanguard ETFs if you wanted.

skeuomorphism

> Fidelity uses those funds as marketing, and they make up for it with all the other services and funds they offer. It's intentional, and it's working.

> Vanguard is more and more becoming a group that just wants to run ETFs and if you want to use them, they're making it harder and harder. They recently dumped all their 401(k) and similar plans from being in-house to some other provider.

If this is true, then it must for individuals.. My company moved a little over a year ago TO vanguard for 401ks

phil21

Thanks for the reminder to move some old IRA accounts they dumped onto some random provider to Fidelity.

Horrible move on their part, if I didn't want some provider diversification I'd just move everything over entirely at this point.

matthewaveryusa

>Of course, you can use a Fidelity account to own Vanguard ETFs if you wanted.

Which I would highly recommend if you ever want to change brokers. the fidelity ZERO products are great but can only be held at fidelity while VOO shares can be transfered to any broker.

wbl

Vanguard is still offering IRAs last I checked.

jliptzin

There’s not really much money to be made front running someone’s deposit into an index fund that’s gonna sit there for the next 40 years. It works on RH because generally those users are transacting much more frequently and in much less liquid things like options.

pembrook

Front running customer purchases is not the concern. In the running of an index fund there’s many levers you can pull to create revenue streams that don’t show up on expense ratios.

Funny business can absolutely be pulled during rebalancing.

Another big one is securities lending income. Vanguard pays that out to investors which effectively creates negative expense ratios in certain funds. Index funds from other issuers don’t necessarily share that securities lending income with customers.

ardit33

I trust Fidelity. I used to work there years ago. It is a conservatively run place, careful with changes, which is a good thing when managing large amount of money. The tech and web interface might not be the shiniest, but I'd rather have my money there than vanguard/schwab, etc...

2OEH8eoCRo0

How do you front run a mutual fund? The price is the price.

short_sells_poo

If you know the index rules, it's fairly simple to calculate the turnover it is going to generate when it rebalances and subsequently the impact the rebalance is going to have on prices. This is a fairly well known behavior and a lot of players have been doing this for a long time. Basically every index of any significance is already being monitored and rebalancing effects are "front-run" this way.

I put the word in quotes, because this is a perfectly legitimate way of front running. The major indices are all public, and anyone can take a crack at this. In other words, if I announce to the world a month in advance that on a specific day and a very specific time of the day (at the closing auction) I'm going to buy X amount of specific stocks and sell Y amount in other stocks, I can't blame people for using that information against me.

fsckboy

How do you front run a mutual fund?

as a "consumer" of the mutual fund, you can't.

but the mutual fund itself makes large trades: somebody downstream executing those trades or having access to that data could front run.

manojlds

You mean an index fund?

toast0

Predict or react to index changes faster than the funds that are compelled to follow the index.

But you can't front run shares of mutual funds; they always trade at close of business at NAV.

You could potentially front run ETFs, but if you're worried about that, you can use limit orders and get the price you want or not transact. As long as you use a competent broker that offers limit orders.

kasey_junk

Front running is illegal.

NickC25

In finance, nothing is illegal if the profits outweigh the fines.

Citaldel paid handsomely for order-flow information from Robinhood. They made a lot of money off retail traders. They paid a fine IIRC equivalent to a few day's profits.

yellowstuff

There's a lot of confused comments on this thread. "Front running" in the strictest sense means illegal trading that involves taking advantage of trades that you know will happen and you have a responsibility not to exploit. "Front running" is also used informally to mean legally trading prior to trades that you anticipate happening. Studying the rules of an index and buy a stock just before its added to the index and index funds are required to buy it is "front running" in the second sense.

SteveNuts

Isn't it just PFOF? Is that actually illegal?

Edit: No, it's not in the US at least. It mostly just allows the broker to internalize orders if they prefer.

op00to

Only if you get caught. And the fine needs to be higher than the profit.

NegativeLatency

The riskier the road, the greater the profit.

Animats

I trusted Vanguard more until they became a broker and forced all their fund customers to have a brokerage account with them.

fallingknife

The pennies that they scalp off you on the trade by "front running" the order is much less cost than the annual fee if you are a long term investor.

losvedir

You expect wrong. I think you're talking about Payment for Order Flow (PFOF) which Fidelity does not use.[0]

[0] https://www.fidelity.com/trading/execution-quality/overview

yesimahuman

I don't think vanguard's core customer base cares about what hungry competitors are doing to entice them to move. Just look at Robinhood: they offered the biggest financial incentive for users to switch of any broker in the industry and I doubt many vanguard customers took them up on that. Stability, trust, and low fees are all buy and hold investors at Vanguard really care about.

nothercastle

They only offered it for a month or 2 and pulled it pretty quick

nfriedly

I have accounts at both, and my perception is that Vanguard is pretty much exclusively low cost, but Fidelity does have some very competitive options if you can find them. They just also have a lot of overpriced junk.

Fidelity’s technology and customer service does generally seem better. Although they were completely baffled when their app refused to run on a rooted phone with an error message along the lines of “your account is frozen” after I logged in. (It wasn’t, and worked fine after I realized that was the issue and put it on the deny list.)

Overall, I trust Vanguard more, but both have their strong points.

datavirtue

The overpriced junk is wedged into bespoke employer 401k programs that are managed by the brokers. There is usually only one or two low fee options hiding in the list and you have to be savvy to find them. Most employer 401k programs suck because they (custodian) are agreeing to the fund composition based on price to them. If you are lucky you might not end up in John Hancock or Transamerica. Yuck!

dweez

Matt Levine has a bit about the best customer service your broker can provide is not picking up the phone in a crisis.

Bad UX is, intentionally or not, consistent with Vanguard's long-term index investing philosophy. Call us? Use our website? Whatever it is you are trying to do, you probably shouldn't be doing that.

I kid, but only a little.

noirbot

It's interesting everyone's saying the UX is bad. I've had consistently good interactions with Vanguard's support over the years. I regularly get to talk to an actual human without waiting more than 10-20 minutes, and they're very helpful about getting things done and giving even basic advice about tradeoffs in different investing options.

The website isn't amazing, but I don't feel like it's terrible either. There's much worse 401k/IRA providers out there.

nothercastle

It’s hard to beat Fidelitys offer right now. They give you a 2-3% checking account. A 2% cash back credit card, access to their low cost funds and a decent enough website. All in one place.

Other brokerages are better at their niche but the fidelity package is quite competitive

silisili

Fidelity has great features, but is hamstrung by their awful execution.

The app is clunky, slow, and looks like something from the 90s. Just logging in takes an average of 10-15 seconds. The credit card is serviced by Elan, who is awful, but aside from that, the UX is abysmal. It feels like it redirects no less than 8 times to get to the credit card page. My phone won't even load it, so I have to do it on my computer.

It's so frustrating to me because I feel like they're 90% of the way there and just need a bit of UX work. But I've had that feeling for years now, with no real progress made, so am slowly moving away. If you don't touch your money often, it's probably fine - great even, but it became too frustrating for me in the end as an everyday use account.

nothercastle

Good to know that Elan services the card and is terrible. I’ll avoid

tommiegannert

Isn't this about the funds, rather than using Vanguard as a broker? Can't you buy Vanguard funds while on Fidelity, or vice versa?

angry_moose

You can. There's usually a hefty transaction fee when purchasing a funds not managed by whichever service you're on ($49?).

Might be manageable if you're purchasing in enormous quantities; but a 5% fee on $1000 hurts if you're in normal consumer purchase ranges.

jhardy54

This is true for mutual funds, but Vanguard ETFs are available on Fidelity with no fees.

Enginerrrd

We tried using vanguard. The UX/UI was so bad we went through the work of transferring everything to fidelity. They've got a pretty decent app.

Vanguard has so much friction on what should be very simple and common tasks.

There's no excuse for that. I can say pretty confidently that cutting fees won't be enough. They need a total rewrite of all their customer facing software and web stuff, and they probably need to revamp their customers service as well. They screwed up my wife's name and she tried for months and months to fix it before giving up.

ryandrake

Vanguard recently made two horrible mistakes: 1. a typical "Grand UI Redesign" that made the site worse and removed a bunch of previously working features, and 2. They made all their users "migrate" their accounts from one type to another, a process that I found to be error prone and clunky.

For 1, all of us software people have seen companies do this over and over, and it always sucks. For 2, why they couldn't do whatever backend migration they needed to do without having it disrupting retail customers, I have no idea.

Both of those point to a software organization way below where it needs to be competence-wise.

ecshafer

Vanguard's grand UI redesign was poorly done. At the time each team was responsible for some software product, and had a good ownership model. The issue imo was that the internal UI component library was poorly made and funded, and that the UX team was very old (most of the people were lifers that were hired in the 90s, no real experience in UI/UX,etc.) So people were just making the designs they were given. The Grand UI Redesign was a single new team that just made a heavy Angular UI application for the major areas, forcing product teams to be backend only. This caused discontinuity and didn't really fix the core issue.

venusenvy47

I've had the same Vanguard accounts for 15 years (Rollover IRAs, Roth IRAs, non-retirement) and I don't remember having to migrate anything. If something was migrated, I wasn't even aware it happened.

giantg2

That's because Vanguard is a buy and hold philosophy. They have previously stated that they designed their site for the bulk of the users. Those users log in just to check their balances in the 5 or fewer funds/ETFs that they hold. So instead of building something that would be reasonably easy for everyone, they built something that was easy for their primary (aging) user base. It's the same sort of mentality how they don't allow inverse ETFs, they aren't going to offer any crypto related stuff, etc.

dcrazy

At some point you need to realize your gains—perhaps to rebalance a portfolio, or to pay for an expense, or because you’re retiring and now it’s time to enjoy the profits of your buying and holding. And a lot of people elect specific-lot cost basis accounting to minimize tax burden.

lupire

They can't even correctly donate from a Vanguard brokerage account to a Vanguard DAF without breaking the cost basis.

toast0

> They need a total rewrite of all their customer facing software and web stuff,

They've done that. And now you can't sort by capital gain/loss per share when picking lots to sell.

They're also almost done forcing everyone into the brokerage side, which is less flexible with some things like reinvestment of dividends. On the nice side, it includes foreign dividend info on the 1099s so you don't have to find a separate document to get those percentages.

nineplay

The idea of making financial decisions based on UI/UX is extraordinary to me.

Enginerrrd

It is to me too! I would never do that normally. It's just that it was THAT bad.

It took me MONTHS to figure out how to sell a particular fund to buy another one. Somehow every time I tried to do it, it failed. I kept coming back to it over and over and different things went wrong. It was also very difficult to figure out the status of an order.

It was literally that clunky, and I've been trading for decades. I run multiple businesses, I know how these things work, but their UI was awful.

sjf

I guess you’ve never had the displeasure of using treasurydirect.gov.

programmertote

Vanguard's website revamp in the past three years was disappointing because in the past, I can visit just one (landing) page and get almost all of the info I need about my holdings + actions I could take on them and my accounts. Now, I have to click through a myriad of pages to do what I want. Plus, in Firefox browser at least, if you want to 'Exit' the order and some other pages, it simply doesn't work, so I have to type the 'vanguard.com' in the browser's URL field and ping it again.

This is an example of not breaking what was not broken (or at least, keep most of what was useful instead of replacing everything with "new and cool" stuff just because <no reason?>).

ac29

> Vanguard's website revamp in the past three years was disappointing because in the past, I can visit just one (landing) page and get almost all of the info I need about my holdings + actions I could take on them and my accounts.

Bookmark https://holdings.web.vanguard.com/

JasserInicide

It's so bad. I don't even like logging in anymore. Padding/whitespace everywhere, no more alternating row colors. I despise mobile-first UIs. The old one many have looked dated but it was more information dense without being overwhelming.

frognumber

I'll be contrarian. The general wisdom is hold the fund with the lowest fee structure.

However, if the fee structure is 0.07%, that's $70/year / 100k invested. Even if it's 0.44%, you're talking about $440.

The fees on most funds are small enough now to not matter much. It's worth shopping for lower-fee funds, but the more you go below 0.5%, the less it matters. If I save $500 per year for 50 years, that's $25k+interest, which is kind of the breakpoint of where it has practical impact on e.g. when I can retire.

layer8

For index funds, the important measure is the tracking difference [0] anyway. While the costs contribute to it, different ETFs on the same index differ in their typical/historic tracking differences beyond their differences in nominal cost.

[0] https://www.morningstar.com/business/insights/blog/funds/etf...

guntars

With 7% interest it’s over 200k.

pinkmuffinere

Sure but that’s an order of magnitude above the numbers the parent is comparing? A 7% fee is certainly crazy, agreed with you there

frognumber

guntars did the amortization on $25k growing with interest (not fees). In other words, the claim is that 0.5% can be significant. Which is true.

When I did the math with my life savings, 0.5% was about the breakpoint where things become significant. $200k would be more significant, so I suspect when I did the math properly, I was expecting to retire in less than 50 years. In 50 years, I'll likely be dead.

wil421

At %0.07 you would lose about 2% of your total value after 30 years.[1] No thanks.

[1]https://www.bogleheads.org/wiki/How_much_do_you_lose_to_annu...

Maxatar

2% over 30 years is inconsequential. At an average rate of 7%, that mean you'll grow your investment by 759% over 30 years instead of 761%.

yerebnu

Your math is way off. It's not merely 2% of the initial investment, but your final overall wealth.

francisofascii

That is the average. Many of them are just 0.03% or 0.04%

neogodless

... of the original value, ignoring growth, dividends, and inflation.

loeg

I agree that minute differences don't really matter. E.g., 0.09% vs 0.07%; who cares. Differences as large as 0.5% are much more material in the long term, though.

null

[deleted]

boglethemind

Agreed. I'm looking for non-financial features at this point. Vanguard supports FIDO hardware keys and Fidelity doesn't.

I'm not storing my retirement funds in the latter.

omgJustTest

Unless you have some super special edge, Vanguard is really good IMO. Having a 0.01% or 0.05% fund is really as good as you can do and never pay attention.

Vanguard also has things like the VIGAX (0.05%) and the VITAX (0.09%) with excellent returns over the past 20 years.

You could also actively invest, where you can get lucky, but if you have a day job... it gets tougher.

edit: also you could do "better" with lower fee funds, but they typically dont match the performance over the time period, and fidelity is a recent entry for their funds.

tobiasdorge

actively investing is 1) hard and 2) really just a waste of time considering the amounts most people are dealing with. I think it may have been from A Random Walk Down Wall Street but the general notion is something like this:

You have a 500k portfolio, and you spend the average amount week managing your portfolio (12 hours). If you were to achieve a 2% alpha (which is considered insanely high for any actively managed fund, and almost impossible to replicate year after year), you have made an excess $10k over what you would have made investing your portfolio in a benchmark.

On an hourly basis that's about $16 per hour spent... you could get more reliable income working at a gas station in California. And of course, most people are not investing $500k, the vast majority of day traders are probably pulling their hair out managing <$100k...

bluGill

The counter is smaller returns are easier for small investors. If you are a large investor just the act of buying stock changes the price.

syspec

Someone correct my math here, but if they have 10 trillion in assets under management and the management fee is 0.07% then that's still 7,000,000,000 or 7 billion in fees every year?

Not bad

coldpie

Indeed, that is about the stated revenue on their Wikipedia page. Divided equally among their 20,000 employees, that comes to $350,000 per employee. Expenses like office space, taxes, fines/fees, inflated executive compensation, etc will bring that down quite a bit; though other sources of income will bring it back up too. Sounds reasonable.

echoangle

I wonder what 20,000 Employees are doing there though. I know saying "I could do that with 10 people, what are they even doing" is a meme here, but I really can't make a good guess what the employees are actually doing. Risk assessment, looking for new investment opportunities, regulatory paperwork, marketing? 20,000 is a lot of people.

thehappypm

How many people is ideal to look after $10,000,000,000,000 in assets? Some bloat is definitely necessary at these mind-boggling numbers, and assets-per-employee is still half a billion.

coldpie

One way to get a hint at what kind of work employees do is by looking at open job postings: https://www.vanguardjobs.com/job-search-results

lolc

I imagine they have actual customer service. But maybe I'm naive?

giantg2

Interesting. That would put their budget higher than the bottom 10% of state budgets.

samus

Indeed, that's the reason why they can afford to reduce the fees. Index managers are not charities after all.

loeg

Revenue, not income.

sega_sai

That only applies to US funds, but not in the UK ones which continue to be significantly more expensive...

cess11

My broker doesn't show fee on some of the Vanguard instruments, but e.g. the S&P 500 UCITS ETF (USD) has 0.08 % listed as fee. Which ones are you looking at?

nexle

VWRA (all world UCITS) probably the more famous one charging 0.22%, while the closest corresponding US ETF VT (total world) is just 0.06% (dropped from 0.07%)

loeg

How does AUM compare between the two?

sega_sai

FTSE All-World UCITS ETF (VWRP) has 0.22%

francisofascii

Vanguard FTSE Europe ETF (VGK) is only 0.06%

giantg2

How do those compare to average expense ratios and fees in that market?

JKCalhoun

Article mentions their bond funds getting the most dramatic cuts — they didn't list specific symbols though.

Anyone know off the top of their heads which funds specifically? Thinking I need to move away from being so stock-heavy.

fred256

The full list is at the bottom of their press release: https://corporate.vanguard.com/content/corporatesite/us/en/c...

francisofascii

Lots of small reductions to the specialty bond funds. VCIT and BIV (Intermediate Term bonds) moving from from 0.04% ==> 0.03%. One notable drop is with VWOB (Emerging Markets Government Bond) going from 0.15% to 0.1%.

dinkblam

> they didn't list specific symbols though.

rule of journalism: never quote the original news/article source

rule of financial journalism: never list the ticker/wkn/isin that would make the article actually useful

psunavy03

Rule of legal journalism: never link a PDF to the actual court opinion/decision . . .

ryandrake

Rule of science journalism: never link to the paper.

im3w1l

Bonds kind of fell of my radar for a while. What are yields like now?

loeg

4-5%

noveltyaccount

I'm a big fan of Vanguard, but if anyone is looking for competitively-priced funds from other issuers, check out

- iShares Core (Blackrock) https://www.ishares.com/us/strategies/core-etfs

- SPDR Portfolio (State Street) https://www.ssga.com/us/en/individual/fund-finder

- Schwab Select (includes in-house and third-party) https://www.schwab.com/research/etfs/tools/select-list

hassleblad23

Which of these do you use personally?

noveltyaccount

A mix. For a given asset class I look at expense ratios and underlying indexes.

EVa5I7bHFq9mnYK

Fees are good but I am concerned about too much correlation in the markets, caused by index funds. Basically everyone holds the same assets.

layer8

Any imbalance should be easily exploitable by market players, so I would think it should be self-correcting.

Also, worldwide there are quite different preferences in which indexes to hold, so there is some variation.

vanrohan

I wish there can be more focus on the voting rights for passive funds. Investors are concentrating voting power with these fund managers, just giving away their voting rights for free. I'd like to see better investor voting management systems become more available for "pass through" voting for passive fund investors.

[1] https://vanderwalt.de/blog/etf-vs-direct-indexing-investing-...

bluGill

It isn't possible to have an informed vote for the 500 companies in a S&P index fund and still have a life.

I probably have an informed opinion on the company I work for - but I don't have enough shares to matter. The other 499 I know nothing about.

vanrohan

Individually we don't have significant shares, but aggregate it up to BlackRock / Vanguard level, then there is real influence. What is that influence worth? that influence given to the fund manager should be priced correctly. I agree, you probably dont want to have to vote on 500 companies, but to start with it should be an "opt out" decision if you don't care. Alternatively you could allocate your votes to a proxy entity that aggregates like minded investors votes.

samus

Having voting rights kind of goes against the point of tracking an index though. Better invest in ESG funds or something like that. And for funds that use synthetic replication there is nothing to vote on in the first place.

vanrohan

> Having voting rights kind of goes against the point of tracking an index though.

Not sure I follow how voting rights goes against the point of tracking an index? I'd say the value of the index implicitly prices in the value of the voting rights in the constituents. So if your index does not contain the voting rights, should the index price not be different?

> And for funds that use synthetic replication there is nothing to vote on in the first place.

There are all kinds of funds, of course when it's 100% synthetic then so be it. But if it holds a representitive sample of Russell 3000, then those votes count.

samus

The provider of the index is usually not the same entity as the fund manager. Although the fund is actually quite free in the choice of securities that it can use to track the index. It depends on the fine print of the prospectus. It could conceivably offer its shareholders voting rights regarding the presence of controversial items in its portfolio, at the risk of underperformance compared to the reference index.

callamdelaney

Didn't they recently increase uk fees a tonne?

manojlds

That was the platform fees.