Why is Vanguard switching all accounts to brokerage accounts? (2024)

We fought hard and won - Vanguard agreed to keep our joint accounts as legacy - not brokerage - accounts since we have been with Vanguard over 30 years and have millions with them. We do not like the way Vanguard handles brokerage accounts. We had one brokerage account and every quarter the account statements consistently had errors that required multiple phone calls to resolve. Plus because we have multiple Vanguard mutual funds the brokerage statement design was hard to work with.

So, why does Vanguard want to switch all accounts to brokerage? What is the advantage for them? And why won't they give new customers the option of not having brokerage accounts?

Personally I love the new format so as you can see YMMV. It brought my number of accounts from 6 to 3. For my parents from like 12-15 down to 6. I have yet to experience any errors. Though I do get $0.01-0.05 stranded in my traditional IRA when I convert to Roth for backdoor...

As for why VG is switching I do not have an official answer but some things that occur to me:

1) Better aligns with what other providers offer (Fido, Schwab, etc.)

2) Longer term simplifies their administrative processes

3) Might have helped them get off legacy software that they no longer could upgrade/maintain

4) Simplifies life for customers that do trade ETFs/stocks, one account form opens the whole thing vs. two

5) Aligns with more customer expectations, e.g. if more customers want ETFs in particular this is easier for them.

There could be others.

I have also (mostly) welcomed the change, the only glitch was that I had to re-set some of my preferences (re-invest, automatic transfers to checking).

One potential advantage is, at least as I understand it, the separate mutual fund accounts do not get protected under SIPC https://www.sipc.org/

AlohaJoe wrote: ↑Fri Dec 08, 2017 7:06 am[...] ease of securing against hackers [...]

Can you tell a bit more about this?

One the face of it, a brokerage account, where it is possible to trade very many types of securities intraday at whatever price, seems like a much more desirable target for hackers than a mutual fund account that only trades a smaller selection of securities once a day at NAV.

TheGreyingDuke wrote: ↑Fri Dec 08, 2017 7:16 amOne potential advantage is, at least as I understand it, the separate mutual fund accounts do not get protected under SIPC https://www.sipc.org/

I think the topic of SPIC has been covered before in the brokerage upgrade threads. My understanding is that brokerage accounts are subject to more risk, hence why they get SPIC and mutual fund accounts don't. It's not really a selling point for investors who have no need of a brokerage account.

NPT wrote: ↑Fri Dec 08, 2017 8:53 am

AlohaJoe wrote: ↑Fri Dec 08, 2017 7:06 am[...] ease of securing against hackers [...]

Can you tell a bit more about this?

One the face of it, a brokerage account, where it is possible to trade very many types of securities intraday at whatever price, seems like a much more desirable target for hackers than a mutual fund account that only trades a smaller selection of securities once a day at NAV.

2 things means 2 things you have to check for every potential every bad thing that could happen. Maybe on Tuesday your IT team spends the whole day checking the Brokerage account code for the latest zero-day exploit in their ORM. Since 90% of customers are that, it makes sense to prioritise it. But Tuesday afternoon the Mutual Fund accounts get hacked by the same attack vector. Since you haven't had time to check on the Mutual Fund accounts yet....

While VG has had issues in transferring MF accounts into the brokerage platform, these are being resolved but the few remaining MF accounts will eventually suffer because they are on an antiquated processing platform and before long very CSRs will not be adequately trained on the old accounts.

Consider this analogy - Win XP was a great operating system for a time, but support for it has consistently diminished in recent years. If you choose to continue using it you are exposed to increasing issues including security issues. Same for the VG MF platform, as it moves toward obsolescence.

I have been playing around with it, with a mind to buy ETFs from my ira money. But I can't seem to do it, can't fund the settlement account or exchange from any of my funds. Everything I have is tax deferred...

So I guess I don't see the point.

Church Lady wrote: ↑Sat Dec 09, 2017 7:31 amAre they switching all accounts? I have multiple MFs with Vanguard, have been with them decades. I have had no solicitation to convert to a brokerage account. Just saying!

It's a rolling conversion, been going on since 2013. Your turn will come eventually. Mine was last spring, and I just ignored it until they found something else to nag me about. Now that the web site can pop up a window every time you sign in, they are always going to use that for something or other.

Last month the upgrade button appeared on my Roth IRA along with the nag box about upgrading when I log in. I have 3 account registrations (taxable, traditional IRA, Roth IRA). I never imagined that the upgrade would happen with only one account reg at a time.

I care absolutely nothing about doing the upgrade and will never buy anything but what I have now. If this is a gimmick to lead us toward etf's, it is lost on me.

I've read all the FAQs and nothing answers all my questions. If anyone wants to hazard a guess as to why I have this upgrade available only on the Roth, and what happens to the other account registrations if I upgrade the newest, smallest one, I'd be interested to hear.

I have $150k in the Roth and $2M in the other two account registrations. I don't want to "upgrade" the Roth, log in, and not see the $2M because I'm not on that platform anymore. I'm willing to upgrade everything or nothing, but a partial upgrade makes no sense.

Nate79 wrote: ↑Fri Dec 08, 2017 6:40 pmWelcome to the 21st century..... It's not the stone age anymore.

Yeah, I never understood the fearful or angry reactions to getting transitioned to a brokerage account. You still own the same stuff.

zaboomafoozarg wrote: ↑Sat Dec 09, 2017 4:06 pm

Nate79 wrote: ↑Fri Dec 08, 2017 6:40 pmWelcome to the 21st century..... It's not the stone age anymore.

Yeah, I never understood the fearful or angry reactions to getting transitioned to a brokerage account. You still own the same stuff.

As long as the old accounts don't end up costing all of us more in ER fees...

zaboomafoozarg wrote: ↑Sat Dec 09, 2017 4:06 pm

Nate79 wrote: ↑Fri Dec 08, 2017 6:40 pmWelcome to the 21st century..... It's not the stone age anymore.

Yeah, I never understood the fearful or angry reactions to getting transitioned to a brokerage account. You still own the same stuff.

My turn was last year. i ignored it. My point is precisely this: if nothing changes for me, why should I waste my time converting ?

Good Listener wrote: ↑Fri Dec 08, 2017 7:15 pmI habe resisted and kept mutual funds only. Do my reasons make sense?
1. Dividends and cap gains from mutual funds go to an additional Federal money market which is taxable so one has to then move that to a tax free money market if they want to avoid taxable interest.
2. The 1099 shows aggregate numbers. So if my NJ long term bond fund gives out a cap gain distribution or short term gain, it gets aggregated. How do I know how much is from my New Jersey funds when I do my NJ taxes? Do they break it out in some attachment. If so maybe this is an advantage when doing taxes?
3. Fill it in

The 1099-B shows the aggregate numbers and then there is a line-by-line breakout of each item. I have 5 funds and the tax doc with the 1099-B is usually 12-15 pages long.....

Christine_NM wrote: ↑Sat Dec 09, 2017 3:24 pmI don't want to "upgrade" the Roth, log in, and not see the $2M because I'm not on that platform anymore. I'm willing to upgrade everything or nothing, but a partial upgrade makes no sense.

Even if you only upgraded one account, everything would be on the same online platform/lists. Just at tax time you might get two sets of forms. If you want to upgrade you can likely call and get all accounts upgraded at the same time, that's what I did because I converted early.

(In the year you convert you may get two tax forms for the following year. E.g. convert in 2017 you might get two sets of tax forms in 2018 to do 2017 taxes.)

Church Lady wrote: ↑Sat Dec 09, 2017 7:31 amAre they switching all accounts? I have multiple MFs with Vanguard, have been with them decades. I have had no solicitation to convert to a brokerage account. Just saying!

You will, probably tomorrow.

zaboomafoozarg wrote: ↑Sat Dec 09, 2017 4:06 pm

Nate79 wrote: ↑Fri Dec 08, 2017 6:40 pmWelcome to the 21st century..... It's not the stone age anymore.

Yeah, I never understood the fearful or angry reactions to getting transitioned to a brokerage account. You still own the same stuff.

But you can't do the same things with that same stuff. The brokerage platform is more capable generally (can buy ETFs for example) but much more complicated. From VG's platform there will be huge savings from consolidating so I understand that, but customers will lose some existing functionality. People don't like functionality being changed, much less being taken away.

goshenBogle wrote: ↑Fri Dec 08, 2017 6:56 amSo, why does Vanguard want to switch all accounts to brokerage? What is the advantage for them? And why won't they give new customers the option of not having brokerage accounts?

My guess is to join the 21st century like the rest of their competitors. If you own both ETFs and Mutual Funds you quickly grow to hate their legacy 2 account set up, it is infuriating and archaic plus it serves as a reminder of Vanguard's technical deficits compared to the competition. Also, if I remember correctly the brokerage accounts are insured differently.

https://investor.vanguard.com/investing ... protection
[quote]Securities in your brokerage account are held in custody by Vanguard Brokerage Services, a division of Vanguard Marketing Corporation. Vanguard Marketing Corporation is a member of the Securities Investor Protection Corporation (SIPC), which protects securities customers of its members up to $500,000 (including $250,000 for claims for cash). Explanatory brochure available upon request or at sipc.org External site.
To offer greater protection and security, Vanguard Marketing Corporation has secured additional coverage from certain insurers at Lloyd's of London and London Company Insurers for eligible customers with an aggregate limit of $250 million, incorporating a customer limit of $49.5 million for securities and $1.75 million for cash. Coverage provided by SIPC and certain Lloyd's of London and London Company Insurers does not protect against loss of market value of securities. The policy provided by certain Lloyd's of London and London Company Insurers is subject to its own terms and conditions.[/quote]

If I have both traditional and brokerage accounts and can I transfer funds from brokerage to traditional?

It sounds as if the only complaint about brokerage is reporting tax? EDIT: and those in Sprinman's post immediately above this.

SpringMan wrote: ↑Sun Dec 10, 2017 9:29 amSeems like converting an IRA to a Roth now requires using the MM settlement account rather than in-kind conversion at VBS.

Try to verify this. I just tested an exchange of shares in a Vg fund from taxable to ROTH and it appeared it was allowed. (I didn't actually submit the trade request.)

Doc wrote: ↑Sun Dec 10, 2017 9:57 am

SpringMan wrote: ↑Sun Dec 10, 2017 9:29 amSeems like converting an IRA to a Roth now requires using the MM settlement account rather than in-kind conversion at VBS.

Try to verify this. I just tested an exchange of shares in a Vg fund from taxable to ROTH and it appeared it was allowed. (I didn't actually submit the trade request.)

I verified you are correct. VG brokerage may have fixed this issue since I did a Roth conversion.

The529guy wrote: ↑Sun Dec 10, 2017 11:41 amI can’t seem to use mobile check deposit after converting to brokerage. Sad.

U N S A T I S F A C T O R Y! The good news, this is fixable. I had the same issue, after the upgrade the link from my checking account to my Vanguard account went down the tubes, I contacted my representative to unscrew things up and it was fixed in one or two days. Please contact your Vanguard representative and have Vanguard fix this for you, they already have your bank information. Good luck, Merry Christmas, thanks for reading.

Monster99 wrote: ↑Sat Dec 09, 2017 7:20 pm

Good Listener wrote: ↑Fri Dec 08, 2017 7:15 pmI habe resisted and kept mutual funds only. Do my reasons make sense?
1. Dividends and cap gains from mutual funds go to an additional Federal money market which is taxable so one has to then move that to a tax free money market if they want to avoid taxable interest.
2. The 1099 shows aggregate numbers. So if my NJ long term bond fund gives out a cap gain distribution or short term gain, it gets aggregated. How do I know how much is from my New Jersey funds when I do my NJ taxes? Do they break it out in some attachment. If so maybe this is an advantage when doing taxes?
3. Fill it in

The 1099-B shows the aggregate numbers and then there is a line-by-line breakout of each item. I have 5 funds and the tax doc with the 1099-B is usually 12-15 pages long.....

Gee. I have 3 funds and my 1099-div has all 3 on 1 page.

SpringMan wrote: ↑Sun Dec 10, 2017 11:34 am

Doc wrote: ↑Sun Dec 10, 2017 9:57 am

SpringMan wrote: ↑Sun Dec 10, 2017 9:29 amSeems like converting an IRA to a Roth now requires using the MM settlement account rather than in-kind conversion at VBS.

Try to verify this. I just tested an exchange of shares in a Vg fund from taxable to ROTH and it appeared it was allowed. (I didn't actually submit the trade request.)

I verified you are correct. VG brokerage may have fixed this issue since I did a Roth conversion.

The issue may not have needed to be fixed. I have a vague recollection that you have to specify the amount for the the trade in dollars not shares.

Christine_NM wrote: ↑Sat Dec 09, 2017 3:24 pmLast month the upgrade button appeared on my Roth IRA along with the nag box about upgrading when I log in. I have 3 account registrations (taxable, traditional IRA, Roth IRA). I never imagined that the upgrade would happen with only one account reg at a time.

I care absolutely nothing about doing the upgrade and will never buy anything but what I have now. If this is a gimmick to lead us toward etf's, it is lost on me.

I've read all the FAQs and nothing answers all my questions. If anyone wants to hazard a guess as to why I have this upgrade available only on the Roth, and what happens to the other account registrations if I upgrade the newest, smallest one, I'd be interested to hear.

I have $150k in the Roth and $2M in the other two account registrations. I don't want to "upgrade" the Roth, log in, and not see the $2M because I'm not on that platform anymore. I'm willing to upgrade everything or nothing, but a partial upgrade makes no sense.

I have my accounts (roth and IRA) and my wifes Roth converted. My wife's tira is not. They all show up on the web and the balance seen is the total balance for all accounts.

Doc wrote: ↑Sun Dec 10, 2017 3:01 pmThe issue may not have needed to be fixed. I have a vague recollection that you have to specify the amount for the the trade in dollars not shares.

I think that’s right. I ran into a similar issue trying to contribute to our Roth IRAs out of my Vanguard Ohio Long-term Tax Exempt fund set to Specific ID for cost basis. It made it impossible to contribute a dollar amount. I had to switch the fund to average cost basis for it to work as desired.

jhfenton wrote: ↑Fri Dec 15, 2017 12:49 pm

Doc wrote: ↑Sun Dec 10, 2017 3:01 pmThe issue may not have needed to be fixed. I have a vague recollection that you have to specify the amount for the the trade in dollars not shares.

I think that’s right. I ran into a similar issue trying to contribute to our Roth IRAs out of my Vanguard Ohio Long-term Tax Exempt fund set to Specific ID for cost basis. It made it impossible to contribute a dollar amount. I had to switch the fund to average cost basis for it to work as desired.

Hmmnn. I would have thought that switching to FIFO would allow a dollar amount to be used. Switching to average cost can be problematic if you want to swtich back in the future.

(Some brokers allow other methods than SPEC ID or FIFO without using average cost. Of course these other methods are just forms of SPEC ID.)

Doc wrote: ↑Fri Dec 15, 2017 4:24 pmHmmnn. I would have thought that switching to FIFO would allow a dollar amount to be used. Switching to average cost can be problematic if you want to swtich back in the future.

(Some brokers allow other methods than SPEC ID or FIFO without using average cost. Of course these other methods are just forms of SPEC ID.)

FIFO might have worked. I just didn't care much with a bond fund, and I didn't want to try changing it multiple times to see. The NAV just isn't likely to vary too much. My average cost is currently $12.526 with a close today at $12.61. It's about 4% below the peak NAV in June 2016 and about 3% above the last trough in late November after the election and the resulting "muni panic."

My VWO and VIOV are Spec ID. I have shares of VWO that are up well over 50% from spring 2016, and the entire position is about 33% gains. My position in VIOV is newer, but it is about 10% gains on average. Spec ID matters with those.

goshenBogle wrote: ↑Fri Dec 08, 2017 6:56 amWe fought hard and won - Vanguard agreed to keep our joint accounts as legacy - not brokerage - accounts since we have been with Vanguard over 30 years and have millions with them. We do not like the way Vanguard handles brokerage accounts. We had one brokerage account and every quarter the account statements consistently had errors that required multiple phone calls to resolve. Plus because we have multiple Vanguard mutual funds the brokerage statement design was hard to work with.

So, why does Vanguard want to switch all accounts to brokerage? What is the advantage for them? And why won't they give new customers the option of not having brokerage accounts?

So you fought hard and won. Congratulations. So without fully knowing the advantages for them (or for you), why are you saying you "won"?

Monster99 wrote: ↑Sun Dec 17, 2017 9:01 amI converted to brokerage last year and my wife converted this year - no paperwork and took less than 10 minutes of my time. A few days later all accounts were converted. The only thing I dislike is the 1099 forms come later in the new year.

I guess the process must be easier if you just hold an account as an individual? My spouse and I have a revocable living trust that we set up for estate planning purposes; everything is in the name of the trust. I think that's why there would be a bunch of paperwork for me if I were to go through with this.

randomizer wrote: ↑Sun Dec 17, 2017 11:06 pmI guess the process must be easier if you just hold an account as an individual? My spouse and I have a revocable living trust that we set up for estate planning purposes; everything is in the name of the trust. I think that's why there would be a bunch of paperwork for me if I were to go through with this.

We just converted such a trust taxable account a month ago. It all went very smoothly. Just one 9 page form with only a smattering of entries. I started with the VG online paperwork, but soon made a call to the 800 number they had on the form for questions. After a short discussion with someone who clearly knew what they were doing, we settled on them filling most of the form out and mailing it to us to sign and mail back. Along with copies of the trust title page and signature pages. We also verified how we answered a couple of the form entries with our attorney (via email at no charge). Pretty easy process.

We have a similar size taxable trust brokerage account at Fidelity and always wanted to make it easy to transfer assets between the two accounts. Just in case one of them does something that riles us up.

Also have Roth and tIRA mutual fund accounts that we have no plans to switch. Little or no activity with them so we see no benefit to a change. I just said no when the 800 number person asked if we wanted to switch those.
JW
ps: both the old and new accounts show up on the same web page when we log in.

randomizer wrote: ↑Sun Dec 17, 2017 11:06 pmI guess the process must be easier if you just hold an account as an individual? My spouse and I have a revocable living trust that we set up for estate planning purposes; everything is in the name of the trust. I think that's why there would be a bunch of paperwork for me if I were to go through with this.

Similar situation for me with my Vanguard account titled in living trust name. I was willing to convert, but I'm also fine with the existing mutual fund variety of account. When it required "a bunch of paperwork", I quickly lost interest in converting.

Monster99 wrote: ↑Sun Dec 17, 2017 9:01 amI converted to brokerage last year and my wife converted this year - no paperwork and took less than 10 minutes of my time. A few days later all accounts were converted. The only thing I dislike is the 1099 forms come later in the new year.

How much later in the new year?

UpperNwGuy wrote: ↑Mon Dec 18, 2017 10:52 am

Monster99 wrote: ↑Sun Dec 17, 2017 9:01 amI converted to brokerage last year and my wife converted this year - no paperwork and took less than 10 minutes of my time. A few days later all accounts were converted. The only thing I dislike is the 1099 forms come later in the new year.

How much later in the new year?

It doesn't look like Vanguard has posted its 2017 tax form availability schedule yet, but off-hand I would say it's a difference of 4-6 weeks later with the brokerage account.

randomizer wrote: ↑Fri Dec 15, 2017 8:45 pmI personally wouldn't mind switching if they insist, but they seem to require paperwork that is basically equivalent to the initial application paperwork all over again. Ugh.

They didn't for me. It was very simple.

zaboomafoozarg wrote: ↑Sat Dec 09, 2017 4:06 pm

Nate79 wrote: ↑Fri Dec 08, 2017 6:40 pmWelcome to the 21st century..... It's not the stone age anymore.

Yeah, I never understood the fearful or angry reactions to getting transitioned to a brokerage account. You still own the same stuff.

Some minor annoyances, like the "settlement fund" which sometimes but not always get swept into Prime Money Mkt (which I use for my cash there).

Also, just finding out now ... Remember when the mutual fund account sent you an end-of-year statement that covered the entire calendar year (all the transactions) ? Apparently the brokerage account is not doing that; my December statement shows only December transactions.