Vanguard, the second-largest financial advisory firm in the country, will start charging a lot of new fees to brokerage account holders on July 1. One of these fees is $100 to close an account or move assets to another firm. People who have at least $5 million in assets will not have to pay that fee, though.
Vanguard has always offered low-cost ways to invest and was one of the first companies to offer passively managed index funds. This account-closure fee is a first for the company.
Not all customers are happy with the new fees.
A 39-year-old Vanguard customer named Eric told MarketWatch that he has had an account with the company for more than ten years. He asked to be known only by his first name to protect his privacy. “I really liked [Vanguard founder Jack] Bogle and his ideas about how to make a financial company that cared more about regular people and less about trying to get as many fees as possible.” That’s why I was worried: this seems like a step away from that.
Eric doesn’t plan to close his account because of the new fees, but he did say that Vanguard has recently sent him surveys asking what services he would be willing to pay for and has been pushing managed accounts, which cost more. He said, “It doesn’t seem like their heart is in the right place, and they’re trying to find ways to make money.” “I believe Vanguard led the way in the right direction, but now the direction seems to be going in the wrong direction.”
Some people say that the new fees make them not want to be at Vanguard. Harry Sit, who writes the blog Finance Buff, said on X, “After investing with Vanguard for 20+ years, I’m submitting a request to transfer out my last account at Vanguard to Fidelity before Vanguard starts charging a $100 transfer-out fee.” It seems like Vanguard doesn’t want me unless I have $5 million in the account. MarketWatch asked Sit for a comment, but he didn’t answer right away.
Vanguard said in a statement that it “is committed to helping clients navigate toward simpler, more seamless, and secure digital pathways and is constantly evaluating our brokerage services and products, including the commissions and fee schedule.” For clients who want to move their whole account(s) to a different brokerage firm, the processing fee helps to cover the costs of moving the assets and makes the costs fair for those clients who are making the change.
Vanguard isn’t the only bank that charges people to close their accounts. You can move all of your assets out of Charles Schwab SCHW, -0.19% for $50, or out of E-Trade MS, +0.39% for $75. Moving money from Robinhood HOOD, -1.42% to another brokerage costs $100. On the other hand, Fidelity does not charge a fee to close an account.
Vanguard, on the other hand, is owned by its U.S. funds and, by extension, by its U.S. fundholders. Alec Lucas, director of manager research, active funds research, at Morningstar, said, “I think the $100 account-closure fee is best interpreted as Vanguard trying to make sure that the labor and other costs generated by closing an account are paid for by those closing the account rather than spread across the rest of the business.”
Lucas said that account-closure fees “are common in the industry,” but that Vanguard would have a different reason for charging them because of how it is set up. Vanguard puts a high value on efficiency because it helps them keep costs low and serve their large and growing customer base.
But some people think Vanguard’s new fees are unfair to customers. “Airlines always ask, ‘Why should everyone pay for this?’ when it comes to bag fees. In a way, it makes some tickets cheaper, but it costs me more time and thought, said Eric, the Vanguard customer.
Vanguard will also charge $25 for broker-assisted trades of Vanguard funds unless the customer has $1 million or more in Vanguard assets or is enrolled in a Vanguard advisory service. The company will also charge $100 to process the deposit of physical share certificates, 20% of any money recovered from class-action lawsuits on behalf of clients, 1% of any gross dividends paid on foreign or American depository receipt assets held in U.S. dollars, and $250 to research and remove a restriction on securities in brokerage accounts.
There are six new fees. The $100 fee to close and move accounts seems to be the most controversial. Some customers aren’t sure why they have to pay now to be in charge of their money when they didn’t have to before.
One person on a Reddit forum about financial independence said, “It’s not that $100 is going to bankrupt any of us. It’s a sign that they are losing their mission focus; it’s anti-customer.”
Someone else said, “It shouldn’t cost you or me money to choose not to do business with them.”
The fee changes happen at the same time that Salim Ramji is about to become CEO of Vanguard and the Biden administration and the Consumer Financial Protection Bureau have released new rules to get rid of “junk fees.” The CFPB and the Biden administration define “junk fees” as “hidden, surprise fees that companies sneak onto customer bills.” Credit card late fees are capped at $8 under a new rule from the CFPB. Last month, a federal judge in Texas stopped the rule.
When MarketWatch asked the White House about Vanguard’s new fees, Jeremy Edwards said, “When it comes to surprise fees, the president has been clear: The American people are tired of being nickel and dimed by big corporations going for the easy way.” For this reason, he has kept his attention on fighting corporate greed, high prices, and hidden fees for things like credit cards, retirement accounts, and event tickets.
Massachusetts Democrat Sen. Elizabeth Warren said that Vanguard’s new account-closure fee is like “having to pay $100 to leave Six Flags once you’re in the gates.” People should think again about how they run their business if your service is so bad that you have to charge them to keep them from leaving. She told MarketWatch that Vanguard’s move “shows how important it is for the CFPB to fight against junk fees.” People shouldn’t have to pay $100 to close their bank account.
