When a company like Vanguard Group, which has been in the customer-centric business for almost 50 years since it was founded, starts getting greedy by imposing tweaks and shoddy fees on its customers, it’s treading down a dangerous path.
Moreover, being greedy can not only damage a company’s reputation, but it can also lead to financial losses. That’s exactly what happened to me, because I decided to vote with my feet — figuratively, 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 this nasty change I described last month , and you’re in a similar situation to me, you might want to consider doing something similar.
In my case, Schwab is a retirement account, so there would be no income tax consequences if I were to switch from Vanguard to Schwab. If you’re thinking about moving or liquidating a taxable account to get around the Vanguard switch, be sure to consider the tax implications (if any).
I am currently moving my personal 401(k) out of Vanguard because next month they are selling many of their small business retirement accounts, including mine, to a company called Ascensus, LLC. I bear no hard feelings toward Ascensus, but they charge at least $40 a year in fees, and probably more. I am not paying annual fees to Vanguard for my personal K account, which I opened in 2016 and which I fund primarily with my writing fees.
My goal is to get the best deal for myself, so I don’t want to pay even a relatively small double-digit annual fee to Ascensus unless I have to, which I ended up not having to.
When I first wrote about the Vanguard change, I wasn’t sure about transferring my account, but after a bit of research, I decided to transfer my account because Schwab, a for-profit shareholder-owned entity, was offering me better terms than I would have had Vanguard, an investor-owned company, sell my account to Ascensus.
Vanguard’s ownership structure allows the company to continue to lower fees on its funds, which is the main reason I have moved my account to Vanguard and never to another account until now.
“We charge a flat fee for our services, which allows us to provide a streamlined digital experience, market insights and educational resources with the needs of small businesses in mind,” Asensus said in a statement. But because I make my own investment choices and only have one stock in my personal 401(k), I don’t see the need to pay Asensus a fee.
My move to Schwab means that Vanguard, which declined to comment, will not get what it hoped to get from selling my account to Asensus, and I may end up trading my Individual K Vanguard Total Stock Market Index fund (all of my holdings) for an equivalent Schwab fund.
Why? To my surprise, I discovered that Schwab charges just a 0.03% management fee for its Total Market Index Fund, while Vanguard charges Admiral Class shareholders like me a 0.04% management fee.
This means that not only would Vanguard gain nothing from selling my account to Ascensus, but they would likely lose the management fees they currently earn from my Personal K as well.
I had never thought to see if Schwab’s Total Market Fund had lower costs than Vanguard’s. Had Vanguard not announced plans to sell its Individual 401(k), SIMPLE IRA, and Multi-Participant SEP-IRAs to Asensus, I would never have looked for fees lower than the paltry 0.04%.
The branch manager at my local Schwab bank told me I could transfer my Vanguard account to Schwab for free, and that I could leave my existing Vanguard index fund shares in the new account I was opening if I wanted (another plus is that the branch is only a 10-minute walk from my house).
To demonstrate that I am frugal, but not crazy, I plan to leave my wife’s and my six other Vanguard accounts intact.
This is despite the fact that one of the more troubling changes Vanguard is making is a new 1% fee on dividends received by clients, like me, who hold foreign securities and American Depository Receipts.
But the fees are less than $4 a year, so it’s not worth transferring accounts for such a small amount. Plus, unlike personal K, Swiss shareholdings are likely not permanent.
I have no idea how many Vanguard customers will lose their accounts and how many assets and annual management fees Vanguard will lose because of the shoddy changes they’re making, but I’m clearly not alone in this thought.
I also have no illusions that moving to Schwab will force Vanguard to bow, but I sincerely hope that this is a one-time move and that they will never force me into this decision again.
Yahoo Finance contributor Alan Sloan is a seven-time recipient of the Loeb Award, business journalism’s highest honor.
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