Vanguard Broker Review
Determined to change the way the world invests, Vanguard offers a different perspective to asset management. For sure, Vanguard is different than any other brokerage house in the United States, for the simple reason that it focuses more on investment management rather than on brokerage.
Vanguard runs a hybrid business – a combination of traditional brokerage (for stocks, ETFs) and investment management. With a client-first culture, Vanguard began operations in 1975, still managing the oldest balanced fund in the United States – Vanguard Wellington.
One of the world’s largest investment companies, Vanguard has over 30 million investors and focuses on funds management. Addressing both individual investors and financial professionals, Vanguard manages over 190 funds in the United States and more than 230 outside the country. It also operates Vanguard Brokerage, allowing individual investors to trade stocks and ETFs via a traditional brokerage account.
On Vanguard Secure Website
An investment management firm with a worldwide reputation in funds’ management, Vanguard focuses less on the individual investor and more on institutional ones. It runs a huge financial advisory business and has over thirty million customers worldwide – a sign of a successful business that survived the test of time.
However, the individual investor still finds value in Vanguard services, albeit at higher costs than compared with the competition and at the expense of focusing more on the mutual funds industry and less on other markets like the derivatives one.
As Vanguard is a different company than the majority of other brokerage houses in the United States, the focus here sits with the funds industry. Mutual funds can help lower investment risk, and they quickly became Vanguard’s focus.
|Vanguard Mutual Funds||Total market index funds, money market funds, US bond funds, balanced funds, US stock funds, international stock funds|
|Vanguard ETFs||Dozens of US and international ETFs – handpicked ETFs, socially conscious, or tailor-made – choose from a variety of options to trade ETFs with Vanguard|
|Other mutual funds||Other companies. mutual funds traded via Vanguard’s brokerage account – many without commission|
|Stocks and other ETFs||Diversify the portfolio with stocks and other ETFs from the United States and abroad|
|Fixed income||Bonds and CDs to further diversify the portfolio|
|Cash options||Different ways to manage short-term investment needs|
Commissions and Fees
Vanguard has a unique, low-cost approach to its pricing policy. And a confusing one. On the one hand, it states that, as an investor in any of the Vanguard’s mutual funds or ETFs account, you will never pay a commission. On the other hand, it claims that trading on any of the two accounts has an expense ratio lower than 82% than the industry average. The two claims do not match – either you do not pay anything, and the expense is zero, or you pay something in hidden fees or adjacent costs.
On a closer look, trading ETFs with Vanguard is cost-free, unless the ETFs belong to other companies, in which case a $25 fee applies when sending orders by phone.
The same rule applies to mutual funds, with some exceptions. For example, some of the Vanguard mutual funds appear to charge a special purchase and/or redemption fee (0.25% – 1%) of the amount of the transaction. Trading any other mutual funds from other companies is heavily charged. If they are free for online trading, there is a fee charged for phone trading. On top of that, there is a minimum investment requirement on all funds, Vanguard is included, that stars from $1000 and grows to $100,000 for certain funds.
Online stocks trading with Vanguard is cost-free. Again, trading by phone is subject to a declining service fee. It starts at $25 and comes down to $0 for high volume trades over $1 million.
Vanguard does offer options trading too but does not consider this category important enough for the bottom line to be presented with its trading products – probably because it refers to options invested only in Vanguard ETFs and mutual funds. Anyway, it charges $0 + $1 per contract fee.
Fixed-income trading is charged differently on primary and secondary market issues. While trading primary market new issues is mostly free, there is a commission for almost all fixed-income trading on the secondary market. CDs, Munis, MBS, UITs – are charged from $1 per $1000 face amount with a cap at $250 or $35/trade.
There is also a fee for all other services Vanguard offers, such as:
- Account service fee – $20 charged annually
- Passed-through ADR fees
- Wire transfers
- Foreign security transactions
Like any other broker, there are pros & cons for investors/traders. Here are the main benefits and drawbacks you should know before applying:
Vanguard has a strong foot on the global investment stage. Besides its four US offices, Vanguard is present all over the world. Its international offices' network has a strong presence in Asia, where the outlook for growth in the years ahead is particularly appealing.
If there is anything to worth considering when looking at Vanguard, it is the performance of its funds. The entire business is built on the core funds administration and the diversification within the industry.
Non-US residents can open an account with Vanguard, albeit not a brokerage account. However, because it lets foreign capital to pour into its well-managed funds, Vanguard succeeds in diversifying its client’s base on top of its funds one.
Vanguard separates its businesses into four main categories: personal investors, retirement plan participants, institutional investors, and financial advisors. It has some services to offer to all of these categories, with a strong emphasis on the last three categories.
Vanguard does not explain well-enough the difference between its brokerage and asset management division. Better-known for its investment management and funds’ performance, it emphasized a lot this information to the detriment of traders that simply look for a brokerage house’s services.
This way, it may miss new traders that turn away on the impression that there are no brokerage services, before discovering the Vanguard Brokerage does exist after all.
The contingent claims market is huge, and options, as derivatives, play a key role in managing risk.
However, options trading, while it exists at Vanguard, has limited capabilities – a big minus for an investment company proud of managing risk for almost half a century.
Unlike its peers, Vanguard does not have a clear pricing structure. Instead, it focuses on “expense ratios” for its mutual funds, showing the average industry ratio and how low the Vanguard expense ratio is.
All this without mentioning what is the actual cost of trading with Vanguard – creating confusion not only for funds trading but for all the products it has to offer.
There is no other way to test the Vanguard’s web-based trading platform except to go through the process of creating a live account.
With no demo option available and no desktop trading platform, one can test the trading account’s capabilities only by creating a live trading account.
The educational section at Vanguard leaves the impression that the only way to learn something from trading/investing is through the help of a financial advisor provided by the company.
While covering many topics, it lacks a structural approach, originality, webinars, and video presentations.
Surprisingly for a company such Vanguard, there is no trading platform available for desktop. All traders can do is to log in on the web-based application or using mobile apps to access the account.
While competitors devoted huge resources to develop trading platforms to better-help active managers, Vanguard chose to ignore this aspect completely.
Vanguard charges an account service fee annually. While not big enough to scare investors, it is charged on both the brokerage account and the mutual-funds-only account.
The drawdown – most competitors eliminated such fees for the simple reason that it negatively affects the image.
Fixed-income trading with Vanguard is subject to a minimum investment requirement.
This is something odd when compared with the competition, aimed at rejecting customers rather than retaining them.
This is literally one of the poorest customer service possible. Except for an extended FAQ list and a phone number to reach a company’s representative, there is nothing but the territorial network on the ground -four offices in the United States and a more extended presence worldwide.
However, to be fair, it does not mean Vanguard does not care for its customers. It may be that the level of services provided after signing up with Vanguard to differ from before. In any case, for an investor looking a new broker or partner, limited customer service options are never a good sign.
Vanguard offers a lot of options in 4 main categories:
1. Individual or joint accounts
- Addressed to the active or passive investors, this is the regular brokerage account offered by Vanguard. It gives access to most of the mutual funds, ETFs, stocks, and fixed-income products and is fairly easy to open
- It may take up to three business days for Vanguard to verify all the data and set up the account
2. Retirement accounts
- Roth IRA
- Traditional IRA
- Vanguard 403(b) Services
3. 529 college savings plans
Here are the main benefits:
- Tax-free withdrawals
- Tax-deferred growth
4. Small businesses retirement solutions
- SEP IRA
- SIMPLE IRA
- Individual 401(4)
One of the biggest surprises a potential investor may have is that Vanguard does not have a desktop version for its trading platform. It may have helped the company save on the bottom line, but a desktop trading platform is usually a must for active managers. Looking at all brokerage and investing competitors, they all routed impressive capital to developing unique trading platforms, with the hope they will attract and retain new customers. Not the case of Vanguard.
Moreover, the company’s website barely mentions the fact that trading is possible only on a web-based structure, and trading on the go is limited to mobile versions of it.
Vanguard has set up a dedicated page for its customer service with answers to most of the important questions. First, the client is encouraged to choose a topic that best describes the issue. Second, the relevant answers in that category are listed. Third, a search tab allows simplifying the process of finding a solution to any inquiry.
If that is not the case, Vanguard suggests getting in contact by offering a phone number – albeit not mentioning if it is toll-free or not.
Live chat is not present.
The investor’s education section at Vanguard covers plenty of topics related to stock trading, asset allocation and diversification, investment plans and risks, and so on.
However, it lacks videos explaining trading and investing concepts, as well as webinars to live events presenting the opportunities of investing in financial markets.
Step 1: Please visit vanguard broker homepage, and click on “Open or transfer accounts.”
Step 2: Next, give some information about you, and indicate what you are investing.
Step 3: Indicate your goal for this money and then enter your personal information, such as your names, gender, SSN, birth date, email, and citizenship.
Step 4: Next, establish your funding, putting in details such as your Routing number, account type, etc.
Step 5: Lastly, go through the application and then sign up for access.
Here are our 3 choices of brokers which can use as a great alternative to Vanguard:
Fidelity Investments has millions of customers across the USA and overseas. The company has been around for fifty years and is considered one of the largest brokerage houses in the world. The majority of Fidelity operations are in the USA, and it operates various investor centers and regional offices across the country.
Fidelity investment products range from annuities, mutual funds, and options through to sector investing and managed accounts, catering to advisors, institutions, employers, and individual investors. However, Fidelity also offers its investment services to international clients, but this is only in a limited number of countries, and it is via a separate, dedicated site.
Although it is not the cheapest brokerage house, Fidelity does excel in many areas where other companies lack. So, if you are prepared to pay a premium for outstanding trading education and excellent customer service, Fidelity could be the broker for you.
Merill Edge offers self directed trading services that are specifically design for individual investors. This offers access to unlimited free trading with research and insights, seamless integration, and personalized online investments. There is even no minimum investment level.
Merill Edge also offers its Guiding Investing, a portfolio account designed to suit individual clients' needs while being balanced and managed by a pro. This guided investment account has a minimum investment of $5,000. There is also an advisor program to assist those with complex wealth management requirements. For a minimum investment of $20,000 and a larger annual fee, Merrill can build a tailored investment strategy for individual clients.
Finally, there are other options, including Private Wealth Advisor, Merrill Lynch Wealth Management Advisor, and access to a team of Bank of America wealth specialists.
Merrill has a network of physical offices across the USA, so it is well suited to those who prefer to put a face to a company. The customer service team also goes the extra mile, doing whatever it takes to ensure you’re satisfied.
This broker caters to all types of investors, from beginners to experienced, with products suited for each. Additionally, the company offers trading education to help investors learn more about the various markets and explore the other Merrill offerings.
Webull also belongs to the new generation of brokerage houses challenging the traditional houses for clients. The company’s main tactic to compete is to attract many small retail traders, and by increasing volume, they are able to successfully compete despite only charging smaller fees.
The COVID-19 pandemic has provided the perfect example to understand this type of brokerage house. The $600 weekly checks offered by the government were put to work in many cases. There was a massive number of new retail trading accounts, but which brokers benefited from this new generation of traders? Since brokers like Webull accepted any deposit, they typically attracted clients that would have struggled to meet the minimum deposits required by traditional investment houses. This phenomenon was so large that the financial media often cited it as the primary reason the stock market continued to advance during the pandemic.
Traditional investment houses found these new brokers surprising, and as the competition intensified, they also lowered their commission to try to compete.
However, Webull continues to be highly attractive to new investors since it has no contract fees, and there is no commission for trading options. This is obviously far less than even the highly competitive Merril Edge that not charges $0.75 for contract fees and charges $6.95 options commission. Until the traditional houses learn that the new generation of traders operates in this way, Webull is likely to dominate by offering cheaper rates to gain exposure to the same markets.
Vanguard is an investment giant specialized in mutual funds administration. It runs a huge business internationally, focusing especially on institutional investors, retirement plan participants and financial advisors. As such, it is more suited for investors belonging to such categories, rather than for the individual investor.
For investors loving mutual funds trading and the ones that want to get involved in trading Vanguard funds and ETFs, then these services are appealing because of the lower cost when compared with the industry average.