Vanguard has been attempting to persuade clients to transition their funds to their brokerage account platform for some time now. If you hold a Vanguard fund, you have likely seen emails or pop-ups asking you to transition your funds. If you do not currently have a Vanguard brokerage account, you are probably among the many other customers wondering if you should make the transition.
Transitioning your Vanguard account is not mandatory but may yield some benefits. With a transitioned brokerage account you will be able to hold mutual funds, ETFs stocks, bonds, and CDs and enjoy additional insurance from Lloyd’s of London.
In this article, we’ll go over whether you should transition your Vanguard account and the potential benefits of doing so. I’ll also highlight some of the disadvantages of doing so and we’ll go over exactly what happens when you make the transition.
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Is transitioning your Vanguard account mandatory?
Many Vanguard users have been reporting the appearance of a pop-up screen asking them to transition their account for some time now. It is essential to understand that while Vanguard insists on doing this, it is voluntary.
Vanguard themselves have confirmed that customers are not required to transition if they do not wish to. So, the choice is really up to you. Let’s weigh the benefits and disadvantages of transitioning to get a better idea of what you should do.
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Benefits of transitioning to a Vanguard brokerage account
- A way to diversify your investments: Transitioning is a way to diversify your portfolio. With a Vanguard brokerage account, you can hold mutual funds, ETFs, stocks, bonds, and CDs. You will also be able to hold ETFs from other companies. You can hold all of these in one account, making for more simplicity in managing your investments.
- Brokerage clients are insured by both the SIPC and Syndicates at Lloyd’s of London: All securities, including mutual fund holdings, are insured up to $500,000 USD (including $250,000 in cash claims) by the SIPC (Securities Investor Protection Corporation). Additionally, Vanguard has secured extra cover from Syndicates at Lloyd’s of London, which offers an aggregate limit of $250 million for all claims of securities and cash. It also incorporates a per client coverage limit of $49.5 million for securities and $1.9 million for cash.
- Account management that is simple and hassle-free: You will receive more simplified records in the form of one statement and one consolidated tax form in the first year after the move to the new platform. The Vanguard brokerage platform also offers personal advisor services that include a customized financial plan, goal-setting, and investment advice. The personal advisor service does come with a fee of 0.03% of your total assets.
- Fast fund transactions: When you sell a stock or bond, you can reinvest your profits in Vanguard funds right away. You also will not pay commissions when you buy or sell Vanguard mutual funds or ETFs.
- Fee-free transition: Vanguard does not charge any fees, nor are there any tax implications for transitioning to the brokerage platform.
- Transitioning may help lower overall costs: Vanguard insists that streamlining their services and phasing out the old platform can help keep costs low for investors. Since Vanguard is known for its low-cost investments, this could be one reason to make the transition. If more people transition, Vanguard could consolidate costs and keep offers low.
Disadvantages of transitioning to a Vanguard brokerage account
- The brokerage platform leaves something to be desired: Some users report that they are unhappy with the brokerage platform. The Vanguard app does not get the best of reviews, as opposed to some other brokerage services. Vanguard users report that the app feels a bit outdated and could do with newer and more user-friendly features. The usability is somewhat lacking, and as a whole, the platform seems quite outdated compared to other brokerage platforms.
- You cannot direct dividends from one fund to another: If you transition to a brokerage account, you won’t be able to redirect dividends and capital gains distributions from one mutual fund into a different one. You will also be unable to transition them into a sweep account. You will need to either reinvest shares of the distributing holding or distribute them in cash to your money market settlement fund.
- Some employers may have restrictions on brokerage accounts: If you or your spouse are an employee of a financial services company, the employer may not allow you to have a brokerage account with Vanguard. If you are in the financial services industry, you should check with your employer to see if you are permitted to hold funds in a Vanguard brokerage account on your current contract.
You cannot set up transfers in kind on certain investments.
These investments include:
- CDs held directly with a bank
- Certain options
- Limited partnerships and private placements
- Certain mutual funds and other investment products are offered exclusively by your current firm
- Certain low-priced securities traded over the counter (OTC) or on the pink sheets market
- Life insurance policies
The minimum on funds is higher than some other brokerage platforms.
While minimums on mutual funds are somewhat common, many brokers waive the fees if investors agree to certain terms, such as monthly auto-deposits. With Vanguard, most fund deposits are set at a minimum of either $1,000 or $3,000 USD. This may be a bit high for novice investors or those looking to set up a fund with a smaller deposit.
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What will happen to my accounts if I transition?
Most services will still be available on the brokerage platform. Some services will require you to fill out new forms, such as check writing. You will only need to fill out the form if your brokerage account does not have check-writing available already. It is important to understand that check-writing privileges that you had on Vanguard funds will not carry over to the new brokerage account, and this is when you will need to submit a form and get a new checkbook.
You will also need to establish any third-party access on your new account. This means that agents will not have immediate access to your account unless you grant access after transitioning.
How long does the transition take?
The move will usually complete on the next business day if you transition before 4 p.m. EST. Mutual find assets will usually appear in your account on the second business day.
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The bottom line
When it comes down to it, making the transition of your Vanguard account is not a bad decision. The good outweighs the bad, as there aren’t too many disadvantages associated with making the move. Along with the benefits, transitioning will put an end to you being bothered by those pesky pop-ups and nagging messages about moving to the new platform!
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Letter from Vanguard just received, date June 2021: “If you don’t take action to transition by July 11, 2021: Vanguard Brokerage Services will transition your BROKERAGE account automatically. However, we won’t move your Vanguard fund investments, including your former settlement fund, into your Vanguard Brokerage Account. In other words you would have two accounts — ” etc. You will have to move assets from former Settlement fund into the new one. Any existing services on your settlement fund will NOT transition to new.
Thought you might like this clarification. I did, as I did not catch it when I read the letter yesterday.
Regards, and thanks for your Blog.