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Vanguard legacy mutual fund platform is closing the end of 2025
”Vanguard has also made its own nudges, including a $25 per fund fee for its direct fund legacy system last year, though that was waived for some clients with at least $5 million at the company.”
Nice gesture. Those folks can use every penny they can save.
As I read this, Vanguard is closing legacy platform access to advisors, not to direct investors. Note the title: "culling" not "cutting".
“There are some cases where I think people do lose some functionality” by switching to the brokerage account, such as check writing, but those instances are quite limited, he said.
Vanguard offers a brokerage "Cash Plus" account for cash management only. (You can invest only in MMFs and/or use a bank sweep account.) Unlike Fidelity, where you can write checks from nearly any brokerage account and any MMF, Vanguard hasn't figured out how to do this.
Another downside of ending the legacy platform is in the handling of Roth conversions. When you invest directly with a mutual fund family (as on Vanguard's legacy platform), then you can convert a fixed dollar amount in kind.
That helps if you live in a state where there's a dollar limit on how much you can convert state tax-free.
With a brokerage account, you either convert cash (i.e. not in kind), or you convert a given number of shares, whose value might change that day. Then it's an iterative process to get the dollar amount exactly right.
Well, that's unambiguous. The Vanguard page cited in that piece gives another downside to the transition. Instead of being able to purchase funds directly from an outside bank account, you must first move the cash into a brokerage account and from there purchase shares of the target fund. Sales work the same way in reverse.
one Vanguard investor holding physical mutual fund shares was told to return them or his shares would not be eligible for transition to the new platform
What exactly does that mean? That the physical shares remain valid (like old stock certificates) and can still be redeemed directly with the fund? I suppose that works, meaning no change for this shareholder.
I had physical shares of a fund years ago. When I couldn't locate the certificate for several months, I checked with the fund company. They offered to reissue the shares but I'd have to pay some outrageous percentage fee to "insure" that they were really lost. Not long afterward the fund converted purely to book entry and I didn't have to return my certificate or pay a fee.
I subsequently found the certificate and keep it in a scrap book.
Well, at Vanguard Brokerage, when one uses Buy, there are options to use the settlement fund VMFXX OR to transfer money from linked bank account. The latter works just as well as the old mutual fund purchases.
What is VG doing with its mutual-funds-only 401k/403b? Will those accounts suddenly become brokerage a/c or brokerage-windows within 401k/403b?
You are correct. In the way that matters - what buttons you press. You do just place a single order to buy a Vanguard fund with outside money. Though the verbiage I'm reading seems to suggest that under the covers Vanguard is automatically "laundering" transferred money through the settlement account. Admittedly a distinction without a difference. Just confusing.
On the webpage describing the transition from legacy to brokerage platform are descriptions of how each works. Of legacy platform purchases, it says "Money coming in from a bank or other financial institution directly purchased shares of the mutual fund."
In contrast, for brokerage platform purchases it says:
Your brokerage account comes with a settlement fund that's used to pay for investments and hold assets from investment sales and other transactions. Money from bank transfers or redemptions remains in the settlement fund until you use it to purchase investments or transfer it out of your account.
Emphasis in original. The contrast between the two descriptions (legacy and brokerage platforms) seems to be saying that all money used for transactions comes out of the settlement account, even if it sits there for only an instant ("until you use it").
I tried a test purchase in a zeroed out Vanguard account. I was informed: You don't have enough money in your settlement fund to cover this order. Transfer additional funds from your bank to proceed with this order.
But I could still place the fund purchase order:
If you wish to use your settlement fund to pay for this order, select the amount needed to cover funding option. If you’d like to maintain your settlement fund balance, select transfer full order amount, or select fund order later.
The first option is to pay for the purchase from the settlement account. The middle option is to "transfer [the] full order amount". This is where Vanguard may be moving money into the settlement account and automatically, instantaneously applying it from there to the fund purchase.
The last option, "fund order later", refers to the ability at Vanguard to purchase securities without having enough cash presently in the account. You do have to cover the purchase by the settlement date. See other MFO thread discussing such transactions.
I think the timing in the Vanguard message below discussing that last option is wrong as settlements are now T+1.
Important, please read
This purchase exceeds the funds available balance in your account’s settlement fund. You must transfer money into your settlement fund within 2 business days. Otherwise, securities in the account may be sold to pay for the purchase, and the account may be restricted from further trading.
Comments
Nice gesture. Those folks can use every penny they can save.
Another downside of ending the legacy platform is in the handling of Roth conversions. When you invest directly with a mutual fund family (as on Vanguard's legacy platform), then you can convert a fixed dollar amount in kind.
That helps if you live in a state where there's a dollar limit on how much you can convert state tax-free.
With a brokerage account, you either convert cash (i.e. not in kind), or you convert a given number of shares, whose value might change that day. Then it's an iterative process to get the dollar amount exactly right.
https://www.thinkadvisor.com/2024/10/25/vanguard-to-close-legacy-mutual-fund-platform-by-end-of-2025/
I had physical shares of a fund years ago. When I couldn't locate the certificate for several months, I checked with the fund company. They offered to reissue the shares but I'd have to pay some outrageous percentage fee to "insure" that they were really lost. Not long afterward the fund converted purely to book entry and I didn't have to return my certificate or pay a fee.
I subsequently found the certificate and keep it in a scrap book.
What is VG doing with its mutual-funds-only 401k/403b? Will those accounts suddenly become brokerage a/c or brokerage-windows within 401k/403b?
On the webpage describing the transition from legacy to brokerage platform are descriptions of how each works. Of legacy platform purchases, it says "Money coming in from a bank or other financial institution directly purchased shares of the mutual fund."
In contrast, for brokerage platform purchases it says: Emphasis in original. The contrast between the two descriptions (legacy and brokerage platforms) seems to be saying that all money used for transactions comes out of the settlement account, even if it sits there for only an instant ("until you use it").
I tried a test purchase in a zeroed out Vanguard account. I was informed:
You don't have enough money in your settlement fund to cover this order. Transfer additional funds from your bank to proceed with this order.
But I could still place the fund purchase order: The first option is to pay for the purchase from the settlement account. The middle option is to "transfer [the] full order amount". This is where Vanguard may be moving money into the settlement account and automatically, instantaneously applying it from there to the fund purchase.
The last option, "fund order later", refers to the ability at Vanguard to purchase securities without having enough cash presently in the account. You do have to cover the purchase by the settlement date. See other MFO thread discussing such transactions.
I think the timing in the Vanguard message below discussing that last option is wrong as settlements are now T+1.