Note: Vanguard has recently changed the qualification requirements for Admiral shares. Most index funds now require only a $10,000 balance while most managed funds require only $50,000. Both required minimums are down from $100,000 previously.
Whether right or wrong, having more money opens more doors and opportunities. Just look at the way casino hotels operate. If you are a high roller, the casino will shower you with free nights in the penthouse suite, free meals, and who knows what other perks unavailable to those of us without the cash to throw around. But it’s not just casinos who want to make the biggest customers happy.
Vanguard, a highly recommended low-cost brokerage, takes a similar approach. High rollers receive a special perk, and it’s a very valuable special perk, worth potentially tens or hundres of thousands of dollars over a lifetime. Certain customers qualify for half-price discounts. Those who belong in this special class have access to mutual funds with lower expense ratios. The more money you have, the more you are allowed to keep, and that’s more of your own money working for you through compounded returns.
This concept is the opposite of what a young investor wanting to save money might like. But investment companies, even Vanguard, are not in business to be charitable. They need to attract big clients.
So if you have at least $100,000 in a single account invested in a single mutual fund at Vanguard, you will qualify for the company’s “Admiral Shares” for that mutual fund. Vanguard has also instituted a policy to reward loyalty. If you have a single account invested in a single mutual fund with a balance of only $50,000, but you’ve owned that fund for over ten years and use Vanguard’s online account access tools, they will accept you into that fund’s Admiral Shares club without having to reach $100,000.
Keep in mind that if you have a new account at Vanguard with $50,000 in a Roth IRA invested in VTSMX and $50,000 in a regular taxable investment account invested in VTSMX, you still don’t qualify. Each account type and fund combination needs to be valued at least $100,000 (or $50,000 if the other conditions apply) for Vanguard to convert your shares to Admiral class.
Here are the Admiral Shares benefits as of today, the equivalent of a comped penthouse suite for the rest of your life:
- For the S&P 500 index fund, your expense ratio will be reduced from 0.15% to 0.07%.
- For the balanced index fund, your expense ratio will be reduced from 0.19% to 0.10%.
- For the growth and income fund, your expense ratio will be reduced from 0.37% to 0.23%.
- For the inflation-protected securities fund, your expense ratio will be reduced from 0.20% to 0.11%.
- For the large-cap index fund, your expense ratio will be reduced from 0.20% to 0.08%.
- For the total stock market index fund, your expense ratio will be reduced from 0.15% to 0.07%.
These are just a few examples of how Vanguard rewards its wealthier customers with lower fees.
If you do qualify in any of your Vanguard account types, the brokerage will automatically convert your shares to Admiral class on a quarterly basis. But if your fund’s balance later dips below the $100,000 (or $50,000) minimum, you will be given a chance to invest new money to make up the difference or your shares will be reclassified to the higher-cost Investor Shares.
The Investor Shares have many of the lowest expenses available in the market place, so small-time investors like me are still getting a reasonably decent deal. Casinos comp small-time players occasionally, too.
Updated February 6, 2012 and originally published March 21, 2009. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @flexo on Twitter and visit our Facebook page for more updates.