Author Topic: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity  (Read 7114 times)

fifh

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In a recent press release, Charles Schwab indicated that starting March 1st they will be dropping fund expense ratios to levels that could potentially be the best in the industry for taxable accounts -- yes, even below Vanguard's and Fidelity's.

What do you think about this development? Might it impact your taxable investment strategy?

http://www.schwab.com/public/schwab/nn/m/lowercosts.html
« Last Edit: February 04, 2017, 01:19:59 PM by fifh »

nereo

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Re: Time to consider Schwab? With latest news, fund expense ratios < Vanguard
« Reply #1 on: February 04, 2017, 01:20:31 PM »
In a recent press release this week, Charles Schwab indicated that starting March 1st they will be dropping fund expense ratios to levels that would be the best in the industry for taxable accounts -- yes, even below Vanguard's.

What do you think about this development? Might it impact your taxable investment strategy?

http://www.schwab.com/public/schwab/nn/m/lowercosts.html

Good for Schwab, but a difference of 0.02% (a difference of $2 per $10,000 invested) won't be enough to get me to switch, though it might be enough to get my to recommend to friends/family just starting out.

I particularly like how the 0.03% fee will be available with just a $3k minimum.

Heckler

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #2 on: February 04, 2017, 01:36:30 PM »
first post, eh.  Makes me wonder where you work.

Interest Compound

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #3 on: February 04, 2017, 02:35:12 PM »
This is my general feeling towards investing with companies other than Vanguard:



So when I see Schwab legitimately has a lower Expense Ratio than Vanguard, I start to wonder, "What's the catch?"
  • Maybe there is no catch, and Schwab is just that more efficient than Vanguard. And will continue to be for the next 60+ years. - That'd be great! I'm missing out by not switching!
  • Maybe it's like those 2-5% Cash Back credit cards, where the company makes their money from the fools who don't know how to use it properly (paying credit card interest with a high balance, or being tricked into purchasing a fund with a higher expense ratio). - That'd be great! Well as long as I'm smart enough not to fall for the tricks...
  • Maybe this is temporary (like many of those 2-5% Cash Back credit cards), and 5 years from now their fees will increase (see Betterment news this week). - That would suck. Now I'm locked-in to higher fees, because I can't switch back to Vanguard without paying a huge Capital-Gains tax-bill.

The potential reward of #1, does not make up for the potential downsides of #2 and #3. And that's before doing any calculation about how Vanguard's securities lending might actually earn you more money than the Expense Ratio (effectively paying you to invest with them).

Vanguard talks about it here:

https://personal.vanguard.com/pdf/icrsl.pdf
https://advisors.vanguard.com/VGApp/iip/site/advisor/researchcommentary/article/IWE_InvResSecuritiesLending

In the second article (unfortunately the link is down), they mention "In 2012 securities lending enhanced annual fund returns by more than 1 basis point for over 60% of Vanguard's participating funds, by more than 5 basis points for nearly a third of funds, and by more than 10 basis points for over 15% of funds."

Vanguard returns 100% of their securities lending profit to the fund. Does Schwab do this? If they do this now, will they continue doing it in the future?

Interest Compound

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #4 on: February 04, 2017, 02:35:40 PM »
I took this list from today's Bogleheads thread on Schwab, highlighting some of the concerns:

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1) Most companies tout ER as being comparable/lower than VG but conveniently don't talk about securities lending. VG returns all security lending (a significant %) to the fund but other companies may not. As a result the total return to a customer of identical funds with identical ER may be higher with VG due to security lending.

2) VG has the patent (not yet expired) for ETF and mutual fund being dual class of the same fund. Other companies can't do that. So, when realized capital gains happen, other mutual fund are more likely to pass them on to the fund holders. This can be a BIG deal in terms of extra cost and extra taxes if you have high income/high tax bracket. VG has been able to hide this so far by using mutual fund + ETF together. This is a potential hidden cost of mutual funds in other companies.

3) Companies e.g. Blackrock start low cost index funds and ETF to compete with VG but keep HIGH cost ETF for existing customers e.g. EEM for emerging markets. So, if you are already a customer, you may be stuck due to capital gains. VG doesn't do that.

4) For profit companies can increase the ER after they already have you and promised a low ER to begin with. There were a bunch of threads recently about Betterment/Wealthfront with people complaining about recent cost increase in existing accounts..once they have you, difficult to get out.

5) With VG you can convert your mutual fund at any time to ETF (no taxable event) and move the entire ETF to another brokerage if you don't like VG brokerage for some reason. Not possible with mutual funds of other brokerages. So, if you have a lot of capital gains in your mutual fund in 10 years and don't like VG, you have an out. If you have Schwab mutual fund 10 years from now..then what?
--------------------------
Source: https://www.bogleheads.org/forum/viewtopic.php?t=209925#p3223254

Radagast

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #5 on: February 04, 2017, 02:43:38 PM »
I use Schwab for three of our tax sheltered accounts and am very happy about the fee reduction. I will be switching ETF's to mutual funds for the convenience. That being said, it isn't ultimately that big a deal and will have little impact in practice. Essentially they just matched their mutual fund fees to their existing ETF fees. I doubt the new funds will beat Vanguard funds by an amount equal to the fee difference.

nereo

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #6 on: February 04, 2017, 03:12:14 PM »
@interest compound.  Regarding #3, you (or anyone) can transfer assets from one broker to another without paying capitol gains taxes by doing a trustee-to-trustee transfer.

FWIW I agree with your basic sentiment.  I'll be sticking with Vanguard for now. Maybe if SChwab holds this up for several years I'll make the switch.

LAGuy

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #7 on: February 04, 2017, 03:51:04 PM »
I use Schwab. I don't think they're in the same class of worry that something like Betterment is. Schwab has been around a long time; before Vanguard even; and has been on the, erm, vanguard of discount brokerages ever since. I think any of the big players Vanguard, Schwab or Fidelity offer excellent options for low cost mutual funds and ETF's. One of the best things I like about Schwab is their checking account ATM card. They actually refund the ATM fees that you pay to other banks to use their ATM network! Worldwide! I do all my banking with them and keep a good slug of my investments there as well.

Interest Compound

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #8 on: February 04, 2017, 04:46:43 PM »
@interest compound.  Regarding #3, you (or anyone) can transfer assets from one broker to another without paying capitol gains taxes by doing a trustee-to-trustee transfer.

FWIW I agree with your basic sentiment.  I'll be sticking with Vanguard for now. Maybe if SChwab holds this up for several years I'll make the switch.

Doesn't matter who holds it. If the Expense Ratio increases to 0.50%, moving it to Vanguard with a trustee-to-trustee transfer wouldn't prevent me from having to pay the 0.50%. I'd have to sell, pay capital gains taxes, and buy a new Vanguard fund/etf with lower fees.

I have to say, I don't believe this is a likely possibility. I think Schwab is a good company, and you'd likely be just fine holding their index funds. But why take the risk?

Retire-Canada

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #9 on: February 04, 2017, 08:49:49 PM »
I'm sticking with Vanguard funds. I have faith in their business model and I'm investing for decades so that matters to me. I'm not going to jump around every time things change.

Hargrove

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #10 on: February 04, 2017, 09:42:02 PM »
Wasn't there a thing about Schwab making money by not investing 100% of their funds? Keeping some amount in cash and making money by lending that (as if you didn't even invest it at all)?

I think that's what Interest Compound mentioned as #2.

Anyway, Vanguard is like the (impossibly rich) community credit union of investing. I'll stick with them.

aspiringnomad

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #11 on: February 04, 2017, 11:38:26 PM »
Schwab is an excellent option with great customer service.  They may try to "upsell" to more services, but i am happy with their offering.  Customer for 27 years.  Note i also have or have had accounts with VG, TD, ST, Fidelity, etrade, and various direct mutual funds (back when brokers didnt have them, T Rowe, Vanguard, Strong, Evergreen).  Ive seen a lot and Schwab consistently offers good deals for saavy customers.  Make sure you get an account opening bonus.

Vanguard is a better governance model, but Schwab customer service is superior IMHO.

Agree with this. I also think the lower fees is some combo of Schwab being way more efficient than Vanguard operationally, and the company hoping to make money on volume and some customers who also use higher price options. Their fees on basics ETFs have been lower than VG's for a couple years now.

The cash drag the next poster mentioned only applies to Schwab's robo advisor service. A little disappointing that an otherwise excellent, honest company would market that service as fee-free then "charge" via cash drag, but from what I've read the effective costs end up being very similar to other low cost robo advisors.

LAGuy

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #12 on: February 05, 2017, 12:14:19 AM »
Schwab is an excellent option with great customer service.  They may try to "upsell" to more services, but i am happy with their offering.  Customer for 27 years.  Note i also have or have had accounts with VG, TD, ST, Fidelity, etrade, and various direct mutual funds (back when brokers didnt have them, T Rowe, Vanguard, Strong, Evergreen).  Ive seen a lot and Schwab consistently offers good deals for saavy customers.  Make sure you get an account opening bonus.

Vanguard is a better governance model, but Schwab customer service is superior IMHO.

Agree with this. I also think the lower fees is some combo of Schwab being way more efficient than Vanguard operationally, and the company hoping to make money on volume and some customers who also use higher price options. Their fees on basics ETFs have been lower than VG's for a couple years now.

The cash drag the next poster mentioned only applies to Schwab's robo advisor service. A little disappointing that an otherwise excellent, honest company would market that service as fee-free then "charge" via cash drag, but from what I've read the effective costs end up being very similar to other low cost robo advisors.

Yeah, I 100% agree that they're trying to make money on their other services. What I like about them, however, is that they're not pushy at all. Take that ATM fee refund perk that I mentioned earlier. There's absolutely no requirement (other than opening a free checking account) to access it. No direct deposit, nothing. There's no reason for them to offer that other than to hope you'll sign up for more services. I used that perk for years while otherwise not keeping a dime of my money at Schwab. Eventually, I started to feel so bad that I moved my Roth there, and once I sold my condo I put the sale proceeds there in their taxable account as well. Obviously, their low ETF fees were certainly a big part of what attracted me to moving my money there as well. About the only thing they don't have is a decent savings or money market account for cash.

gerardc

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #13 on: February 05, 2017, 03:55:28 AM »
Yeah, I 100% agree that they're trying to make money on their other services. What I like about them, however, is that they're not pushy at all. Take that ATM fee refund perk that I mentioned earlier. There's absolutely no requirement (other than opening a free checking account) to access it. No direct deposit, nothing. There's no reason for them to offer that other than to hope you'll sign up for more services. I used that perk for years while otherwise not keeping a dime of my money at Schwab. Eventually, I started to feel so bad that I moved my Roth there, and once I sold my condo I put the sale proceeds there in their taxable account as well. Obviously, their low ETF fees were certainly a big part of what attracted me to moving my money there as well. About the only thing they don't have is a decent savings or money market account for cash.

I think you don't even need the checking account. Apparently you can get a debit card linked to your brokerage account, with the same international ATM fee refunds. Anybody using that?

Rubic

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #14 on: February 05, 2017, 09:26:09 AM »
Yeah, I 100% agree that they're trying to make money on their other services. What I like about them, however, is that they're not pushy at all. Take that ATM fee refund perk that I mentioned earlier. There's absolutely no requirement (other than opening a free checking account) to access it. No direct deposit, nothing. There's no reason for them to offer that other than to hope you'll sign up for more services. I used that perk for years while otherwise not keeping a dime of my money at Schwab. Eventually, I started to feel so bad that I moved my Roth there, and once I sold my condo I put the sale proceeds there in their taxable account as well. Obviously, their low ETF fees were certainly a big part of what attracted me to moving my money there as well. About the only thing they don't have is a decent savings or money market account for cash.

I think you don't even need the checking account. Apparently you can get a debit card linked to your brokerage account, with the same international ATM fee refunds. Anybody using that?

I just opened a Schwab account specifically for 1) international ATM fee refunds; 2) Amex MR points conversion (1.25 cpp).

Since my dad has a Schwab account (for decades), I had him send me a referral.  After I opened my account
we each received a $100 bonus.

Indexer

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #15 on: February 05, 2017, 09:46:30 AM »
I took this list from today's Bogleheads thread on Schwab, highlighting some of the concerns:

It is hard to find it now, but I remember an article that showed once you accounted for securities lending & tracking error(lack of) VTSAX actually cost about 0.01% while the Fidelity/Schwab/iShares equivalents cost more.

seattlecyclone

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #16 on: February 05, 2017, 10:19:21 AM »
I agree with Interest Compound. Not about wanting to avoid working with a profit-making company; if you can provide me with better, cheaper service than the competition I don't care one bit about whether or not you make a profit for shareholders. The concern about this just being a temporary thing to undercut Vanguard, suck in a bunch of clients, and then raise their rates later is very justifiable though. It's not like a bank account where you can just switch at any time for basically free. Once you have some capital gains locked in, there are real costs to switching and they could exploit that if they felt like it.

Car Jack

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #17 on: February 05, 2017, 01:03:59 PM »
So the announcement mostly pertains to mutual funds.  Schwab has had lower ETF ERs than anyone for quite a while.

While I like the "idea" of Vanguard existing to help fund owners, they have been quickly going downhill over the last year or so.  If you call and someone answers in less than an hour, you're doing well.  You then will likely get a wrong answer or told that they don't know the answer.  I moved a quarter mil to Vanguard 2 years ago, wanting to see how they were as a company and to get a lower ER for developed international.  They're no longer the lowest and I have noted that 50% of the time that I log in, there's a big notice on the front page that call volumes are higher than normal, call another day.  Of course, they close at night and on weekends.

Schwab has (as of today) the lowest ERs through their ETFs.  I opened a taxable account there in the fall and the online chat, 24/7 support and low cost have been great. 

Fidelity has always had great support chat, phone or email 24/7.  Their mutual funds have responded to Vanguard's low ERs and the rush to index funds.  I believe that they are simply a much more efficient organization than Vanguard is and so can offer lower ERs, far superior support and still make a profit.

TDAmeritrade is another that is a good option.  Be sure to sign up for free transactions of ETFs when you make an account.  I opened an account for one of my sons and it's seemed equal to Schwab.

Note that all except Vanguard will give you money for opening or transferring accounts to them.

Full disclosure, I have accounts at all of the above mentioned firms, so my experience is first hand.

Indexer

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #18 on: February 09, 2017, 04:31:25 PM »
While I like the "idea" of Vanguard existing to help fund owners, they have been quickly going downhill over the last year or so.  If you call and someone answers in less than an hour, you're doing well.  You then will likely get a wrong answer or told that they don't know the answer.  I moved a quarter mil to Vanguard 2 years ago, wanting to see how they were as a company and to get a lower ER for developed international.  They're no longer the lowest and I have noted that 50% of the time that I log in, there's a big notice on the front page that call volumes are higher than normal, call another day.  Of course, they close at night and on weekends.

Note that all except Vanguard will give you money for opening or transferring accounts to them.

Vanguard doesn't pay you to transfer an account because they are at cost. If they paid you to transfer money then they would have to charge me and everyone else higher expense ratios. No offense to you, but %^$& that! Consider that the next time a company offers to pay you a transfer bonus.

As noted, once you account for securities lending and tracking error Vanguard index funds tend to be cheaper than competitors, even competitors who have lower ERs. A great example is VEXAX. It has consistently outperformed its benchmark by about 0.1% over 1, 3, 5, 10 years, and since inception. It is an index fund that costs 0.09%. How could it consistently outperform the index it is tracking?  Securities lending, it makes more money from securities lending than it costs to run the fund! Since Vanguard is at cost and client owned they return the securities lending income back to investors in the form of higher returns. Another example is VSMAX. It also outperformed its benchmark over 1, 3, 5, 10, and since inception. Those are two I know of. There could be many more like that. Even if you look at VTI, over almost 16 years the difference between its performance and its benchmark is 0.02%/yr. That is really low cost, lower than SCHB(0.03%). ;)

Yes, client owned and at cost matter, a lot. I don't call in but maybe once a year, if that. If I'm on the phone with them for one hour what are my returns per hour? :D

hoping2retire35

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #19 on: February 10, 2017, 08:31:13 AM »
I agree with Interest Compound. Not about wanting to avoid working with a profit-making company; if you can provide me with better, cheaper service than the competition I don't care one bit about whether or not you make a profit for shareholders. The concern about this just being a temporary thing to undercut Vanguard, suck in a bunch of clients, and then raise their rates later is very justifiable though. It's not like a bank account where you can just switch at any time for basically free. Once you have some capital gains locked in, there are real costs to switching and they could exploit that if they felt like it.
BOOM. pretty much it right there.

Car Jack

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #20 on: February 14, 2017, 08:01:29 AM »
There have been some very good points made here.  I think we all need to remember that the companies we're squabbling over are the low cost leaders.  Throw in an Edward Jones, Morgan Stanley or Northwest and then you'll see some REAL differences in cost.  The pennies of difference between cost of $10k managed at Vanguard, TDAmeritrade, Fidelity or Schwab becomes lots and lots of dollars at the high cost guys for no good reason for us.

I like that I have all of these good options, keep track of what's going on and work within reality.  My Vanguard account has one fund and just sits.  I plan to do absolutely zero with it.  It can sit and hopefully make some gains (it's actually lost money over the last couple years).  Fidelity is my base, where my 401k is, where I rebalance in my rollover IRA and where we keep our Roths.  Good, solid place for low cost index funds with great support any way I want it (online chat, telephone, email, storefront).  I've used Schwab for my taxable as it's the place where the most activity occurs.  Only ETFs and I only buy at this point.  I can check what's going on in the market and in my account at 15 minute intervals and can buy 1 $50 share, if I feel like it.  Easy to find everything on their site.

Both Fidelity and Schwab can pester me, but it's easy to delete those annoying "your 401k needs attention" messages from Fidelity and the "Join us for a somethingorother seminar an hour away from you" that Schwab sends.

I'm sure that if I were to get in my Delorean, race 88 mph down the highway back to 1980 and tell a stock broker that we're all arguing over funds that are either 0.05% or 0.01% after securities lending, he'd laugh in my face and tell me that it's going to cost me $140 to buy into 10k shares of one of the few existing index funds.

facepalm

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #21 on: February 14, 2017, 09:39:37 PM »
I have had a Scottrade account for a few years and have been frankly underwhelmed with the service and the on-line interface. I opened an account with Schwab and even managed to get back $300 for depositing 50K. Pretty happy with the online experience so far, and the phone support has been outstanding. I also have a 403(b) with Vanguard and I have been very pleased with their service, leading me to thing I might open a brokerage account with them if Schwab does not pan out.

MustacheAndaHalf

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #22 on: February 15, 2017, 10:16:15 AM »
first post, eh.  Makes me wonder where you work.
Nice insight - keep up the good work!  Then again, it's such an interesting issue it deserves mention even if the thing was planted.

The comparison by Schwab is biased - they ignore Vanguard ETF shares.  Someone with just $200 can buy a share of VTI or VOO with a 0.05% expense ratio.  Much easier than $3,000 minimum per Schwab fund. 

That said, Schwab's expense ratio is lower.  In general Schwab gets lower costs by holding fewer funds.  There was a time where their Total Market fund had ~1500 stocks, compared to ~3500 with Vanguard.  Now they're up to ~2000, and it looks a bit closer to their benchmark (an index of 2500 stocks).

So the question becomes... for someone starting a new account after March 1st, should people advise them to start at Schwab solely because of the low expense ratios?

PizzaSteve

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #23 on: February 19, 2017, 07:08:30 PM »
first post, eh.  Makes me wonder where you work.
Nice insight - keep up the good work!  Then again, it's such an interesting issue it deserves mention even if the thing was planted.

The comparison by Schwab is biased - they ignore Vanguard ETF shares.  Someone with just $200 can buy a share of VTI or VOO with a 0.05% expense ratio.  Much easier than $3,000 minimum per Schwab fund. 

That said, Schwab's expense ratio is lower.  In general Schwab gets lower costs by holding fewer funds.  There was a time where their Total Market fund had ~1500 stocks, compared to ~3500 with Vanguard.  Now they're up to ~2000, and it looks a bit closer to their benchmark (an index of 2500 stocks).

So the question becomes... for someone starting a new account after March 1st, should people advise them to start at Schwab solely because of the low expense ratios?
Agreed.  Gather information and make an informed choice.  There is no single answer for all mustache sizes.  Though i respect the passionate supporters of Vanguard and its mission statement, they also have governance issues and hold reserves the shareholders dont see (and some tax risk, but that is a lengthy issue under litigation).   

Schwab has been putting downward price pressures on the brokerage world for  over30 years, so i grant them kudos, even as a for profit.  My 27+ years with them have been mostly positive. Vanguard as a broker has never been very good, though their funds are the best.  So i have a broker because i have juiced my returns with some carefully thought out individual stocks and i occasionally goof around with writing covered calls (not for everyone, and never with big $).

Learn and decide for your own best value.

COEE

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #24 on: February 19, 2017, 08:13:44 PM »
I've been looking into IRA's for the wife and I now that we've maxed out our 401k.  I actually opened a Vanguard account - but have been underwhelmed by poor customer service.

I've been banking with Schwab for about 5 years now and they've always been helpful - and I have been mostly pleased with their service.  I do actually appreciate their emails about how to stay calm when the market tanks - like the Brexit thing last year.  That was my sign to put more IN.  And it paid off.  I would have probably missed it if I hadn't gotten those two emails.

These lower ER just might keep me out of Vanguard... just for asset consolidation purposes - I have 4 places where I keep most of my funds - and it's getting a bit overwhelming trying to keep track of it all.  While it's possible that this is a bait-n-switch tactic - I doubt it.  Schwab is a pretty stand-up corporation.

aspiringnomad

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #25 on: February 19, 2017, 10:22:45 PM »
Governance is a very important factor, and you can't beat Vanguard there. But it turns out, in practice, it's not the only factor. My experience with both Vanguard and Schwab bears this out. I use both and recommend Schwab for no other reason than to give my honest opinion to those wondering about the pros and cons, especially in light of the fact that so many here and elsewhere will reflexively recommend Vanguard solely based on its governance structure.
« Last Edit: February 19, 2017, 10:24:33 PM by aspiringnomad »

NorCal

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #26 on: February 20, 2017, 08:30:40 AM »
I deliberately chose Schwab over Vanguard several years ago.  Their prices have always been comparable on core funds, and they have a broader selection of diversified ETF's that I use and appreciate.  $0 commissions on their ETF select list lets you consistently add money to an incredibly broad range of low-cost funds.

Schwab has always been more cost effective for me, and I'm incredibly happy with them.  I don't have anything against Vanguard.  I just get generally annoyed with the reflexive "Vanguard is the only answer crowd".

I also have one Roth IRA account in the Schwab "Intelligent Portfolio".  If you're interested in the robo-advising thing, I would check this option out. 

Car Jack

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #27 on: February 20, 2017, 09:27:25 AM »
Please compare apples to apples.  Schwab's minimum for ETFs is $100 for the entire account.  TDAmeritrade has no minimum (My son has a Roth there with 1 share of VTI).  Higher minimums apply for mutual funds.  Certainly do your research because pricing and minimums are moving around all over the place lately.

I'm wondering......is there some way to put a NUMBER on Vanguard's securities lending?  I don't mean comparing results of a couple funds since they're not necessarily going to 100% track the index or each other.  Is there some place to see how much securities lending reduces the cost of a share by %?  I've heard this a few places but nobody has numbers.  Sort of like the statement that Fidelity is privately owned so makes a profit and the boogie man will raise the ERs when you're not looking.....and while people run around with their hands waving in the air waiting for the sky to fall, Fidelity lowers ERs again.

Another Reader

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #28 on: February 20, 2017, 10:27:18 AM »
For the amount of money I place with these companies, I expect a decent level of service.  Vanguard's service used to be passable, not great.  Not any more.  Both Schwab and Fido offer better service, bricks and mortar offices, and competitive pricing.  Even the old taxable funds I have at T Rowe Price with a balance of around $100k get me much better service than Vanguard.  I have an IRA at Vanguard for Wellington, but I'm not inclined to move a lot more money to them.

Non-profit rarely means better.  For those older folks that lived in the Oakland Berkeley area thirty or more years ago, remember the Coop grocery store.  Crappy meat, limp produce, dirty stores, long lines.  All in the name of not for profit.  No longer in business, thanks to for-profit grocery stores that offered better selections, better service, cleaner stores, and (wait for it) lower prices!

Indexer

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #29 on: February 20, 2017, 04:38:44 PM »
I'm wondering......is there some way to put a NUMBER on Vanguard's securities lending?  I don't mean comparing results of a couple funds since they're not necessarily going to 100% track the index or each other.  Is there some place to see how much securities lending reduces the cost of a share by %?  I've heard this a few places but nobody has numbers.  Sort of like the statement that Fidelity is privately owned so makes a profit and the boogie man will raise the ERs when you're not looking.....and while people run around with their hands waving in the air waiting for the sky to fall, Fidelity lowers ERs again.

Well securities lending is different for each fund. It appears to be greatest with small-cap funds. I guess more people are borrowing those stocks. I don't know of a way of calculating it exactly unless Vanguard releases the information, but there is a way to get close. An index fund should have performance similar to its index minus cost.

Index performance - fund ER = fund performance. At least in theory. When this isn't true there is tracking error and/or securities lending. Tracking error is just another way of saying the fund manager did a bad job of tracking the index. It can be positive or negative, but even the positive is a bad sign because it can quickly turn negative. If the difference is always positive by roughly the same amount then you have good evidence for securities lending.

So the formula to find tracking error and securities lending would be...

Fund performance - Index performance + fund ER = tracking error &/or securities lending.

Let's use SCHB, VTI, and VXF as examples. All numbers as of 12/31/2016.

SCHB, ER=0.03:  1 yr, 12.56. 5yr, 14.58.  Benchmark = 12.6 & 14.6. 
1yr: 12.56-12.60+.03= -0.01 Negative. :(
5yr: 14.58-14.60+.03= 0.01 Positive.
I could find since inception data on Schwab's site for the fund, but not the index it was tracking at that time.

Conclusion:  there is tracking error and it isn't consistent.


VTI, ER=0.05: 1yr, 12.68. 5yr, 14.63. Since 2001, 6.32. Benchmark = 12.68 & 14.64 & 6.34.
1yr: 12.68-12.68+0.05= 0.05. Positive.
5yr: 14.63-14.64+0.05= 0.04. Positive.
Since Inception(2001): 6.32-6.34+0.05=0.03. Positive.

Conclusion: it could be tracking error, but the fact that it is consistently positive by a few basis points implies some source of income is helping negate the expenses. The other conclusion is that VTI is only missing it's index by 0.02 over the long term even though it's ER is 0.05. The implication is that the costs for VTI after accounting for securities lending is only 0.02. This is cheaper than SCHB.

Now things get fun.
VXF, ER=0.09: 1yr, 16.16. 5yr, 14.65. Since 2001, 9.31. Benchmark, 15.95 & 14.55 & 9.23.
1yr: 16.16-15.95+0.09= 0.31. Positive.
5yr: 14.65-14.55+0.09= 0.19. Positive.
Since Inception(2001): 9.31-9.23+0.09= 0.17 Positive.

Conclusion: Securities lending. It is highly unlikely it is tracking error. It is too consistent over the long term and it is always positive by a significant margin. Note, the lending income is exceeding the cost of the fund. The implication is that Vanguard is PAYING you to own this ETF. Another conclusion is that the securities lending benefit to the Vanguard funds is increasing over time. That is very good for long term shareholders.
« Last Edit: February 20, 2017, 04:51:01 PM by Indexer »

Laserjet3051

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #30 on: February 20, 2017, 07:10:21 PM »
Just transferred my tIRA to Schwab. Did it mostly for the transfer bonus coupled with the fact that my previous brokerage was a total joke (LPL). Happy so far, love the low ERs (SWPPX, 0.03% & SCHZ, 0.04%), and the online platform works quite well. And no better place to house my health Care Fund (SWHFX) than right at Schwab where the regular purchases of this fund are commission free.

Will report back in 10 years as to whether this was a good move.

nereo

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Re: Time to consider Schwab? With latest news, fund ERs < Vanguard & Fidelity
« Reply #31 on: February 21, 2017, 07:41:21 AM »

Will report back in 10 years as to whether this was a good move.
I'll be waiting right here for that report :-)