Schwab increases purchase fees for Fidelity and Vanguard funds
After years of cost wars with other brokers,
grows back. Effective November 1, the cost for retail investors to purchase Vanguard, Fidelity and Dodge & Cox funds from the broker will increase from $ 49.95 to $ 74.95, an increase of 50%. Likewise, at TD Ameritrade, which Schwab acquired in October 2020, prices for the same fund families will drop from $ 49.99 to $ 74.95 on October 1.
Schwab’s reason for this change is to cover its record keeping and other administrative costs. “The majority of mutual fund families pay Schwab / TD Ameritrade for necessary and significant shareholder service expenses, but some don’t,” says Alison Wertheim, representative of Schwab (ticker: SCHW), in an email. . “We apply this different amount to retail mutual fund purchases only for funds from which we do not receive remuneration for shareholder services to offset the expenses we incur to provide shareholder services.”
But is it a coincidence that Schwab is raising the prices of two fund families with brokerage divisions that are its biggest competitors and the source of the fee war? Wertheim says competing with Vanguard and Fidelity is not the reason. But financial advisers, who constitute a large clientele for the newly merged company, are wary of his motives.
“The implication here is that the custodian cannot effectively serve this segment without a price increase,” says adviser Jayson Owens of Bright Road Wealth Management. “This could be true if record keeping was [Schwab’s] full income stream. A more honest statement would be, “We don’t make as much money with Vanguard investors as most mutual fund investors. “”
Regarding the fund companies in question, Laura Bulman, representative of Vanguard, said in an email: “Vanguard has a long policy of not paying distribution fees that induce our funds to be sold on platforms. third parties.
|Number of NTF funds (no transaction fees) offered||Cost of purchasing a fund that is not on the NTF list||Cost of purchasing Vanguard funds||Cost of purchasing loyalty funds||Cost of purchasing Dodge & Cox funds||* Notes / Comments|
|4,294 Schwab / 3,985 DT||$ 49.95 *||$ 74.95 *||$ 74.95 *||$ 74.95 *||From October 1 at TD and November 1 at Schwab. $ 0 for sale. Free ETFs.|
|3,407||49.95||75||0||75||$ 0 for sale. Free ETFs|
|3 145||20 *||0||20 *||20 *||$ 0 for 25 transactions for accounts over $ 1 million. Free ETFs.|
Sources: Charles Schwab; Fidelity Investments; Avant-garde group; The morning star
Dodge & Cox spokesperson Scot Hoffman said the company “is focused on keeping total shareholder expenses low. Individual investors can invest directly with us without paying transaction fees.
Fidelity declined to comment.
Other brokers have opposed Vanguard’s distribution policies in the past.
(MS) completely abandoned Vanguard mutual funds in 2017. Fidelity increased its Vanguard fund transaction costs in 2014. But this is the first significant increase in transaction costs since the start of the most significant trade wars. fierce between stocks and exchange-traded funds in 2019.
For individual investors, the change is likely to push them further into ETFs, which remain free to trade, but for how long no one can guess. Interestingly, while Schwab increased the cost of buying mutual funds from these three managers, he eliminated the cost of selling any mutual fund that had transaction fees to buy it. But even that decision drew criticism from advisers. “Yes, eliminating transaction fees for selling is important, but I doubt the intention is to help consumers,” says Patrick Whalen of Whalen Financial Planning. “By eliminating the trading fees to sell a mutual fund, a barrier is removed that keeps some consumers invested in mutual funds that do not generate income for Schwab / TD Ameritrade.”
Since the TD merger, Schwab has amassed $ 7.6 trillion in client assets and is the dominant player for registered investment advisers, controlling, along with Fidelity and Pershing, 80% of the market, according to Cerulli Associates. Many RIAs are fee-based financial advisers who favor low-cost, no-fee mutual funds like Vanguard, as opposed to commission-based advisors who work with full-service brokers such as
Goldman Sachs Group
Owens believes that increases in transaction costs will be coming for advisors as well, now that the TD merger is complete: “As an advisor who focuses on controlling hidden fees for our clients, we expected this. Falcon Wealth Planning adviser Gabriel Shahin argues that the whole expense war was an acquisition ploy to force TD to merge. “They got scammed because Charles Schwab wanted to buy TD Ameritrade,” he says. “When they did. have forced [each another] to make free exchanges, it was strictly for an acquisition model. Now you mainly only have Fidelity and Schwab, and they control the market.
Wertheim points out that “no further changes are planned” in Schwab’s pricing for fund transactions established in 2018 for advisers. “Schwab Advisor Services has lowered the standard price of [mutual fund] trades at $ 25 for buy and sell transactions in October 2018, but funds that have not paid for shareholder service … continue to be billed as stated in their customer pricing agreements, at a maximum of $ 45, ”she said.
Additionally, these privately negotiated RIA pricing agreements can offer significantly cheaper transactions if an advisor is a large client. “We represent billions of dollars in trading volume per year,” said advisor Elliot Dole of Buckingham Strategic Wealth, which manages $ 30 billion at Schwab, TD and Fidelity. “Offering a number at a low cost per transaction is a good deal [for Schwab]. “Still, small advisers are right to worry about the future,” he said.
Dole finds the level of mistrust amusing, noting that brokers have always found ways to make money directly or indirectly, but the fee wars have distorted perceptions. “Investors and the people I talk to feel like Schwab or Fidelity is working for free,” he says.
Perhaps once the dust on the merger settles and costs stabilize, advisers will be less nervous about the transition – or at least come to terms with the new regime. b