The Markets April 27, 2007

Vanguard to Change Fees for Many Investors

Emphasizing the benefits of increased online usage, Vanguard is replacing four account-related fees with a single account service charge.
Reported by
However, the single account service fee (a $20 yearly fee will be assessed on all fund accounts with a balance below $10,000), which the firm will begin assessing in June, will not apply to:
  • money market sweep accounts held through Vanguard Brokerage Services;
  • accounts held in employer-sponsored retirement plans;
  • accounts held in 529 plans; and
  • accounts held through financial intermediaries.
Currently more than 80% of client interactions occur online, which has resulted in significant cost savings for the company, the firm said. Further, Vanguard CEO John J. Brennan said in a company statement that the increased Web usage and delivery of e-statements will reduce printing, postage, and service costs, which could lead to lower Vanguard fund expense ratios.
Vanguard is also providing shareholders three ways to pay no account fees:
  1. establishing account access on Vanguard.com and choosing electronic delivery of statements, reports, and prospectuses (if a shareholder is already registered for the Web site, they only need to change their mailing preferences from U.S. mail to e-delivery to qualify and they are still able to use the call center for account service);
  2. maintaining total Vanguard fund assets of $100,000 or more; or
  3. consolidating accounts or investing additional assets to bring all account balances to $10,000 or more.
Vanguard shareholders who opt not to take advantage of the fee-free options will pay “all-in’ costs (expense ratio plus the account service fee) of $30.50 on a $5,000 account, according to the statement.
Formerly, Vanguard’s annual fees were based on account type, fund type, and account balance, as follows:
  • A $10 custodial fee on IRA (including SEP–IRA) accounts with a balance below $5,000.
  • A $10 maintenance fee on index fund accounts with a balance below $10,000.
  • A $10 custodial fee on Education Savings Accounts with a balance below $5,000.
  • A $10 low-balance fee on all general accounts with a balance below $2,500.
In Practice April 27, 2007

Despite Current Broker Disclosures, Investors Still Confused

Most investors still do not understand the difference between stockbrokers and financial planners.
Reported by

Nearly all investors in a recent survey (92%) think that when stockbrokers and financial planners provide the same kind of investment advice services, they should be subject to the same investor protection rules.

In fact, 54% of investors said they would be much less (31%) or somewhat less (24%) likely to use a stockbroker providing investment advice if that individual is subject to weaker investor protection rules than a financial planner. More than half (60%) of those with a household income of $75,000 or more say they would be much less or somewhat less likely to do so, according to the survey sponsored by the Zero Alpha Group (ZAG), an international network of independent investment advisory firms, and the Consumer Federation of America (CFA), a non-profit association of approximately 300 organizations. The survey was conducted by the Opinion Research Corporation (ORC).

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“Primary” Callings

Many people look to stockbrokers for investment advice. Only 30% of investors correctly said that the “primary service” provided by stockbrokers is the buying and selling of stocks, mutual funds, bonds, and other investments. About the same amount (29%) said that financial advice is the “primary” service offered by stockbrokers, and a quarter (25%) said that advice and transaction assistance are equally important services provided by stockbrokers.

The majority of investors surveyed (86%) said they believe that stockbrokers should be required to disclose whether the stockbroker is receiving some form of inducement (incentives or compensation) to push a particular investment product to customers.

The survey comes on the heels of a recent appellate court decision striking down the SEC’s so-called broker/dealer rule, which permitted stockbrokers to offer extensive investment advice services without regulating them under the stricter standards of the Investment Advisers Act that apply to other advisers (See SEC “Merrill Lynch Rule’ Governing Advice Struck Down).

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