What’s a custodian? That’s the Fort Knox for your money. They safeguard it, they do reports (including tax reporting), and they’re who you write the checks out to. They provide some sort of software for you to access your account, too. For individual investors who are doing things themselves, the lines get blurred a lot of the time. I commonly see people confused because they know Vanguard funds are good, and think you have to buy them at Vanguard. Nope.
Here’s an analogy: you buy a present at a store and it comes in a box. You buy a Vanguard Mutual Fund (that’s the present, the underlying asset.) You can buy it at the Vanguard website (that’s the store) and then Vanguard Fiduciary Trust Company sends you your statements.
Or you buy a Vanguard Fund (the present) in your Fidelity login (the retail store) and National Financial Services (Fidelity’s in-house custodian) sends you your statements.
A “retail” customer is YOU, unless you are working with a professional investment advisor. Go read “Why Move to My Custodian” if you want to know where I prefer you move, but here are my rants about various retail custodians, particularly Fidelity and Vanguard.
Warning: these are my opinions, written in November, 2017, based on my own experiences.
Fidelity has not adopted Google’s motto. It has not aligned itself with the fiduciary movement, where investors get the best possible advice. (As a fiduciary, I’m required to put your interests FIRST, ahead of my own. Fidelity is following the “suitability” standard, where they aren’t allowed to sell you anything obviously unsuitable. It’s a pretty big gap.)
Fidelity is for-profit, owned by one family. They have a focus on maximizing profits, going after the mass-market of low-information investors. Fidelity hires a corp of uncredentialed “advisors” to steer you towards their expensive mutual funds. If you have a higher balance account, Fidelity tries to upsell you into their asset management program, where they charge you around 1% of assets under management and don’t DO anything else. I’ve never had a Fidelity advisor call to ask me about a client’s tax bracket or tax-loss harvesting options. Never in 20 years of doing taxes. Ever. The experience my clients have with Fidelity is exactly why I became a fiduciary investment advisor.
Fidelity has a killer ap. I love their website. The retail side is great. They charge a lot for other people’s mutual funds, but there are a lot of low-cost ETFs available. I have accounts there myself and frequently rolled do-it-yourselfers over to there. But last year they made a decision to stop allowing paid investment advisors to have access to their client’s retail accounts. They require that an investment advisor like me have $25 million in invested assets with them before they’ll allow the advisor to bring their clients to Fidelity. They specifically said a.) we want to increase profits by not dealing with smaller advisors and b.) we want to increase the number of people at Fidelity who don’t have an investment advisor warning them against our high-cost funds.
Meanwhile, Fidelity struck two new deals with the government in Massachusetts. Starting this year you can get a tax deduction for starting a 529 plan with Fidelity. The joke here? The funds they put you in cost you approximately $50 more each year per $1,000 than if you were in a lower cost fund (like the kind I’d suggest), which nearly exactly offsets the $51 you’d save on taxes. Basically, Fidelity just struck a deal for the taxpayers of Massachusetts to fund their marketing campaign. (They also are hosting the new ABLE accounts, basically investment accounts for people who are on MassHealth. This isn’t likely to be a huge money-maker for them, but it’s still weird that the only accounts that will work for that purpose have to be at Fidelity. Hmmm.)
So, what about Vanguard? You’ve got to love their story. They pioneered the world of low-cost index investing. They are formed as a cooperative, where profits get mixed back in to offset cost of operations. Their website isn’t the very best, but it’s pretty good. Anyone who does any reading on personal investing will have heard they should open a Vanguard account.
But they’ve become the low-cost provider and are overwhelmed. Their custodial services has far and away the most errors. I can tell you horror stories of them cutting checks for the wrong amount, giving out client’s personal information to another client, losing paperwork. They’ve made my clients get onerous “Medallion” signatures and generally been terrible on the telephone. The Vanguard FUNDS are still okay, but the Vanguard CUSTODIAN is terrible. I can’t in good conscious tell anyone else to go there. The only benefit is that you’d be able to buy Vanguard funds with $0 commission. Because we’re mostly buy and hold it’s not a huge deal to pay $20 commission someplace else, in my opinion. Especially if they take weeks to move your money, during which time you’ve lost far more than that from stock movements.
Okay, you’re saying, tell me what you really think.
TIAA (formerly TIAA-CREF) is very paternalistic. They don’t have the best website, the best funds, or the best phone service. The only reason to stay at TIAA is for their Real Estate or Traditional annuities if those are things you want in your portfolio. They’re pretty good. I also like them for “annuitizing,” where you turn your lump of savings into a pension. When people have TIAA I’m slow to move them until I analyze these issues, but I never move anyone INTO TIAA.
Voya and MassMutual are similar to Fidelity: they can be good places for retirement money, but you have to be careful. Each of the plans they sell employers has a mix of good funds and bad funds. Bad funds have the best marketing budgets and the highest expense ratios. Bad funds pay their bills. Good funds have boring names and the low expense ratio is hidden deep in the material. With some expert advice you can leave your money there if you want, but expect them to call to try to upsell you services.
T. Rowe Price had its day in the ’90s. They have expensive mutual funds without any particular good story to back them up. They’ve been great on the phone to my elderly clients, though, so someone who has them might choose to keep them, but no one would be likely to move there at this point.
TD Ameritrade is a really good option right now. See my “Why move to my Custodian” article for more information on that.