It is Time to Talk to Chuck about the Fees he Charges to Purchase and Sell Vanguard Funds

It’s Time to Talk to Chuck About the Commissions Schwab Charges on the Purchase and Sale of Vanguard Funds

By J.R. Robinson, Financial Planner (October 30, 2023)

It is increasingly clear the FTC did not do consumers any favors when it approved Charles Schwab’s acquisition of TD Ameritrade in 2020.  The takeover not only reduced consumer choice of trading and custody platforms, it also exposed millions of TD Ameritrade customers to higher fees and restricted their access to ultra-low-cost Vanguard index funds.

Specifically, Charles Schwab does not permit automatic systematic investment or withdrawal into Vanguard (or Dimensional Fund Advisors) mutual funds.  Although Schwab does permit these funds to be held and traded on its platform, it charges investors a $45 commission to purchase or sell. 

When I called Schwab Support to complain, I was told that it is a “ticket charge”, not a commission.  Ummm…Okay, call it what you like, but it is still a petty, onerous, superfluous fee that the consumer should not have to pay and that they did not have to pay previously when their accounts were custodied at TD.  The Schwab rep then told me that Schwab charges this fee because Vanguard refuses to pay Schwab for shelf space on its platform.  These shelf-space fees are called 12b-1 fees and Vanguard has always avoided charging them to keep fund shareholder expenses low.

TD Ameritrade did not charge commissions to purchase or sell Vanguard funds because they rightly reckoned that consumers (and Registered Investment Advisors who chose TD’s platform for their clients) would keep other assets on the platform too.  I have always been a heavy user of Vanguard index funds for my financial planning clients and was forced to migrate my client assets from TD to Schwab over the Labor Day weekend.  I have many clients who invest relatively small dollar amounts each month into Vanguard index funds. For these folks the $45 commission is prohibitive.   Across my client base, I project that the feel will collectively cost my clients tens of thousands of dollars.

Truth  in Advertising? Schwab Has Always Talked a Big Game About Commission-Free Stock and Mutual Fund Trading