Why vanguard's expenses are so cheap, lousy customer service/hidden fees

[Olav23]

I guess the lesson I learned was, do not make large changes to investments at 1am... I am very annoyed about this whole experience, and hope it can be a lesson to others.

Last night I decided to move all of my Vanguard Intl Value fund into a better allocation, the target retirement. I had just bought the Intl Value a few weeks ago, and hadn't even occured to me to check the prospectus under "fees and expenses". I assumed, if there were any issues with trading it, it would be on the confirmation page when I went to exchange the fund.

So, I clicked on exchange all vanguard intl value, selected fund to exchange to, Target Retirement 2045, it brought up a page that basically said "are you sure you want to make the exchange?" Nothing about exchange fees, trading expenses, anything. Just simply a "submitting this will make the exchange". I hit confirm.

The next screen, to my bewilderment, was "Thank you. Since you purchased within the last 60 days, you have now been assessed a 2% fee. The total will be $450"....

Now, had this been on the screen PRIOR to the confirmation, like the "submitting will make the exchange" page, I OBVIOUSLY would have held it for another week or two just to make this requirement. But I feel bamboozled, as if they PURPOSELY do this to collect a hefty fee.

So, this morning I call, assuming that I made the trade in after hours, and the exchange will not take place till after market close today. I call as soon as they open, 8am.

Representative: Sorry, it is our policy not to cancel orders made through the web.
Me: Ok, well I feel as if I had been jerked around, can I speak to a manager?
Representative: Sure, but they can't cancel it either, nor can they change the redemption fee.
Me: I'll take my chances, let me speak to one.

Manager: Hi, I am aware of your situation, and I also can not cancel this transaction, but I will have tech support look through the screens and if it didn't present something, we might be able to waive the 2% fee. It might take two weeks though to do the research, is that ok?
Me: Sure.
Manager: Ok hold on, let me contact tech support.
*wait 5 minutes on hold*

I am assuming by this point, tech support has told her exactly the fact that they don't present that information on the screen to screw people over, and to just say "I should have read through the prospectus".

Manager: Sir, apparently we can't do the screen shot thing. But the redemption fee is printed in the prospectus under fees.
Me: Yes, there are also another 15 fees under there, minimum balance fee, index fund quarterly assessed fee, etc etc. You expect me to read every prospectus before I do any sort of transaction in any fund? Furthermore, I'm a programmer and know that if you have the information once the submit button is pressed, you obviously had it before the button was pressed. You purposely don't present it. I also wanted to put more money into some of your funds, but after this, I feel like I should probably just stay with my regular broker and use ETFs. It is hard to believe with all the competition you are receiving in the index world, there is nothing you can do for me.

Manager: Sorry. I won't waive the fee. Anything else I can help you with today?

*click*

What mostly annoyed me was the fact that she used the word "won't". If she had said it was out of her power to waive it, that is one thing. This simply seems like a "he is small beans, so who cares if we lose him as a customer". Perhaps if I was a voyager client, things would have gone differently. Unfortunatly, at this point, I doubt I will reach that status as I will read everything very closely on the fees page, and once I am DCA'd in, drop it all and stick it into ETFs instead (ishares, spiders, whoever). Brand loyalty, be damned...

I've heard other horror stories of their customer service, and just wanted to add yet another. Watch those fees assessed, they can certainly add up over time. $10 here $10 there basically equates to a commision, and dealing with an ETF they can't hit you with any redemption nonsense.

This has sort of become a "principle" thing with me now, and I'm going to do some research and see if there is anything I can do. Luckily the wifey is an attorney, so maybe she can come up with something clever

[brewer12345]

I'm pretty sure you are bound by the prospectus. Next time read it before you buy a fund.

[Rich_by_the_Bay]

Sorry about your bad experience - sounds frustrating.

I must add, for balance, that I have been with Vanguard for over 10 years and have found them, their web site, and their customer service to be superb without exception. I am always impressed with how the web site does provide reminders about certain fees, limits on number of transactions, etc.

Sounds like you stumbled on a type of transaction where those warnings were not included. Have you tried to duplicate the sequence (short of actually accepting the transaction) to see if it was there?

[MasterBlaster]

As a long term buy-and-hold investor I am glad that they have fees for those that jump in and out of the fund(s). In the past the gamers would jump in and out to the detriment of the long term shareholders so the fund had to keep lots of cash on hand for the likes of you.

Per them not displaying the fees before you executed the trade, didn't you read and sign the prospectus and the account agreement ??

I have no sympathy for you, without the fees the long term gains of the funds will suffer.

And by the way many funds have these fees. And it's not just Vanguard that has them. The fees rightly so are not paid to Vanguard but to the fund.

[Texas Proud]

I am sorry you got hit... but it is not for 'them' to collect 'fees'.. the money goes to the fund, not Vanguard...

Also, I have had warnings come up about fees PRIOR to me accepting my decision... but I have not moved money in and out so quickly as to trigger this fee..

[ERD50]

It does not look like you are getting much sympathy here.

None from me either. Though, I will agree that a warning before accepting is a reasonable thing based on what we know the capabilities are on websites and databases. But, 'read the prospectus' holds.

No, I don't read every word, but certainly the ones regarding transaction fees, and certainly if I go to sell in a short while.

Hmmm, I trust that your lawyer will say that the prospectus was a contract right?

$450 tuition bill. You got off easy. A prospectus could hold more damaging info than that. Now that you know better, you may have saved yourself from a more expensive mistake in the future.

-ERD50

[Olav23]

My mistake, it doesn't go to their pocket, but instead explains why they can track so closely to the indices. Shoot, we undershot the index by .5% this month, oh wait! we made 2% from jumpers!

Honestly, I have no intention of gaming and I also plan to buy/hold long term. It was simply that I wanted to take a more active role in my asset allocation, made a move in that direction, then realized I didn't have the time for it and didn't want the "time out of the market risk".

I assume I signed some sort of account agreement when I transferred assets in in the first place, but signed nothing as far as any particular funds. It is an electronic world out there, and I guess I really should keep hard copies, but I am just a digital kinda guy, and I guess that ends up hurting me in the end.

"Do you have a record that shows that it didn't say anything about fees?"
"No, but i swear it didn't!!!"

Guess I will have to get better about using the print-screen key.

And the best part is the double whammy of the markets dropping like 3%, and then this on top of it. Too much to deal with at once.

And as I said before, if you don't want any "hidden in the legalese fees", stick with a discount broker that you are happy with, and use ETFs.

</vent >

[elroy]

Been with Vanguard 7 years and have had flawless execution on all trades between funds and external accounts. Customer support has always been great.


Elroy

[Sarah in SC]

Most of the funds we use have short term redemption fees. These notices are provided when you purchase the funds, and not when you sell them. This is at Schwab. These redemption fees are a good thing, in my mind, and would be charged no matter where you keep them.

Sarah

[Spanky]

I think the software should warn you that a fee will be incurred at the confirmation screen.

[Texas Proud]

Olav....

I actually do feel sorry you got hit with the fee....

But your rant is for only ONE transaction at Vanguard... if they had such lousy customer service they would not be one of the two biggest fund companies around...

Has any of your other transactions gone 'bad'

And yes, you did 'sign' the agreement when you went into the new fund... you accepted electronic signatures as an account option.. and they give you an out at the end... are you SURE you want to do this screen...

[perinova]

Sorry about your $450 loss
I remember getting a warning when buying the fund at Vanguard that if sold within # months a fee will be assessed. It would be good if they modify their software to include a warning when you sell too because if you would have done it on the phone you would have the occasion to change your mind.
I feel (hope) it is an oversight not intentional misleading on the part of Vanguard. However since you called immediately after the transaction and it wasn't yet processed they should have been nice enough to cancel it over the phone. That would have been a good commercial practice.

[FinanceDude]

Quote:

Originally Posted by Spanky I think the software should warn you that a fee will be incurred at the confirmation screen.

I agree with that.............

[ERD50]

Quote:

Originally Posted by Olav23 And as I said before, if you don't want any "hidden in the legalese fees",

Hmmm, how 'hidden' is this:

On the page at Vanguard where you can 'browse' funds, this is listed right along with the fund name:

Quote:

International Value Fund Redemption Fee: 2% if held < 2 mos

And then, when you click on that link for the fund, you get this, right on the same page:

Quote:

Important Fee Information Redemption Fee The fund charges a 2% fee ($20 per $1,000 invested) on shares redeemed within two months of purchase. The fee is paid directly to the fund and therefore is not considered a load.

And further - when you try to purchase, you get this message (bold mine):

Quote:

To establish your account with us, you need to: 1. Read the prospectus.

And, in the prospectus, the TOC has a heading ' Redeeming Shares', which leads you to this:

Quote:

Redemption Fees The Fund charges a 2% redemption fee on shares redeemed within two months of purchase by selling or by exchanging to another fund, or when Vanguard applies the low-balance account-closure policy. The fee is withheld from redemption proceeds and is paid directly to the Fund to offset the cost of buying and selling securities. Shares held for two months or more are not subject to the 2% redemption fee.

Now, how is that 'hidden', or 'legalese'? That looks like plain old grade-school English to me.

-ERD50

[youbet]

Quote:

Originally Posted by Olav23 And as I said before, if you don't want any "hidden in the legalese fees", stick with a discount broker that you are happy with, and use ETFs.

You seem to be making ETF's and Vanguard mutually exclusive. That isn't so......

Also, funds with short term trading fees (penalities) collect those fees wherever you buy that fund.

I am not a Vanguard customer. I spent a significant amount of time playing with the portion of their website non-customers have access to and it seemed fine. I like their funds. I decided to become a Vanguard customer by rolling DW's 403b to Vanguard and a customer service rep gave me wrong/poor information on the phone. That soured me and I decided to stay with Schwab. Schwab is handling the transaction and I was able to bring the documents to their office and ask questions face-to-face.

Because I live near a Schwab walk-in office, I find the few hundred bux a year I spend on trading commissions and other fees to be worthwhile. If I didn't live near a Schwab office, I'd probably switch. When I do get aggravated or confused over some issue, such as the one you experienced, I get calmed down a lot quicker when I get to quickly meet with a VP level person and whine and bitch face-to-face.

I still want to open something with Vanguard and will proably get around to it this year. I'd like to run them in parallel and constantly compare. But for now, Schwab is a decent compromise between cost and face-to-face service.

[soupcxan]

When I have made exchanges between Vanguard funds through their website, there has always been a screen before the confirmation page that says "your estimated early redemption fee is $x" if I have held a fund less than the minimum time required. This shows up before the transaction is finalized. Not sure why you didn't see it.

[justin]

Most VG funds have short term redemption fees (for sale within 2 months to 5 years of purchase). If I was executing a $22000 trade, I'd probably be a little more careful.

Even with ETF's, if you were only in the ETF for 1.5 months, you would have paid two commissions, two bid/ask spreads, and potentially two premium/discount to NAV expenses. No such thing as a free lunch.

I agree - $450 to the school of investing and "pay attention very closely to fees". And as a continuing VG international value shareholder, I'm glad VG is looking out for the best interests of it's long term buy and hold investors.

I agree with the OP, it would be nice to see a statement regarding the impending short term trading fee that will be assessed if you execute the trade. I know fidelity has a warning about that before you execute mutual fund transactions.

[d]

no sympathy from me either ...

[justin]

I just checked at Vanguard online to see if they display the short term trading fee. They did. You can even click on "details" and it will display how they calculated the short term trading fee (number of shares held less than 2 mos. vs. number of shares held > 2 mos.). OP, you must have overlooked that detail, or something screwed up during your transaction!

[SecondCor521]

Quote:

Originally Posted by Olav23 And as I said before, if you don't want any "hidden in the legalese fees", stick with a discount broker that you are happy with, and use ETFs.

I've been a very satisfied Vanguard client for over 20 years. They have charged me small fees in the past; however I found these fees to be (a) so remarkably small to not make an real difference in my expense ratio, (b) well disclosed and communicated, and (c) logical to me in how and why they were assessed.

I have also had accounts with Fidelity, Scottrade, Prudential, and some others. Out of all of them, based on my experience, I would trust Vanguard the most to not have such fees.

Which discount broker do you trust more than Vanguard?

2Cor521