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Wednesday, 20 January 2021

How much did Vanguard's new admin system cost our retirement savings?

As I have previously mentioned, I am underwhelmed by the 'benefits' provided by Vanguard's change of admin system and the new client online access system. Aside from no longer being able to access my Vanguard account linked to my St George Margin Lending account, the new administration system no longer allows 'switching' between the old retail funds.

Before the changed admin system, you would fax in a 'switching request' and the units would be sold from one fund and bought in the new fund using the same day's closing buy/sell prices. So the only cost would be the normal buy/sell spread in the unit prices.

But under the new system we had to sell our existing Funds, wait for four business days for the cleared funds to arrive in our bank account, and then start doing daily $100,000 BPay contributions into the new Fund...

Now that all the transfers have been processed and I know the relevant daily unit prices used for the transactions, I was able to calculate exactly what happened under the new process:

11 Dec; sold our existing Conservative Fund and Growth Fund investments: $1,598,995.36

The High Growth unit buy price on 11 Dec was $1.9507, so if we had been able to do a 'switch' we would have received 819,703.37 units of High Growth Fund

17 Dec - 1 Jan: bought into the High Growth Fund via daily BPay tranches

Total number of units allocated was 813,049.65 over a two week period

Therefore, we received 6,653.72 less units than we would have if we had been able to do a same day 'switch' between Vanguard Funds. At the unit price that applied on 11 Dec (when we would have done the switch) those extra units would have been worth $12,979.41.

Overall, being unable to process a 'switch' cost us 0.81%

Of course we might have got lucky and benefitted from changes in unit pricing during the two weeks it took to move the investment from one Vanguard Fund into the other, but it didn't work out that way. And I don't appreciate being forced to gamble on how unit prices might move during the time it now takes to 'switch' between Vanguard Funds. In fact I'm relieved that the markets didn't rise continually during the two weeks (which could have cost us even more missed gains).

If Vanguard works out how to painlessly (and at no cost) shift existing investors from the old retail Funds into the equivalent ETFs (without having to setup a whole new online Vanguard account) things will improve slightly -- but you would still need to sell one ETF investment and wait for the trade to become available in the cash account (taking the using ASX T+2 Settlement period) before being able to buy the new ETF.

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