New Vanguard Account Fees Will Raise Costs for Some of Its Most Loyal Customers

Lately, some of Vanguard’s most loyal long-term investors have been getting letters and emails that state: “If you choose to remain on the mutual fund-only platform after September 30, 2022, you’ll be charged a $20 annual account service fee for each fund account to offset the costs and complexity of maintaining this system.”

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


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After decades of supporting two investment platforms—its brokerage and its legacy one just for in-house mutual funds—Vanguard is putting pressure on retail investors to leave the legacy one and join the brokerage. Any investor with less than $1 million in the mutual-fund-only platform will pay $20 annually per fund that they own. Prior to this shift, fees were only applied to investors with less than $10,000.

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

That adds an extra 0.10% in fees for $100,000. If one considers that the

Vanguard S&P 500 ETF

(VOO) has a 0.03% expense ratio and the Fidelity ZERO Large Cap Index Fund (FNILX) charges nothing for buying directly from Fidelity, an extra 0.10% is noteworthy. 

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

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To make matters worse, even after clients switch to the brokerage, they will be charged $20 annually if they have less than $1 million and refuse to go completely digital with their account statements.

In an email to Barron’s, Vanguard spokesperson Karyn Baldwin stated: “As Vanguard continues to modernize our clients’ digital experience, we are redesigning an already-existing account service fee. Our goal is to encourage a segment of clients to take advantage of a more modern investment platform and spur 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 competitors like BlackRock, Schwab, State Street and Fidelity. Moreover, those investors who stay with the legacy system and continue to pay for it could prove lucrative, or, at least, cover the costs of maintaining the platform with their extra fees. “If people are willing to pay the fee, [Vanguard] will take every dollar they can get because they need to find ways to bring in more money,” Wiener says. “They’ve been cutting and cutting and cutting expenses. I don’t think they really can afford to cut anymore.” 

The fee-war problem reveals the fundamental strengths in Vanguard’s unique structure for investors and weaknesses for it as a business. Competitors treat their lowest cost index funds as “loss leaders,” the cheap products that lure customers in 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 at cost, making it difficult to subsidize the cost of running the lowest fee funds with higher fee ones. Once fees have been cut to the bone as they already have, every additional cut hurts its business, so it makes sense to look for ways to recoup the revenue in other places.  

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Yet tacking on such fees is hurting Vanguard’s image as a retail-investor friendly shop and may hit hardest among its most loyal clients. The legacy mutual fund platform was created by founder John or “Jack” Bogle, so it’s full of older investors who stuck by the fund company through thick and thin. Older investors also tend to prefer paper statements over digital ones.  

Investor impact. For the oldest investors who are in the withdrawal phase of their retirements, the fees could prove problematic as the smaller their accounts become, the larger a percentage the $20-per-fund fee consumes. The small-account issue has led to a slew of questions, complaints and squabbling among Vanguard’s most loyal fans at sites like Bogleheads.org.

Given the fact that Bogle was never fond of the rapid trading that occurs at brokers, especially of exchange-traded funds as he believed in buy and hold investing, the shift is symbolic of how different Vanguard is today than it was even in 2019 when Bogle passed away.

Wiener points out that in addition to this shift, Vanguard is now moving into other more obscure investment areas like private equity that would’ve given its founder pause: “This is not Jack Bogle’s Vanguard anymore.”

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