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

As Schwab says in this ad that appeared in the September issue of The Economist, “…if you are not completely satisfied, our Satisfaction Guarantee will make things right and Schwab will reimburse eligible fees related to your concerns.”  This is music to my jaded ears.  My clients did not have to pay this fee at TD Ameritrade before. They are exceedingly unhappy that Schwab is charging them now, and they would very much like to avail themselves of the “Satisfaction Guarantee.”

An Escape Clause in the Fine Print?

 In tiny print and faint greyscale, the disclaimer beneath the ad reads as follows: 

If you are not satisfied for any reason, at your request Charles Schwab & Co. or Charles Schwab Bank, SSB (Schwab Bank) as applicable with refund any eligible fee related to your concern.  No other charges or expenses, and no market losses will be refunded. Refund requests must be made within 30 days of the date the fee was charged. Schwab reserves the right to change or terminate the guarantee at any time. Go to Schwab.com/satisfaction to learn what’s included and how it works.

I visited the Go to Schwab.com/satisfaction link, and I do not see language or exclusions that would give Schwab an opportunity to easily weasel out of its Satisfaction Guarantee with respect to the Vanguard ticket charges.

Here is the process Schwab provides for customers to request a refund –

I will be following this process for every client who purchases or sells a Vanguard Index Fund.  So how about it, Chuck? Will you honor your Satisfaction Guarantee?

I will follow up on this article to let you know whether Chuck is good on his word or not.  I would also be curious as to whether other consumers or financial advisors have been successful in obtaining fee refunds.

Of course, it would be better for all parties if Charles Schwab simply eliminated this ridiculous nuisance charge that does nothing but generate ill will with investment advisers and consumers.

John H. Robinson is the owner/founder of Financial Planning Hawaii and Fee-Only Planning Hawaii. He is also a co-founder of fintech software maker Nest Egg Guru.