Low-Cost Vanguard Goes with Even Lower Costs

Good news mutual fund investors!

Low-cost mutual fund giant Vanguard announced today that it’s simplifying its fee structure by replacing four fees with one account service fee. According to the announcement, effective April 26, 2007, the following four $10 annual fees will be eliminated:

• The custodial fee on traditional IRAs, Roth IRAs, and SEP–IRAs with a balance of less than $5,000.
• The maintenance fee on index fund accounts with a balance of less than $10,000.
• The custodial fee on education savings accounts (ESAs) with a balance of less than $5,000.
• The low-balance fee on all nonretirement accounts with a balance of less than $2,500.

A $20 fee will be charged every June for each Vanguard fund with less than $10,000 in an account. That sounds even worse than the previous scheme. However, Vanguard also says there are three ways you can avoide the $20 charge:

1. Sign up for account access on Vanguard.com and choose electronic delivery of shareholder materials, including statements, confirmations, fund reports, and prospectuses.
2. Consolidate your accounts or invest additional assets to bring all account balances in all funds to $10,000 or more.
3. Maintain total Vanguard mutual fund assets of $100,000 or more.

The question is whether you have to do all of them or just one. If the latter is the case, then signing up to receive materials should be the easiest way to avoid the fee. That’s my impression from what appears on their website. In addition, according to Vanguard, the $20 fee doesn’t apply to the following accounts:

• Money market sweep accounts held through Vanguard Brokerage Services
• Accounts held in employer-sponsored retirement plans.
• Accounts held in 529 plans.
• Accounts held through financial intermediaries.

Now you are going to love Vanguard even more!

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