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Thursday, October 07, 2010

Vanguard Sets a Lower Bar

News summary by MFWire's editors

The mutual fund industry's Wal-Mart is making headlines with its latest move. On Wednesday, Vanguard reduced the minimum amount required for investors to be eligible for Admiral shares. The Valley Forge, Pennsylvania-based firm lowered the minimum to $10,000 for most if its broad-market index funds and $50,000 for actively managed funds, down from $100,000.

Bill McNabb
Vanguard
CEO
In the Wall Street Journal Fund Track column today, Vanguard CEO Bill McNabb was quoted as saying: "We want investors to be able to pick the structure that makes the most sense for them."

The Associated Press also had a chat with McNabb, who acknowledged the similarities between his firm and Wal-Mart.

"Wal-Mart is an organization that has created huge value for their clientele," McNabb said. "We like to think of ourselves as doing the same thing."

Tim Buckley
Vanguard
Managing Director, Retail Investor Group
So what do the folks at 82 Devonshire think of the news coming out of Valley Forge?

Both the WSJ and the AP sought comment from Fidelity and got this comment from spokesman Vin Loporchio: "We are always evaluating our products and services, including pricing to ensure that we are competitive in the marketplace."

Reuters, for its part, talked to Tim Buckley, the top retail executive at Vanguard. Buckley told the wire service that the firm has "benefited from significant growth recently, so we're passing on those economies of scale."

Other media outlets that covered the news include the New York Times and Barrons.
Company Announcement

Vanguard lowers the cost of investing once again


At Vanguard, we're always looking for ways to pass cost savings on to investors. Today, we're announcing yet another major reduction in our costs—and it will happen automatically for our existing client-owners who qualify.

Effective today, Vanguard has reduced the minimum amount required to qualify for Admiral™ Shares to $10,000 for most of our broad-market index funds and $50,000 for actively managed funds, down from the previous $100,000 minimum. Admiral Shares cost significantly less than traditional fund shares, and their expense ratios are among the lowest in the mutual fund marketplace.

"As the mutual fund industry's only client-owned firm, we're able to offer our funds at cost, and that helps us reduce expenses for our shareholders," said Vanguard Chairman and CEO Bill McNabb."The loyalty of our clients and their willingness to embrace cost-effective ways of working with us have contributed greatly to Vanguard's ability to cut expenses."

If you're a Vanguard client, you may be eligible for an automatic promotion to Admiral Shares, as explained below. If any of your current Vanguard fund holdings qualify, we'll notify you by mail and provide additional details about what this change means for you. Then, over the next few weeks, we'll complete the change for you automatically. If you're not a client, it's another great reason to consider investing with us.

What are Admiral Shares?
Admiral Shares are a separate share class of more than 50 Vanguard funds that follow the same investment strategy as traditional shares, but with significantly lower expense ratios. They were created to recognize and encourage the cost savings that Vanguard derives from large accounts, and to pass those savings on to investors.

Thanks to their low costs, Admiral Shares can reduce your expenses 18%–50% below the already low expense ratios of our standard Investor Shares. (Find out why investment costs matter.)

For example, if you invest $50,000 in a fund's Admiral Shares with a 0.07% expense ratio instead of its Investor Shares with a 0.18% expense ratio, you could keep approximately $1,200 more in net returns for your account over a 10-year period, assuming an average annual return of 8%. (This is a hypothetical illustration and does not represent any particular investment. Actual savings for your specific funds may be higher or lower.)

Switching to Admiral Shares is easy

When you're promoted to Admiral Shares, you'll remain invested in the same Vanguard fund(s). Admiral Shares are just lower-expense shares of existing funds.

All cost-basis information from your Investor Shares will be transferred to your Admiral Shares automatically.

Changes from Investor Shares to Admiral Shares of the same fund are tax-free.

Any checkwriting privileges you had with your Investor Shares account will transfer to your Admiral Shares account. You'll receive a new checkbook for your Admiral Shares account.

The minimum amount to qualify for Admiral Shares will remain at $100,000 for the following sector index funds: Consumer Discretionary Index Fund, Consumer Staples Index Fund, Energy Index Fund, Financials Index Fund, Health Care Index Fund, Industrials Index Fund, Information Technology Index Fund, Materials Index Fund, Telecommunication Services Index Fund, and Utilities Index Fund, and for the following tax-managed funds: Tax-Managed Capital Appreciation Fund, and Tax-Managed Growth and Income Fund.

Other ways we've cut the cost of investing
During the past year, Vanguard has delivered cost savings on a wide range of other products and services:

  • We now offer commission-free trades on our entire lineup of low-cost exchange-traded funds (ETFs). Vanguard offers the largest suite of ETFs available without commissions.
  • We've lowered commissions on stock and non-Vanguard ETF trades to $2 or $7 for most Vanguard clients.*
  • We've launched new funds and ETFs with expense ratios substantially lower than those of competing products, including Vanguard S&P 500 ETF with an expense ratio of 0.06%.
  • We've reduced expenses for participants in a number of 529 college savings plans that offer Vanguard investments.
  • We've introduced the low-cost Vanguard Annuity Access™ service, offering quotes from multiple insurance companies through the Income Solutions® platform.

    * The commission information for Vanguard ETFs® and stock trades applies to assets bought and sold through Vanguard Brokerage Services®, a division of Vanguard Marketing Corporation, member FINRA. Trading limits, fund expenses, and minimum investments may apply. See the Vanguard Brokerage Services Commission and Fee Schedules on Vanguard.com for full details.

    Notes:

  • Mutual funds and ETFs are subject to risks, including possible loss of principal.
  • Investment management services provided by Vanguard to the Vanguard funds and ETFs are at cost. More information about Vanguard funds, including at-cost services, is available in each fund's prospectus.
  • Vanguard provides services to the Vanguard funds at cost. More information about Vanguard funds, including at cost services, is available in each fund's prospectus. Client-owned means the clients own the funds and the funds own Vanguard.
  • You must buy and sell Vanguard ETF® Shares through a broker like Vanguard Brokerage Services (we offer them commission-free) or through another broker (which may incur commissions). See the Vanguard Brokerage Services Commission and Fee Schedules for limits. Vanguard ETFs are not redeemable directly with an applicant fund other than in creation unit aggregations. Like stocks, ETFs are subject to market volatility. When buying or selling an ETF, you'll pay or receive the current market price, which may be more or less than net asset value.
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    Edited by: Armie Margaret Lee


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