Thursday 17 December 2020

More pain for existing retail investors with the new Vanguard Australia online accounts - switching no longer exists

After taking almost a month to get online access after issues having my id confirmed, I had expected that the new online system would allow transactions to be completed online -- after all, my second Vanguard account (that is linked to a margin lending account) could not get online access under the new system supposedly because of this online transaction functionality (the margin lender needs to approve all transactions).

However, when I decided to rebalance my existing SMSF Vanguard investments from the Growth and Conservative options we had shifted into back in June into the High Growth option we have as our long term asset allocation, I found that for existing retail investors they have removed the ability to 'switch' between investment options via a form, and you instead have to sell the existing units and then purchase the new units. Unfortunately, for existing retail (old fund) investors, the online 'sell' button simply takes you to a link to download a pdf form that has to be filled in and lodged via the online messaging service.

The 'sell' form also doesn't let you 'switch' the sale proceeds into a different Vanguard fund -- so you instead have to have the proceeds paid out to you bank account. The first time I submitted the form our signatures (done using a mouse) were not accepted, so we had to print out the pdf form, sign it in pen, scan it, and then lodge the scanned form using the online messaging.

It then takes 3-5 business days for the funds to arrive in our bank account.

So, the form we scanned and submitted on Friday was 'acknowledged' on Friday, then transaction was processed on Monday (using the Monday closing unit sell price), and the funds didn't arrive in our SMSF bank account until Thursday.

In the meantime I'd checked on how I'd be able to invest the bank funds back into the desired Vanguard investment option (we currently have an automatic $2,000 monthly investment into the High Growth option via BPay). Turned out that the maximum daily amount via online banking was $10,000/day, and this increased to $100,000/day if I setup the banking App on my phone and voice authentication.

So, once the funds had cleared into our bank account I went up to our local physical bank branch to see about doing a one-off BPay of the entire $1.59m we wanted to invest in the High Growth option. Turns out that maximum $100,000/day BPay via the App is the maximum possible via BPay. To do a larger amount would required paying $180 to arrange for a bank transfer direct from our bank account to the Vanguard bank account. The problem with that is there isn't any information about investing via EFT to Vanguard's bank account - they only mention doing BPay investments for existing retail fund investors...

So, I'm left with having to make a daily $100,000 BPay payment from our SMSF bank account to our Vanguard High Growth Fund investment. And you can't set up recurring BPay's using the App/voice authentication, so I'll have to do this every work day from now until mid January (as the daily limit isn't available on weekends or public holidays).

I can only hope that 'dollar cost averaging' from cash into the Vanguard High Growth Fund over the next three weeks doesn't end up costing us much compared to the old 'switch' that was able to be done using the same day's selling and buying unit prices for the funds being switched from and to...

All in all, the new Vanguard online system for existing retail investors is a total pain in the butt.

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Dazza said...

Love reading your updates.
Maybe there's an implicit encouragement to move people to ETF's?
When I looked a year ago, I believe the MER's of operating ETF's became cheaper than the funds if you had >50k to invest.
Also, you can switch in an instant of course. Eg $9.50 via Selfwealth (with own HIN) or $0 with Superhero (under their HIN). I'm interested, why don't you move to the ETF option? said...

Basically I can't be bothered at the moment, as you can't trade the ETF funds in the Vanguard online account created for existing retail fund customers. So I'd have to open a second account, sell off the retail funds, and invest in the new account (same as I'm currently having to do to move from one retail fund investment to another), and then buy the ETFs using the cleared funds sitting in the Vanguard 'cash account' on the new online account.

One of the Vanguard FAQs for existing retail fund customers is about moving from the retail funds to the ETF equivalents - and the answer was along the lines of "you can't do this yet, but we're working on it".

So I fully expect there will be a mechanism/process eventually put in place to migrate existing customers from the retail fund investment to the ETF equivalent within a year or so. And I won't be surprised if the existing retail funds get closed down completely within 12-18 months (they're currently closed to new investments, except for existing investors being able to add to a retail fund investment they already hold).

So, I'll just wait and keep our SMSF investment in the retail High Growth Fund option until Vanguard gets its act together and takes makes the switch into the ETF fund (and a new online account) automatic.

Now that DW has moved her SMSF account into 'pension mode' we won't be doing any more automatic monthly investments after the 'switch' is completed, so it really won't matter whether we are in the retail fund or the ETF equivalent for the next year or two (we normally still to our 100% allocation to the High Growth Fund and don't do much asset allocation changes - the switch to a more conservative stance in late Feb when the pandemic seemed likely to spread globally was a rare instance when the downside risk seemed to clearly outweigh the upside risk. Turned out to be a correct move, but as the Nasdaq performance in 2020 has shown, there's no such thing as an 'obvious' market timing decision. It's always a bit of a gamble, so sticking to your long term asset allocation is usually the way to go. said...

ps. If we move to the ETF Vanguard funds we'll trade using the Vanguard online transaction functionality, rather than trade the ETFs via a broker, as our SMSF Comsec account was closed down as we had not traded any shares in our SMSF for many years. We wouldn't be able to trade ETFs for our SMSF via Selfwealth or Superhero as our SMSF admin is done via eSuperfund and they have requirements around which brokers are support - fair enough given there very reasonable SMSF admin fees.

Dazza said...

I think I understand now. I'd previously thought you were in a quandary of having to switch by receiving cash/cheque then reinvesting; which I thought would be silly to go into such a constraining form that Vanguard now seem to have imposed through their Technology changes.

Re the "we're working on it" I expect Vanguard would need an ATO ruling to exempt a rollover to ETF as being exempt from income tax.
Am unsure if a switch within Vanguard domain incurs CGT (10% for >1yr holdings vs 15% for <1yr)

However, as you've probably read, Vanguard are highly rumoured to be introducing a superannuation wrap style product, so maybe this might help you later.

BTW, I'm with eSuperfund also; I'm pretty certain they've opened to all brokers now, however you don't get the benefit of the electronic data exchange meaning the EOY coding is more time consuming. For large balances even the ETF brokerage cost would likely outdo the MER that you're being charged in Vanguard.

Totally agree with 'obvious' market position. Personally I was ahead of the pandemic dive in the market having sold a lot in Feb/Mar, however underestimated the stimulus size and speed (and was personally engaged in other activities which prevented me looking into this deeper) and as such I crystallised all my capital gains and some significant losses but have only shared in about 20% of the gains since end March. It's been a very painful year for the more value minded investor such as me.