Vanguard Adds $100 Fee to Close Account or Transfer Assets

“Unhappy” high-profile customer

Vanguard, the $8 trillion asset management company, is notifying customers of a new $100 fee to close an account or transfer assets to another firm.

An email to customers listed six new fees “effective July 1, 2024.” Last among them was the notification about an “Account closure and transfer fee: A $100 processing fee may be charged for account closure or transfer of account assets to another firm.”

A footnote explained that “The fee will not be assessed for clients who hold at least $5 million in qualifying Vanguard assets,” but that was not much reassurance to some longtime Vanguard customers, who voiced dismay about the change.

Allan Sloan, a veteran personal finance columnist, called the new fees “cheesy” and “tacky” and “chintzy” and warned that they could “damage the firm’s reputation.” He wrote at Yahoo! Finance that he was moving an account of his out of Vanguard to Charles Schwab, a competing firm. His column was headlined “Unhappy customer: Why I finally took my business from Vanguard to Charles Schwab.”

In another column about the changes, headlined, “Vanguard ‘nickel-and-dimes-grandma’ after 49 years without junk fees,” Sloan said Vanguard explained that the fee “helps to offset the costs of the asset transfer.” Sloan wrote, though, that “imposing costs on smaller investors but not on larger ones…doesn’t feel right.” 

Plenty of businesses in plenty of industries offer fee waivers or other discounts to larger customers. In general, I’m a defender of the freedom of businesses to set prices and to structure the prices as they wish. Yet Sloan was not the only customer to voice concern or exasperation.

“What next, a fee for sneezing?” asked one customer at Bogleheads.org, an online discussion group for fans of Vanguard founder and CEO John Bogle, who died in 2019 and who long stressed the benefits to investors of low fees.

Morningstar, in a piece headlined, “Is Vanguard Changing Course?” quoted its “lead Vanguard analyst,” Dan Sotiroff, declaring, “I don’t think this is Vanguard’s executives scheming to make money on their clients at the end of the day.” Thanks for clearing that up! 

I think there are some elements of the new fee that are troubling.

There’s a “trapping the customer by making it harder and more expensive to switch” aspect of it. The Biden administration is going after Apple on this in an antitrust case about making it “harder for Americans to switch smartphones.” I’m skeptical of the case against Apple, but the underlying concept—whether it is the Hotel California, where “You can check out any time you like, but you can never leave,” or the Clinton-Schumer proposed Reichsfluchsteuer, seems somewhat in tension with the ideals of competition and choice. Somehow it feels more virtuous if customer loyalty is earned voluntarily through service so good a customer doesn’t want to leave, rather than imposed with a financial penalty for leaving. Some of these retirement accounts are already somewhat complicated to close or transfer because of government regulations. 

Think about what would happen if someone in another industry tried a stunt like this. Imagine if, say, the Washington Post sent its customers an email saying, effective next week there’s going to be a new fee of $100 on any customer who tries to cancel their subscription or switch to reading a different newspaper. Imagine if your law firm, or ad agency, sent a letter saying it’d be imposing a farewell fee of $50,000 on any customers who switched to a new firm or agency. Customers would be furious at a move that seemed so nakedly designed to deprive customers from the chance to shop around for a better deal, and to put the firm or agency’s interest ahead of the customer’s interest.

Once a new fee is on the books at any level, businesses have a tendency to raise the amount of the fee. At a certain point, if the fee gets large enough, it verges on theft, especially if it’s applied to an account holder who didn’t read the notice. Most people would probably agree that if Vanguard imposed a new $1 million fee for closing an account or transferring assets, it’d be violating some duty to serve its customers. This seems especially so because the firm has marketed itself for years as a low-fee operation that’s aligned with customer interests.

There’s also a lack of transparency about how the fee will be implemented. If you transfer assets from your Vanguard retirement account to your non-Vanguard local bank account as a part of a required minimum distribution, do you get charged the $100 because it counts as “transfer of account assets to another firm”? Why does it say “may be charged” rather than “will be charged”? I put in a media query to Vanguard and didn’t get an immediate response.

And there’s a bait-and-switch aspect to it, with Vanguard imposing the exit fee on millions of customers who signed up when there was no fee.  

Vanguard is going through a leadership change, with a new chief executive, Salim Ramji, reportedly scheduled to arrive July 8. The firm, based in Malvern, Pennsylvania, increasingly is pushing higher-fee advisory services rather than its longtime core offerings of low-cost ETFs and index funds aimed at do-it-yourself investors.

There’s a regulatory context in which the government is pushing harder and harder to impose standards like “fiduciary” and “best interest” on asset managers and retirement plan administrators. Some lawyer may have figured that the $100 fee is going to somehow avoid that because it’s being applied to former customers, not existing or ongoing ones?

By the overall standards of typical asset managers and retirement plan administrators, Vanguard still nets out, on average, for a lot of people, pretty low-fee compared to a lot of the rest of the industry, even after the newly imposed fees. But like a lot of businesses these days, the firm is attracting attention now for raising prices rather than cutting them.

Doubtless some regulator or politician will be tempted to hassle Vanguard over this change. The best regulation, though, is the free market competition that would come from competing firms like Schwab or Fidelity buying ads drawing attention to the change. I wouldn’t put it past Fidelity’s Abigail Johnson to offer to pay the $100 Vanguard Reichsfluchtsteuer for any Vanguard customer who wants to make the switch. 

Recent work: “New York Times Adds ‘Editor’s Note’ to Article That Whitewashed Violent Anti-Israel Protest” is the headline over my latest piece for the Algemeiner. Please check out the full dispatch there if you are interested.

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