Vanguard - How To Waive The $20 Service Fee On Mutual Funds?

VanguardWe have quite a few Vanguard mutual funds in our portfolio. Recently Vanguard changed its fee policy. Here are the details of the change:
"Four fees replaced by one account service fee

The following annual $10 account-related fees have been eliminated:
  • The custodial fee on traditional IRAs, Roth IRAs, and SEP–IRAs with a balance of less than $5,000.
  • The maintenance fee on index fund accounts with a balance of less than $10,000.
  • The custodial fee on education savings accounts (ESAs) with a balance of less than $5,000.
  • The low-balance fee on all nonretirement accounts with a balance of less than $2,500.
These fees have been replaced with a single account service fee. This $20 fee will be charged annually for each Vanguard® fund in which you have a balance under $10,000 in an account. Vanguard will assess the account service fee, which will be paid directly to the funds to help offset the costs of serving accounts with smaller balances, in June.

The fee applies to all IRA accounts (traditional and Roth) as well as general taxable accounts with balances below $10,000. It does not apply to:

  • Employer-sponsored retirement plan accounts.
  • 529 college savings accounts.
  • Money market "sweep" accounts held through Vanguard Brokerage Services.
  • Accounts held through financial intermediaries.
Each June, you'll be charged $20 for every Vanguard fund in your portfolio with a balance below $10,000. The fee will be deducted automatically—there's no need to send us money."

Analysis of the fee change

MutualFundsIn our investing guidelines we have made it a point to keep the portfolio's management fees to less than 0.5% of its total worth. Now let us see how this fee change will increase our portfolio's management fees.

Say our portfolio has 5 Vanguard mutual funds each with a balance of $7500 (<$10k). Earlier we were paying a fees of $10 per annum to cover the expenses for each fund. This came to a total of $50. But with the new fee structure we have to pay 5*$20 = $100! Which means that our portfolio's management fees will increase by [ $(100-50)/5*7500]*100 = 0.13%!

INFLATIONNot a pretty picture. So we were wondering how to get this fee waived.

One of the ways to get it waived is to invest more than $10000 in each Vanguard mutual fund of the portfolio. But this might not be a practical solution since assets are allocated and balanced according to certain guidelines.

On digging further at Vanguard we found a couple of ways to get this fees waived:
  • Sign up for account access on and choose electronic delivery of shareholder materials, including statements, confirmations, fund reports, and prospectuses.
  • Maintain total Vanguard mutual fund assets of $100,000 or more.
We feel that signing up for e-delivery of paperwork is the easiest and most practical way of getting the service fee of $20 (per mutual fund) waived.

MUTUALFUNDSHopefully this measure will keep the management costs unchanged for the time being. Well that is good only till Vanguard decides to revise it fee structure again. If you have more insights on how to further optimize the management fees on Vanguard mutual funds please let us know so that we might share them with the entire personal finance community.

Image Source(s): iStockPhoto

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