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How Vanguard aims to prevail in fee wars, especially vs. Schwab-TD Ameritrade

Erin Arvedlund, The Philadelphia Inquirer on

Published in Home and Consumer News

Vanguard reached $6 trillion in assets late last year. And it achieved that amid an ongoing fee war with Schwab-TD Ameritrade, which continued last week.

Since the 2008 financial crisis, Vanguard has led the movement to lower fees across Wall Street, first by attracting hundreds of billions of dollars in index fund assets, then by cutting fees on thousands of exchange-traded funds in 2018, and most recently by announcing free online trading for all brokerage clients.

The latest move means that anyone with a Vanguard brokerage account can trade stocks for free. Vanguard has been commission-free on all of its mutual funds since 1977, on all Vanguard ETFs since 2010, and on nearly every ETF in the industry since 2018. (ETFs represent baskets of shares that trade like a stock). Additionally, more than 3,000 non-Vanguard mutual funds have no transaction fee when traded online.

The salvo is part of a broader, ongoing fee war with firms such as Schwab-TD Ameritrade, State Street and BlackRock.

The fee war helps investors in the U.S. and globally, and furthers Vanguard's reputation as the original low-cost provider. As of November 2019, the fund giant managed a record $6 trillion of investor money.

Here's the context of the Vanguard-Schwab battle.

 

In the fall of 2017, TD Ameritrade changed its "no-transaction-fee" ETF platform, removing virtually all of the Vanguard funds, and inserting State Street funds instead.

This was an extremely disruptive change for financial planners and advisers at the time. Notably, Vanguard was not included in Schwab's "no-transaction-fee" ETF platform.

In the summer of 2018, Vanguard fired back at TD Ameritrade and Schwab by launching a zero-commission ETF platform for virtually all ETFs.

"This was a direct hit at the 'no-transaction-fee-but-still-pay-to-play' platforms of Schwab and TD Ameritrade," said Michael Kitces, director of research at Pinnacle Advisory and blogger at Kitces.com.

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