It’s a slippery slope when a customer-centric company like Vanguard Group has been since its inception nearly fifty years ago starts to get greedy by imposing a slew of changes and high fees on its customers.
Moreover, greedy behavior can not only damage the company’s reputation, but also cost it money. That’s what will happen in my case, because I’ve decided to vote with my feet – in a metaphorical sense, of course – and move my Vanguard Individual 401(k) account to Charles Schwab (SCHW).
If you’re one of the millions of Vanguard customers affected by the sticky changes I discussed last month, you might want to consider doing something similar if you find yourself in a situation like mine.
In my case, no income taxes are generated by switching from Vanguard to Schwab because it is a retirement account. If you’re considering moving or liquidating a taxable account to escape Vanguard’s changes, make sure you consider any tax implications.
I’m taking my Individual 401(k) away from Vanguard now because next month it is selling many of its small business retirement accounts, including mine, to a company called Ascensus, LLC. I have nothing against Ascensus. However, Ascensus would charge me fees of at least $40 per year, and possibly more. I paid no annual fees to Vanguard for my Individual K account, which I opened in 2016 and which I fund primarily with what I get for writing articles.
Since my goal is to get the best deal for myself, I don’t want to pay even a relatively small double-digit annual fee to Ascensus if I don’t have to. Turns out I don’t.
When I first wrote about Vanguard’s changes, I wasn’t sure if I would transfer my account. But now, after doing some homework, I’ve decided to turn it over because Schwab, a company owned by its for-profit shareholders, is offering me a better deal than I would get by Vanguard, a company owned by its investors , sell my account to Ascensus.
Vanguard’s ownership structure, which has led to the company continuing to lower fees on its funds, is a big reason why I’ve moved accounts to Vanguard so far, but never moved an account.
In a statement, Ascensus said: “We charge a flat fee for our services, which allows us to deliver streamlined digital experiences with the needs of small businesses in mind, market insights and educational resources.” However, since I make my own investment choices and my individual 401(k) only owns one stock, I don’t see a need to pay Ascensus anything.
My move to Schwab means that Vanguard, which declined to comment, won’t get what it bargained for by selling my account to Ascensus. And I may well end up trading my Individual K’s Vanguard stock market index fund—its entire holdings—for the equivalent Schwab fund.
Why? Because I was surprised to discover that Schwab only charges a 0.03% management fee on its total market index fund, compared to the 0.04% Vanguard charges Admiral class shareholders like me for its total market index fund.
So not only will Vanguard get nothing from the sale of my account to Ascensus, it will likely lose the management fee it currently receives from my Individual K.
Until now, it had never occurred to me to see if Schwab’s overall market fund had lower expenses than Vanguard’s. If Vanguard hadn’t announced plans to sell its individual 401(k)s, SIMPLE IRAs, and multi-participant SEP-IRAs to Ascensus, I wouldn’t have bothered looking for a fee lower than the minuscule 0, 04%.
A local Schwabbie showed me I could transfer my Vanguard account to Schwab for free. And that if I wanted to, I could keep my existing Vanguard index fund shares in my new account, which I’m currently in the process of opening. (Another plus: the office is just a 10-minute walk from my house.)
To show you that I’m frugal, but not crazy, I plan to leave my wife’s accounts and six other Vanguard accounts in place.
That’s despite the fact that one of the nasty changes Vanguard is implementing involves a new 1% fee on dividends received by customers who, like me, hold foreign securities and American Depositary Receipts.
However, the fee costs me less than $4 per year, and it’s not worth moving my account for that insignificant amount. Furthermore, unlike my Individual K, my Swiss stock holdings may not prove to be permanent.
I have no idea how many Vanguard customers are moving accounts out of Vanguard because of the cheap changes the company is making or how much in assets and annual management fees Vanguard will lose. But I’m clearly not the only one.
I’m also under no illusion that my move to Schwab will bring Vanguard to its knees. But I really hope that this is a one-time behavior and that the company doesn’t do something else in the future that will force me to make a different choice like the one I just made.
Allan Sloan is an award-winning financial journalist and contributor to Yahoo Finance.
Click here for the latest personal finance news to help you with investing, paying off debt, buying a home, retirement and more
Read the latest financial and business news from Yahoo Finance
