Vanguard, the bargain basement of fund firms, is taking steps to even further reduce investor costs. Vanguard CEO John J. Brennan
says the firm is eliminating four account-related fees and replacing them with a single account service fee. Also on Vanguard's new menu are options for shareholders who want to pay no fees.
In an effort to simplify and further reduce investor costs, Vanguard is eliminating four account-related fees and replacing them with a single account service fee. As part of the change, Vanguard is also providing shareholders several options to pay no account fees.
Formerly, Vanguard’s annual fees were based on account type, fund type, and account balance, as follows:
* A $10 custodial fee on IRA (including SEP–IRA) accounts with a balance below $5,000.
* A $10 maintenance fee on index fund accounts with a balance below $10,000.
* A $10 custodial fee on Education Savings Accounts with a balance below $5,000.
* A $10 low-balance fee on all general accounts with a balance below $2,500.
Beginning in June, Vanguard will implement a much simpler, single-fee approach under which a $20 yearly fee will be assessed on all fund accounts with a balance below $10,000.
Under the new approach, shareholders have three options to invest fee-free with Vanguard: 1) establishing account access on Vanguard.com and choosing electronic delivery of statements, reports, and prospectuses; 2) maintaining total Vanguard® fund assets of $100,000 or more; or 3) consolidating accounts or investing additional assets to bring all account balances to $10,000 or more.
“We are pleased to simplify our fees and provide the opportunity to our shareholders to pay no fees beyond our low fund expense ratios,” said Vanguard CEO John J. Brennan. “Vanguard shareholders are self-motivated, cost-conscious investors who, we believe, will take advantage of the fee-free options in large numbers.”
Today, the majority of Vanguard shareholders are registered users of Vanguard.com, and more than 80% of client interactions – from transactions to address changes – occur online. The electronic delivery option provides convenient, secure access to account statements, fund reports, and prospectuses.
Existing shareholders who are registered for Vanguard.com simply need to change their mailing preferences from U.S. mail to e-delivery to qualify for the no-fee option. Importantly, any shareholder can continue to call Vanguard for fund information and personal account service if desired.
“Vanguard.com has evolved into a tremendously cost-effective way to serve our shareholders, most of whom today prefer conducting business online. We believe in sharing the accompanying cost savings directly with these investors,” said Mr. Brennan. “Greater web usage also brings the potential to reduce printing, postage, and service costs, and the resulting savings can be passed along to all shareholders in the form of lower Vanguard fund expense ratios.”
“All-in” Costs Remain Well Below Industry Average
Over the past decade, the average expense ratio of Vanguard funds has declined by one-third to 0.21%, which equates to $10.50 annually on a $5,000 account. By comparison, the industry’s average fund expense ratio is 1.27%, or $63.50 annually on a $5,000 account, according to 2006 Lipper Inc. data. As a result, Vanguard shareholders who opt not to take advantage of the fee-free options will pay “all-in” costs (expense ratio plus the account service fee) of $30.50 on a $5,000 account, which is still only half the comparable costs of the average mutual fund.
Vanguard is currently notifying shareholders about the single-fee approach and the opportunities to eliminate all account fees. To help clients who elect the e-delivery option with recordkeeping, Vanguard will continue to distribute year-end paper statements by U.S. mail at the client’s request.
Vanguard will assess the account service fee, which will help offset the costs of serving accounts with smaller balances, in June. The fee does not apply to the following accounts:
* Money market sweep accounts held through Vanguard Brokerage Services.
* Accounts held in employer-sponsored retirement plans.
* Accounts held in 529 plans.
* Accounts held through financial intermediaries.
The Vanguard Group, headquartered in Valley Forge, Pennsylvania, is the nation’s second-largest mutual fund firm and a leading provider of company-sponsored retirement plan services. Vanguard manages more than $1.15 trillion in U.S. mutual fund assets, including more than $275 billion in employer-sponsored retirement plans. Vanguard offers more than 140 funds to U.S. investors and more than 40 additional funds in foreign markets.
For more information about Vanguard funds, visit www.vanguard.com, or call 800-662-7447, to obtain a prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read it carefully before investing.
Investing involves risk.
These fees apply to general and IRA accounts. Different fees may apply to different types of accounts.
All asset figures as of March 31, 2007.
Vanguard Marketing Corporation, Distributor.
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