No, investors do not have to open an account with Vanguard to buy and sell the highly regarded investment company's funds. Vanguard maintains multiple agreements with firms such as TD Ameritrade, OptionsHouse, Capital One Investing and Interactive Brokers. As a result, most major brokerages offer their retail clients the opportunity to trade Vanguard mutual funds and exchange-traded funds (ETFs).
But there's a catch. Vanguard is famed for its no loads, low expense ratios and low to non-existent fees and commissions; in fact, in July 2018, it announced that it was dropping commissions on virtually its entire ETF universe. In contrast, each broker has its own commission structure; it might allow certain Vanguard funds to be bought and sold commission-free – and then again, it might not.
The Vanguard Funds Story
A financial company giant, with $4.9 trillion in assets under management as of 2019, the Vanguard Group of Investment Companies offers a wide selection of exchange-traded funds (ETFs) and mutual funds that invest in bonds and equities with different investment objectives and market niches. Vanguard bond funds specialize in corporate bonds (vs government or sovereign bonds. Vanguard equity funds specialize in investing in international stocks, domestic stocks and various sector-specific equities.
Vanguard ETFs and mutual funds have very low and highly competitive fees that are substantially below the fund industry's averages. Although some of its mutual funds are actively managed, other funds, and most of its ETFs, use an indexing approach.
In fact, Vanguard's late founder, John Bogle (1929-2019) is credited with bringing an index-investing strategy, once the purview of institutional investors, to the retail crowd. Two years after it was founded in 1974, Vanguard began selling mutual funds that tracked indexes and passed the minimal costs of this sort of passive management on to investors. Its fees were the lowest in the industry. Its own management structure was unique as well: In contrast to most fund management companies, which usually control the family of funds and provides all the investment, administrative and marketing services, Vanguard functions more like a mutual fund credit union, owned by investors in the funds, which employ their own officers and staff.
Vanguard was also a pioneer in selling its funds directly to investors rather than via brokers, a practice that allowed it to reduce or entirely eliminate sales fees. Today, it's famed for its family of no-load, high-performing funds that includes 199 mutual funds and 1,800 ETFs. Maintenance and administrative expenses also tend to be low with Vanguard funds, incurred mainly if a client doesn't meet an account balance minimum of $10,000 and eschews electronic documents.
Vanguard Funds at Third-Party Brokers
While Vanguard offers almost all of its mutual funds and ETFs commission-free through its own proprietary investment platform, a wide selection of the same funds is available for purchase at third-party brokers. Vanguard typically negotiates agreements with other brokers to offer some of its funds free of commissions, while the remaining Vanguard funds are subject to the standard trading fees of a particular broker.
Commission-related issues between Vanguard and a brokerage caused something of a stir in autumn 2017. TD Ameritrade announced an expansion of its no-fee ETF trading program that, paradoxically, involved dropping all of the commission-free Vanguard ETFs it had been offering – a move that had investors, financial advisors and the financial press buzzing with indignation. "TD Ameritrade is now enforcing a pay-to-play for their so-called commission-free exchange-traded funds," huffed a Forbes columnist. "They are willing to forego their $6.95 trading commission in favor of remuneration directly from the ETF vendors. Because Vanguard refuses to pay such money to custodians, they are no longer being allowed to play."
TD Ameritrade does continue to offer Vanguard mutual funds and some 80 other Vanguard ETFs to investors. And in May 2018, TD Ameritrade became the exclusive custodian to registered investment advisors (RIAs) managing $3 billion worth of retirement accounts that use Vanguard funds. Under this arrangement, the RIAs gained back access to the commission-free ETFs that were dropped the previous fall.
The Bottom Line
By offering its funds through multiple investment platforms, Vanguard creates a much wider network of brokers that reaches out to a higher number of investors who may become interested in investing in Vanguard ETFs and mutual funds. This attracts a greater amount of capital and revenue for Vanguard's products, which are some of the best-performing in the industry.