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Vanguard brokerage account conversion round 3

Following up on Shadow's round 2, and the original thread "Transition your Vanguard account to a Brokerage Account".

I've gotten a couple of emails from Vanguard in the past few days, and its site puts up a dialog box (Action needed: Your account needs to be transitioned) when I log in. Vanguard's getting aggressive now. Or, given that this is Vanguard, is that passive aggressive?:-)

I expect that pretty soon they'll push everyone onto their brokerage platform. Highlights from the last email received:

We're retiring our old investment platform, which is what you're using today. We'll need you to take a few minutes to complete a 3-step transition to our new investment platform. [This is also essentially what's in the dialog box.]

Why do we need you to do it?
Having all of our clients on a single, more flexible platform will allow us to save money and make service improvements faster. Ultimately, this will benefit you as we expect to lower costs and improve your client experience.

What actually happens?
To illustrate what happens when you transition, we'll use a hypothetical example. Let's say you have a Traditional IRA today. Once you complete the transition, we'll take the investments in that Traditional IRA and move them into a new Traditional IRA Brokerage Account (a brokerage account is just the financial industry's name for a general investment account).


  • Seems like much ado about nothing. I have several brokerage accounts at Fido that just popped up like mushrooms in spring. Also have several accounts at Fido that have zero account balances for over 30 years. Tried to get them removed several times they can't do a remove. To each his own.

  • I still have not transitioned my VG accounts. I'll wait and see their next move, but I don't see how they can force someone to take a brokerage account when they do not want or need one.
  • edited November 2019
    Thanks @msf for the great updates! I’m reminded of the gentle “nudge” in my new Invesco (formerly Oppenheimer) statements that I currently have “no advisor” and should “call us” to set one up. (LOL).

    As far as brokerages go, I’ve never had one. Guess I’m a very old dog. But TRP is a great company and if you can’t find what you want there, you probably don’t need it. The only thing is they lack a precious metals fund - reason I keep a little with Invesco.
  • Possibly you're right about being able to retain legacy accounts. While I still have my doubts, I went back and checked my father's records and later mine at Fidelity.

    Fidelity originally offered individual fund accounts (much like T. Rowe Price still does, I believe). Then around 1988 it created "T accounts". You still had your mutual fund accounts as if nothing had changed, but they were grouped under a common "T" account number. This is the way Vanguard's fund platform works. You can have one or more aggregation fund accounts, and within those accounts one or more fund holdings.

    Toward the end of 2002, Fidelity changed the numbering of the accounts, which were no longer called T accounts. That transition was mandatory:
    Recently your Fidelity funds account(s) was converted to Fidelity's new account transaction and record keeping system. As a result of this system conversion, you have a new account number(s) and will notice a slight change in the format of your statement. But otherwise your account is the same as before the conversion. Please note that there was no tax consequence to your account due to the system conversion.
    I had thought that sometime after that, Fidelity pushed me into a brokerage account. But looking back at the old statement where that transition took place, it seems I voluntarily made the switch. (I can infer that from the fact that I changed the titling of the account, which would not have been done without my consent.)

    We'll see what happens. In any case, at neither Vanguard nor Fidelity can one open a new account on the mutual fund platform. Only new brokerage accounts can be opened. Sooner or later everyone will be off the old platform by attrition (read: demise).
  • @msf
    I'm not digging through old paperwork to verify dates for transitions; but recall in the late 1970's our opening a separate taxable brokerage account as well as traditional IRA accounts with a brokerage feature added to each. For legal purposes at the time (I presume), the IRA account had its own separate paperwork, as well as the brokerage feature; each requiring a separate signature (yes, real papers signed at a Fidelity brick and mortar). I do recall the T accounts and the rework to issue a new account number. I don't recall the reasons, although it may have been to consolidate their system and for the owners benefit to simplify everything per account holder per their SSN. Don't know.
    Of course, we opened the separate brokerage accounts to do other transactions outside of the "normal" mutual fund transactions.
    Thank you for your work and recollections.
    IMHO, account functions (new accounts, Fidelity) are quite straight forward and easy today, eh?
  • The transition itself should be easy. There are various minor differences depending on how one holds a fund account (separately or inside a brokerage). I've noticed some of those differences at Fidelity.

    Fidelity made it much easier to deal with cash management when it started letting you draw money (for investments, for withdrawals, for bill pay) implicitly from its higher yielding MMFs. Even though you still have to explicitly move money into those funds, drawing out cash has been made automatic.

    Since the only cash management feature Vanguard offers is checkwriting, this is much less of an issue there. Still, if you can write checks against individual Vanguard mutual funds now, that will change when they come within a brokerage umbrella.

    One minor annoyance with funds in brokerage accounts (I believe this is true of Vanguard as well as Fidelity, though I haven't experienced it firsthand) is that you must specify Roth conversion amounts in shares, not dollars. In contrast, when the IRAs are held as separate mutual fund accounts (not in brokerages), one can specify the precise dollar amount to convert.

    The ability to direct dividends to various accounts/institutions differs depending on whether the fund is held separately or in a brokerage account. I'd have to check on what's possible with which; I just remember that what you can do in each is different.
  • edited November 2019
    When did VG prevent any new purchases on the old platform until you convert to the new platform?

    I exchanged my VG Convertible Securities Fund into another fund on the old platform earlier this year. Never had a problem. Maybe it was existing money already invested with them?
  • It's confusing, the distinction between accounts and positions.

    On the Vanguard site, there's a drop down, My Accounts-> Account Overview.

    When you go there, you see a list of accounts. Each of those accounts may have zero or more positions. If they're fund platform accounts, they can hold only Vanguard mutual funds. If they're brokerage platform accounts, they can hold anything.

    What I think you did was execute an exchange within a mutual fund platform account. You sold some shares of one fund and opened a new position within an existing account. You did not open a new account. (I wrote: "at neither Vanguard nor Fidelity can one open a new account on the mutual fund platform.")

    Most of the time this distinction doesn't matter, and you just work within one existing fund platform account. But the account you use can sometimes matter.

    Someone may contribute money to an IRA and then want to undo that. It could be that a T-IRA contribution was made and then the taxpayer discovered that it wasn't deductible. Or until recently it could be a Roth conversion that the taxpayer wanted to reverse (recharacterize). Whatever.

    The amount one must withdraw is the original amount plus earnings. The earnings are computed by looking at the percentage gain of the whole account from the time the contribution was made until it was withdrawn.

    For example, say you had $7K in an IRA in a stock fund, and you contributed $7K to a new bond fund position inside the same IRA account. Suppose the stock fund went up 10% and the bond fund went nowhere. Now you want to undo that contribution. The account went up 5% on average. So you have to withdraw $7K +5% x $7K (earnings), even though the bond fund you put the money in earned nothing.

    But if you'd opened another IRA, a distinct account for the contribution, things would be different. The account would start with $7K total value (your contribution). Then when you decided to undo that contribution, the total value of the account would still be $7k. You'd take out the $7K and close the account. Your original account, now with $7K + 10%, or $7,700 in the stock fund would remain untouched.

    If you wanted to create a new account for an IRA contribution today, Vanguard would only let you open a brokerage account. Of course if you had an existing IRA on the old fund platform, you would have the option of adding to that existing account instead.
  • @msf

    Thanks for the clarification. I did do an exchange from the convertible securities taxable account and exchanged the funds into another VG account taxable account(I maintain only VG funds at VG). I still maintain a similar account number to my other older existing fund positions, only the fund number changed.

    I agree in that if I were to open a non-taxable account, they would prohibit me from opening it under the old platform until I agreed to convert my existing accounts to the brokerage platform.
  • edited December 2019
    I haven’t followed all three installments by @msf too closely, since I’m neither with VG or a brokerage. What recently caught my attention - Doing a routine online exchange at TRP recently, near the end of the process, the words, “Would You Like to Make another trade ?” popped up. In the past, it seems to me, exchanges were always called exchanges . Perhaps the lexicon of the industry in evolving / changing? Or ... perhaps we’re being acclimated for more of what Vanguard appears to be dishing out?

    Has the time difference between exchanging shares within a fund family and trading via brokerage been addressed here? Within a fund family I always get same-day execution (exchanges initiated by 4PM take place at day’s end). It’s my understanding that when you buy or sell a fund via a brokerage account there’s an extra day in there for processing.
  • I was just piggybacking on a sequence of threads for continuity; the others weren't mine.

    Regarding trends in interfaces - it seems to be a common problem that as applications are generalized, insufficient attention is being paid to interface details. As fund companies move towards integrating brokerage applications, they may relabel everything with brokerage terminology even on their fund platforms.

    Similarly Windows 10, designed as it is for both PCs and mobile devices, asks me mobility questions about my immobile desktop system. And at Merrill, its system tells me that it won't sell the fractional shares of a fund until the whole shares settle. That's how stocks work, not funds.

    I find much of this sloppiness cringe-worthy. But IMHO all it signifies is lack of care and not a fundamental change in how the platforms work underneath.

    Trade/exchange execution times is a different question. Many (most?) brokerages will do same-day exchanges within a single fund family. Same-day exchanges across fund families is a bit more difficult. I've read that some brokerage(s) will allow you to place such orders online, though I don't recall which brokerages those were. My experience with Fidelity is that you cannot do this online. But Fidelity will set up the same-day exchanges for you over the phone, at least up to 90% of the value of the holdings being sold.
  • Latest email update. It sounds like people will be forced to move from mutual fund platform to brokerage platform no later than 2022.
    We're working toward the retirement of our old investment platform, which supports accounts that only hold Vanguard mutual funds. We'll continue to support clients on this old platform until it's retired from use in 2022 or earlier. But know that some of the features you've used in the past may not be available as we make updates and changes in the future.
    How will it affect you?
    There will be a few very minor changes, but overall, it will be a very similar experience. You'll keep all the investments you have today. And your account type will stay the same too (Traditional IRA, Roth IRA, individual, etc.). You'll just be able to do a little more—but only if you want to. For example, you could invest in stocks, bonds, or ETFs.
  • I think they are looking for creative ways to generate additional income or fees - but - they will be created so that they want you to think you are getting something for nothing. This is what I think is happening. Banks are also making platform changes to generate more income.
  • To one extent or another, several of the larger fund companies started offering brokerage services a couple of decades ago or more (Fidelity, Vanguard, T. Rowe Price, American Century).

    These days, people think of Fidelity not so much as a fund house with a brokerage service but as a brokerage that has an extremely wide assortment of funds (and more recently, ETFs).

    Vanguard tried to support platforms in both worlds, mutual funds and brokerage services. It originally contracted Pershing to provide the clearing firm services. Many, notably @BobC held a poor view of Pershing. Bogleheads and others were pleased with the improved service when Vanguard took those services in-house (Vanguard Brokerage Services).

    Over time, Vanguard has put an increasing percentage of its IT budget into its brokerage platform. Though it did drop its cash management services (checking, bill pay, etc.) from its brokerage services, Vanguard has clearly been putting effort into its brokerage platform. It doesn't make sense for them to actively support two different platforms. I have given feedback to Vanguard saying that while I might personally prefer the mutual fund platform (since I use Vanguard primarily for Vanguard funds), it makes more sense to gradually push people to migrate to their brokerage platform.

    Firms like T. Rowe Price and American Century offer brokerage platforms merely as a convenience for their fund investors. AFAIK their brokerage services are limited and relatively high priced. But if you're a TRP customer and want to buy the occasional stock, this gives you an easy way to do that without going to another firm. Both T. Rowe Price and AC use Pershing as their clearing firm.

  • msf said:

    I have given feedback to Vanguard saying that while I might personally prefer the mutual fund platform (since I use Vanguard primarily for Vanguard funds), it makes more sense to gradually push people to migrate to their brokerage platform.

    I expect you are not using the word "push" literally, but being pushed is very much how it feels when dealing with Vanguard over the last decade or so. However their latest missive suggests that the migration will take place automatically. Have I got that wrong? I think an automatic shift makes more sense as a way of convincing the unpushable (like me) to stay with Vanguard rather than leave and invest elsewhere. Decades ago it was a pleasure to deal with Vanguard. Not any more. My experience with the Vanguard brokerage has been unsatisfactory to say the least. Most of the agents I've spoken with have been unable to follow instructions or to even comprehend simple questions. This is in contrast to the competence and intelligence I have found at T Rowe Price.

  • Before I start sounding like a Vanguard apologist, let me say that in my experience Vanguard's human service is inferior to that of other providers including Fidelity, Schwab, and T. Rowe Price (where I've been helped not only with fund investments but with administering an individual 401k plan).

    That said, how does the Vanguard brokerage platform (VBS) compare with the T. Rowe Price brokerage platform? I haven't tried the latter for a few reasons: without being a customer I cannot find what third party funds TRP offers (NTF or otherwise); and its trading costs (which I can find) are quite high.

    On the other hand, at Vanguard one can buy DODFX for $20 or less (vs. $35 at TRP), and one needs only $25K to invest in PIMIX (vs. $100K at Schwab). When it comes to some third party funds, the VBS platform does have its advantages.

    I really did mean that Vanguard should push people onto their VBS platform. My sense is that their mutual fund platform support is now so weak that the risk of losing customers alienated by the platform's poor support is comparable to the risk of losing customers displeased by being moved to their VBS platform. Assuming that's correct, it makes no business sense to continue expending resources in providing inferior support for the fund platform.

    My last fund platform experience is informative. It involved a cash IRA transfer from an outside account to Vanguard. I filled out a paper transfer form (required by Vanguard). I directed Vanguard to invest the cash in Prime MMF. Instead, Vanguard opened a new Federal MMF on the fund platform.

    ISTM it might make this blatant error if it has become so focused on the VBS platform that it has forgotten how to process fund platform transactions. Only on the VBS platform must all cash go through the Federal MMF. It didn't make any difference that the instructions were in writing on its own form. It's time for Vanguard to give up the ghost.

    That's my rational observation. Subjectively, I won't move (because the features are different) until kicked off their fund platform. IMHO Vanguard's best course of action is to do that, and leave me grumbling about the lost features. What bothered me about the note I posted is that they dismissed the lost features as "minor changes" without giving people advance notice of what these changes are.

  • I agree. I am still on the old platform with taxable accounts and will not move until they close the platform as I hold only Vanguard mutual funds. I don't need another brokerage account as I have too many already. I told the CSR the same thing; CSR gave me their sales pitch. I was not sold on the change in platform.
  • @msf: "yes but" was not the Vanguard old platform folks who who mismanaged things in my case. It was the VBS people. It took a year to correct it. To be clear: I have no dissatisfaction with Vanguard fund managers. I have not tried the T Rowe Price brokerage platform because I don't need or want a brokerage. So I have no opinion or experience about how it compares with Vanguard's.
    Thanks for the detailed answer.
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