Vanguard’s new account fees will increase costs for some of its most loyal customers

Recently, some of Vanguard’s most loyal long-term investors received letters and emails stating: “If you choose to remain on the mutual fund-only platform after September 30, 2022, you will be charged an annual account maintenance fee of $20 per mutual fund account capital to offset the cost and complexity of maintaining this system.”

Vanguard hopes the new account fee will prompt investors to switch to its brokerage platform, which it says is more modern.


After decades of supporting two investment platforms—its brokerage and its legacy in-house mutual funds—Vanguard is putting pressure on retail investors to ditch legacy and join the stock market. Any investor with less than $1 million on the fund-only platform will pay $20 per year per fund they hold. Prior to this shift, fees were only imposed on investors with less than $10,000.

Cost shifting. Vanguard is known for its low fees. But now, the legacy platform will become expensive — the opposite of Vanguard’s ethos — for the non-millionaires on it. “On the legacy platform, every fund you own is an account,” says Dan Wiener, co-editor of The Vanguard Independent Investor Advisor newsletter. So if an investor holds five Vanguard funds at $20,000 each, that’s five separate accounts, each paying $20 a year extra, or $100 in total, to be on the platform.

This adds an additional 0.10% in fees on $100,000. If one considers that the

Vanguard S&P 500 ETF

(VOO) has an expense ratio of 0.03%, and the Fidelity ZERO Large Cap Index Fund (FNILX) charges nothing for direct purchases from Fidelity, an additional 0.10% is notable.

Vanguard was “trying to turn people away [its legacy system] volunteered for years,” says Wiener. “If it was still a small number of people and accounts, I would think they would just tell people, ‘We’re shutting it down.’ But clearly, the carrot didn’t work, so now [Vanguard’s] striking them with the stick.”

To make matters worse, even after customers switch to the brokerage, they’ll still be charged $20 a year if they have less than $1 million and refuse to go completely digital with their account statements.

In an email to Barron’s, Vanguard spokeswoman Karyn Baldwin said, “As Vanguard continues to modernize our customers’ digital experience, we are redesigning an existing account servicing fee. Our goal is to encourage a client segment to benefit from a more modern investment platform and drive greater digital engagement.”

Technologically, it’s expensive for Vanguard to maintain two separate platforms, and it’s still in the midst of a fee war with rivals like BlackRock, Schwab, State Street and Fidelity. Moreover, those investors who stay with the legacy system and continue to pay for it could turn out to be profitable or, at least, cover the cost of maintaining the platform with their additional fees. “If people are willing to pay the fee, [Vanguard] they’re going to take every dollar they can get because they have to find ways to bring in more money,” says Wiener. “They’ve cut and cut and cut costs. I don’t think they can really afford to cut any more.”

The fee war problem reveals the fundamental strengths in Vanguard’s unique structure for investors and the weaknesses for it as a business. Competitors view their lower-cost capital as “loss leaders,” the cheap products that lure customers into the store where they can also buy more expensive products, which are more profitable for the store to sell.

But Vanguard aims to run its entire business on cost, making it difficult to subsidize the costs of running the lowest-fee funds with those with the highest fees. Once fees are cut all the way, as they already have been, any additional cut hurts its business, so it makes sense to look for ways to recoup revenue elsewhere.

However, imposing such fees damages Vanguard’s image as a retail-investor-friendly store and may hit its most loyal customers harder. The legacy mutual fund platform was created by founder John or “Jack” Bogle, so it’s full of older investors stuck with the mutual fund company. Older investors also tend to prefer paper statements over digital ones.

Investment impact. For older investors in the withdrawal phase of their retirement, fees can prove problematic as the smaller their accounts become, the more the $20 per fund fee eats up. The issue of small accounts has led to a flood of questions, complaints, and fights among Vanguard’s most loyal fans on sites like

Given the fact that Bogle was never a fan of the high-speed trades that take place at brokers, especially exchange-traded stocks, as he believed in buy-and-hold investments, the change is symbolic of how different Vanguard is today than it once was. and 2019 when Bogle died.

Wiener points out that in addition to this shift, Vanguard is now moving into other, more obscure investment areas such as private equity that would have given its founder pause: “This is no longer Jack Bogle’s Vanguard.”

Write to

Leave a Reply

Your email address will not be published. Required fields are marked *