Proposal to move Vanguard retail investor funds to wholesale funds
Proposal to move Vanguard retail investor funds to wholesale funds
As Vanguard retail funds are now closed to new investors, there is a risk that over time these funds may no longer be economically viable to operate and could result in increased fees or termination of the funds. This proposal gives you the opportunity to participate in a one-time transaction to transition to our larger wholesale funds without triggering a capital gain.
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What do you think? Is this a good thing for investors?
The history that seems to be missing a bit from the Vanguard statements is that around 2020 the retail funds were closed to new investors, but they made changes to basically align the wholesale funds and retail funds. They dropped the management fees to the same level for both, and the wholesale fund doesn't seem to have large initial funding/additional investment requirements. So previously the retail fund was something quite different -- smaller initial requirements, easy bpay investments, but also higher fees. The only difference now seems to be that the funds distribute quarterly, instead of twice a year. So all in all, this seems like a good way to get into the wholesale fund without tax implications.
I heard it changes the custodian of the portfolio. Currently we are custodians, but this would change it so Vanguard are custodians. So if Vanguard Australia goes out of business, you might not get your money back. It might be unlikely they'll go out of business, but still a consideration.
I did a little digging and it looks like the following is also going to change:
- Vanguard is acting as a middleman and JP Morgan is going to be the actual owner of the ETFs. They will be held in trust for Vanguard who holds them in trust for investors. The managed funds are still owned by Vanguard. You are the beneficial owner but Vanguard holds the legal title.
- All transactions now go through a Vanguard Cash Account. That's some savings account run by ANZ on behalf of Vanguard. So I think this means you can't directly buy ETFs with BPay anymore, you have to deposit money into your VCA and then buy ETFs through that. Currently no account fee as they take a cut of the interest paid to the account by ANZ. Vanguard is going to take all the interest for the 2023-24FY so the account currently pays 0% interest. Their cut changes annually.
- You now need to manage your VCA. They'll be taking fees out of the VCA instead of deducting fees from your investments. So you'll need to keep some sort of running balance in your VCA to cover your account fees. They say they reserve the right to start selling your investments to cover any outstanding fees.
- Ability to set up a direct debit payment. Not sure if this was already the case but now you can set up a DD into your VCA to invest automatically every payday.
- Wholesale fees. Guessing the fees are now lower?
- Lower minimum buy-in. Minimum setup is now $500. Think it used to be $5000.
- Allows you to directly buy shares on the ASX now. Don't know if this was always the case?
So many "middle men/business" in making this all happen, you wonder if there isn't a more efficient way to do it.
I can see the logic in letting their market-traded holdings be managed by someone else. JPM and ANZ would already have the expertise and infrastructure in place to run a brokerage and commercial bank account respectively. Not to mention having the required regulatory compliance. Probably cheaper for Vanguard than spinning up their own teams. Also probably cuts costs by not having to administer two separate businesses which run parallel.