New Vanguard account structure

[free4now]

I got a letter from Vanguard saying they want to merge the mutual fund account into my brokerage account. They make it sound as if there are no downsides, and I can't think of any important ones, but just thought I'd see what others at Vangaurd are doing... are you going to accept the merge?

 

[Lsbcal]

I switched just recently. With the new structure you can sell and ETF and buy a VG fund with the proceeds in the same day. No need to wait as before for the settlement and the money to appear in your money market account.

 

[free4now]

It looks like I will need to order new checks if I want to be able to write checks against mutual funds.

 

[free4now]

It also looks like it can change the cost basis accounting mechanism between average and FIFO accounting. I use FIFO. Probably worth double checking that the cost basis accounting method is correct after you make the change.

I discovered one account that didn't have a cost basis accounting method for some reason, and since I've been relying on vanguard's cost basis info for taxes I need to figure out if my past tax returns were correct or whether they defaulted to an average instead of FIFO method.

 

[Lsbcal]

If it were me, I'd talk with the VG rep about you cost basis concerns. Hard to believe any accounting would change.

 

[free4now]

They definitely have verbiage about the cost basis changing for some accounts in the info you have to agree to for the upgrade. Yes I probably should speak with a rep to confirm everything is kosher.

 

[Gumby]

I got the same letter. Even if it has no effect on me, I'm wondering why they want to do it.

 

[wanaberetiree]

I got a letter from Vanguard saying they want to merge the mutual fund account into my brokerage account. They make it sound as if there are no downsides, and I can't think of any important ones, but just thought I'd see what others at Vangaurd are doing... are you going to accept the merge?

Talked to my VG adviser and given risk with changing positions lots and unpredictable issues with Quicken download decided not to make any changes...

 

[Sunset]

I like it as now everything is in 1 place.
I don't know what it was like before, except I was going to have a few accounts, until they merged them.
Now its very much like other brokerage accounts, only better as I can see regular and retirement buckets at the same time.

 

[bUU]

It also looks like it can change the cost basis accounting mechanism between average and FIFO accounting.

IIRC the issue is that before you couldn't change the accounting mechanism. Now you will be able to do so.

Even if it has no effect on me, I'm wondering why they want to do it.

I have had the opposite question in my mind: I have been wondering for years why they continued to maintain this artificial division between what is essentially a mutual fund holding account and a full brokerage account. I suppose there were some persnickety investors who didn't want to hold Vanguard funds unless they could hold them in such a way that the account within which they were held couldn't be used for anything beyond that, and perhaps that concerns about offering those specific investors what they wanted are no longer considered worthwhile enough to continue incurring the added costs of overhead and confusion.

 

[jon-nyc]

I did the change, it's much cleaner. And way overdue. I hadn't checked the cost basis method but I will go do that.

 

[gauss]

A couple of downsides to consider before you voluntarily pull the switch include:

- Potentially more complicated statements (although this may be a matter of preference)

- Inability to pay dividends / cg distributions directly to an external bank account

Since I have had a brokerage account with them in the past, which I am not currently using (ie 0 balance), I will try to keep my single mutual fund accounts in place for as long as I can.

-gauss

 

[samclem]

I am trying to understand why this would be an improvement. All my holdings at Vanguard are already visible on the same page (online or paper). They all get totaled at the bottom for me. I don't see that it offers any advantage.

Now, it must offer some improvements for Vanguard, or they wouldn't be doing it (or it is just some trend--"Lets look like everyone else, show that we are hip").

The present setup offers me all the flexiility I want or need. Are all the present protections retained if my MFs are dumped into a brokerage account? I don't know.

 

[FUEGO]

I have had the opposite question in my mind: I have been wondering for years why they continued to maintain this artificial division between what is essentially a mutual fund holding account and a full brokerage account. I suppose there were some persnickety investors who didn't want to hold Vanguard funds unless they could hold them in such a way that the account within which they were held couldn't be used for anything beyond that, and perhaps that concerns about offering those specific investors what they wanted are no longer considered worthwhile enough to continue incurring the added costs of overhead and confusion.

For us, the separation between brokerage accounts and mutual fund accounts is critical.

DW works in a FINRA regulated role at an investment bank and for compliance reasons we can't have "outside brokerage accounts" except at the two approved firms that her employer works with (one of which is Fidelity). They did approve us to hold Vanguard mutual funds at Vanguard but not in a brokerage account.

 

[Gumby]

Now, it must offer some improvements for Vanguard, or they wouldn't be doing it (or it is just some trend--"Lets look like everyone else, show that we are hip").

That's my general approach to anything a financial services firm proposes (even Vanguard). If they want this change, it must benefit them somehow. If I understand why, I'll better understand whether it also harms my interests in any way. I simply do not believe they would do something out of the goodness of their hearts just to benefit people like me.

 

[gauss]

That's my general approach to anything a financial services firm proposes (even Vanguard). If they want this change, it must benefit them somehow. If I understand why, I'll better understand whether it also harms my interests in any way. I simply do not believe they would do something out of the goodness of their hearts just to benefit people like me.

If I am not mistaken, new Vanguard customer accounts cannot be created outside of the brokerage framework. That being said, two systems are now being maintained by Vanguard (brokerage and legacy). I assume that they would like to get down to one system (ie brokerage only) for operational efficiency. As people die off, move money elsewhere, or voluntarily convert, the ratio of brokerage accounts to legacy accounts will increase. I suspect at some point the Vanguard powers that be will deem that the number of outstanding legacy accounts is "small enough" to force a change over (ie "change over now or your account will be closed/liquidated"). After that occurs they can close down the old system permanently.

I suspect that the big push now to get people to voluntarily convert is that it will significantly speed up the time until the forced conversion can occur.

All of this is just speculation on my part however.

-gauss

 

[meierlde]

The big difference is when you will get the 1099s on the mutual funds, under the old structure it was late jan under the brokerage structure it will be late feb since all brokerages get the 1 month delay in giving you your 1099s.

 

[panacea]

Sounds like they're trying to simplify and compete with others like Fidelity that are already doing this. Having only one account was one of the reasons why I like Fidelity better.

 

[walkinwood]

Could someone who has merged accounts and uses Quicken share how you implemented the merge in Quicken? Thanks.

 

[samclem]

I'd be interested to know what John Bogle thinks about sweeping all mutual fund holdings into brokerage accounts. He's been (tactfully) critical of other Vanguard changes in the past when he believed they might not be for the best, and I trust that he's got a long-term view, the understanding of the details of what this means, and the best interests of investors in mind. I couldn't find anything on the Bogleheads site.

 

[bUU]

I'm uncomfortable with such references to Bogle. It seems to me that if Vanguard was to remain true to his personal vision, then that vision should have been codified in its articles of incorporation in such a manner requiring dissolution of the company rather than allowing variances from that vision. Of course, no company is crafted in such a manner. We spend our time building our sandcastles and then we leave the beach to the creativity and intention of other folks. It's the natural order.

 

[samclem]

I'm uncomfortable with such references to Bogle.

I'm not asking that Vanguard be ruled by Bogle. I said only that I would value the opinion of Bogle because:
1) He knows the details and ramifications of this change.
2) He has demonstrated a commitment to shareholders
3) He has few/no conflicts of interest, and has shown he is willing to express opinions that differ from the official Vanguard position.

As long as this remains the case, I think anyone interested in understanding this and similar situations would want to hear from him. I don't know why that would make anyone "uncomfortable."

 

[bUU]

I'm sorry. I'll try to explain my discomfort better. I'm sure it would never happen on this forum, but on other forums, when I see references to what Bogle might think about a change at The Vanguard Group, especially when there are disagreements about his perspective, those who support what he says sometimes try to assert that his perspective has primacy, as a kind of argumentum ad verecundiam. I'd rather rely on the myriad others who can speak to what's best to avoid such things.

 

[gauss]

New leadership can often turns a great company into a not so good one quite quickly.

-gauss

p.s. I wonder if this is what happened over at TaxAct recently.

 

[meierlde]

Partly the 2 account structure is a legacy of when Vanguard outsouced its brokerage to Pershing. A few years ago Vanguard brought the brokerage in house so this next step makes sense in cleaning up the accounting systems. It also saves Vanguard the cost of the second 1099 letter that the current structure requires (one for MF and one from Brokerage).