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

Alison Cooke

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:

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);
maintaining total Vanguard fund assets of $100,000 or more; or
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.