2

One can trade Vanguard's ETF with no fee for buying or selling. I have made several trades ( on the internet - no agent) over the last year for no fee. How do they make money ?

  • 1
    The ETF pays Vanguard for management. For Vanguard's VWO ETF, the expense ratio is 0.14%, which is small but not nothing. – zeta-band Aug 23 '18 at 21:23
  • 1
    Was there a buy-sell spread? – Lawrence Aug 23 '18 at 22:54
  • There is no buy/sell spread that I can see. I mean the sale commission, not the annual operating fee. – blacksmith37 Aug 24 '18 at 15:09
  • @zeta-band and that's one of the more expensive Vanguard ETFs—many of the index funds are more like 0.04–0.07, and most of the sector ETFs are 0.1. – Kevin Aug 24 '18 at 17:35
5

Vanguard is in an ETF price war with other brokers and they are all under pressure from brokers like Robinhood which offer free trading and are growing rapidly.

Vanguard is more of an asset manager and its profits from trading is far smaller than online brokers whose lion's share of profits come from trading commissions. By eliminating commissions on many ETFs, Vanguard is foregoing some commission revenue in exchange for stickier assets. “Sticky Money” is slang for investors that will stay around for the long-term.

Vanguard also offers traditional brokerage services, variable and fixed annuities, educational account services, financial planning, asset management, and trust services. Think of their 'no fee' ETF service as a loss leader aimed at attracting new clients and then offering them other services where they can make more money.

  • "loss leader" rest assured they sell the data and order flow, like everybody else. – CQM Aug 24 '18 at 18:38
  • Yes, they sell order flow. They also earn a couple of million dollars in interest from loaning out securities. But that's peanuts compared to the big guys. Think of "loss leader" as foregoing a modest amount of commissions as compared to what they take in for many of their other much higher ticket services.. – Bob Baerker Aug 24 '18 at 23:15
  • I guess i am a loser for them , I don't pay directly for any services except the online buy/sell commissions of $2. – blacksmith37 Aug 25 '18 at 0:22
  • @blacksmith37: $2 commissions implies Voyager Select. That's quite a bit of money in Vanguard funds, on which you're paying a (low but non-zero) expense ratio. – Ben Voigt Aug 25 '18 at 5:41

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.