Commission-free Vanguard ETF trades in Vanguard Brokerage Accounts

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Vanguard sent out an announcement today that they are responding to recent moves by Fidelity/iShares and Schwab by offering their own lowered commission costs, the highlights are of which are:

Commission-free Vanguard ETF transactions. Vanguard brokerage clients may make commission-free transactions in Vanguard’s entire line-up of 46 low-cost ETFs, which is the largest suite of ETFs available without commissions.

Ultra-low equity commissions. Most Vanguard brokerage clients will pay $7 or $2 to trade stocks and non-Vanguard ETFs®.

[…]Unlike competitors’ commission schedules, the same commissions apply to both transactions conducted on and those executed with the assistance of a Vanguard brokerage representative.

Added: For the brokerage account, a $20 account service fee is charged annually. The fee is waived for Voyager, Voyager Select, and Flagship members.

The details of new price structure are based on the amount of assets held at Vanguard. But everyone gets at least free Vanguard ETF trades and $7 trades for the first 25 per year ($20 after that).

First impressions? Sweeeeeet. 🙂 Looks like it might be time for some mutual fund to ETF conversions.

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  1. It’s about time Vanguard joined the bandwagon.

    One caveat, if assets invested in Vanguard funds and ETFs = less than $50,000, a $20 account service fee is charged annually.

  2. @L – Good catch! I’ve added that to the post.

  3. Jon – Do you know whether we can do ETF trades in Vanguard Roth IRA account?

  4. Wow. I was literally thinking about this in the past couple of days — basically, that I am going to move more into taxable investing (probably next year), and that I’d need a brokerage account.

    My preference is to keep everything in one place, and I wondered, “why can’t Vanguard offer free trades on their own ETF products?”

    And here we are. Not claiming credit, or anything… 🙂

  5. This looks very promising! Are there any minimum investments required for Vanguard ETFs like there are Vanguard for mutual funds (often $3000)? If not, then this seems like a great way to build a diversified portfolio with a variety of asset classes.

    Can anyone explain the process of buying and selling Vanguard ETFs through the Vanguard brokerage account? For example, do you have to buy / sell an even number of shares? Thanks.

  6. Index funds have the convenience of automatic purchases. Can you do that with ETFs?

    This is the only reason I would not want to convert since you lose the ability to automate and begin timing the market.

  7. @Niran – If you have only mutual funds in your Vanguard Roth IRA, you will need to open a Vanguard Brokerage account in addition to your mutual fund account. Then yes, you can buy ETFs in your IRA.

    @Andrew – No minimum investments, just whatever one share costs. If you have partial shares from some sort of conversion, then I would think you could sell them. But normally you must buy a whole number of shares.

    @John – No, not unless you use Sharebuilder or similar type of service.

    For smaller balances where the expense ratio difference won’t be as significant, it will be a harder decision to convert to ETF.

  8. Thanks, Jonathan. After doing some research, it looks like it takes $3,000 to open a Vanguard brokerage account. According to a Vanguard service representative, funds in a Vanguard mutual fund account count towards this requirement.

  9. Are there any clear advantages of Vanguard ETFs over iShare ETFs available at Fidelity? I already use Fidelity for Cash Management and employer 401k. Now that ETFs are more attractive than index funds, is it still worth while to invest with Vanguard?

  10. Also worth noting: they lowered the threshold for Voyager from $100,000 to $50,000 in household assets at Vanguard. I woke up in a new tier (sort of)!

  11. Jonathan, I’m curious as to whether you are giving any consideration to opening up VBS accounts in your IRAs and requesting (free, at-NAV) conversions to the ETF share class in those funds where it is available.

    With the new changes in the VBS fee schedule, there doesn’t seem to be any real downside to this. Am I missing something? For Vanguard customers at least at the Voyager level, is there any reason *not* to switch to ETFs across the board?

    The only potential issue I’ve been able to identify is that VBS would require manually ordered trades in whole share increments for ETFs. So it wouldn’t really work for DCA, and if you’re contributing a full $5,000 to an IRA you might end up with a few bucks left over in the settlement account…

  12. I don’t like it. Much like the 0% financing craze. They are going to get their money somehow so in order to compete they will spread the cost of this program across other accounts just like Fidelity and Schwab did. All this did was change the price structure somewhere else.

  13. It would be nice to see some process to convert mutual fund shares to ETF shares without triggering a taxable event for assets in taxable accounts. Anyone know if that’s possible?

  14. Steve: Yes. A conversion from a Vanguard mutual fund to the equivalent Vanguard ETF by VBS is a non-taxable event, reflecting the fact that you are switching between share classes of the same fund. Make sure you request a “conversion” from VBS, of course — don’t just do a buy/sell/exchange transaction.

  15. Steve,

    Call Vanguard, I believe that is indeed possible. I think Jonathan may have even posted about it in the past…

  16. A couple of things to note that I found out from Vanguard:

    – Converting to an ETF is not a taxable event, as Pete mentions above. However, the accounting method used by VBBS is different from the average-dollar-cost-basis that Vanguard uses. First in first out, or highest-cost method. So sales of these ETFs could be a pain (for taxable accounts) down the road to figure out the true cost basis (cost basis prior to the conversion must be added to cost basis VBBS will calculate for the ETF.

    – Several vanguard mutual funds have redemption fees (I think as much as 2%). This is neat step to avoid those redemption fees when possible: convert the fund to an ETF (no transaction fees whatsoever), and then sell the ETF (no redemption fees).

  17. Peter, you pretty much made the point why I don’t want do use ETF, tax filing. With mutual funds, you can use average dollar cost basis, but with ETF, you pretty much have to go very detail and keep track of it yourself. ETFs would be nice in Vanguard Roth IRA brokerage account, but if you use dollar cost average in taxable account, it would save you a lot of headache when you sell if you stick with mutual funds instead of ETFs.

  18. Does anybody know how good VBS is in regards to trade execution, the spreads, after/before -hour trading, others??? Are they similar to the likes of TD ameritrade, optionsxpress, Schwab, Fidelity, SogoTrade, TraderKing, Zecco, scottrade, or wellsfargo trade?

  19. Oh, FYI, the $20 annual fee only applies if you want to receive paper statements and documents. If you don’t mind getting them delivered electronically, it’s still free. And as far as I can tell, the only real benefit of Voyager over non-Voyager is the $7 trades if you make more than 25 trades a year.

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