Deciding Where to Put Retirement Fund Distributions

I recently helped a friend with some analysis on what brokerage house to use to hold a full distribution from an Employee Stock Ownership plan (ESOP).

The comparison was between a full service wire house brokerage model (Merrill Lynch) and a more self service brokerage model (Vanguard Brokerage).

My friend has had an ongoing Merrill Lynch relationship with the same broker (one who doesn’t hold any industry certifications but has a lot of experience) and his administrative assistant for a decade. She has also held several Vanguard mutual fund accounts for about half a decade, but has had few interactions with Vanguard staff.

Points of comparison included:

  • Broker commissions and fees
  • Mutual fund fees
  • Account fees
  • Quality and types of products and services available
  • Availability and cost of advice
  • Ease of use
  • Ability to move up to more services

The conclusion?
Keep the current accounts and try out the Vanguard Brokerage service with the distribution from the ESOP.

The conclusion was based primarily on the fact that my friend historically hadn’t utilized the full services from the full service brokerage; the much lower costs of the self service model; and the fact that if it doesn’t work out, she can transfer the account free of charge to the full service model.

Broker commissions and fees
Merrill Lynch broker commissions are much higher (based on my friend’s past experience) than what Vanguard advertises. My friend doesn’t trade much, but her lowest commission ever was $50 for one trade. (Note: The analysis did not include the new Merrill Edge.

At Vanguard what you pay depends on how much money you have there but you always get the first 25 trades for $7.

Mutual fund fees
Merrill Lynch pushes their own mutual funds (Blackrock) as does Vanguard. Merrill Lynch mutual funds are (mostly) load funds. Vanguard mutual funds are mostly no loads. Merrill lynch mutual funds typically carry much higher management fees than do Vanguard funds.

Account fees
Merrill charges my friend $125 a year per account. Vanguard charges $20 but waives it if you go paperless and use online access or if you have sufficient assets in Vanguard mutual funds.

Quality and types of products and services available to my friend
My friend’s personal and consistent broker at Merrill Lynch is always promptly available to assist her. As an example, he and his assistant handled all the paperwork and transactions that were needed in an estate transfer my friend experienced. In addition, she can conduct pretty much any kind of financial business through him – whether it is banking, buying stocks, bonds, CDs, mutual funds, margin transactions, loans and etc. Merrill also offers a consolidated view of all accounts held there (one statement), the ability to pay bills, use a debit card, and other perks.

At Vanguard, the level of service you get depends on the level of assets you hold in Vanguard mutual funds (note that assets held in a Vanguard brokerage account that are not invested in Vanguard mutual funds do not count towards the total). Currently, at their personal services page Vanguard outlines service at 4 levels:

  • Investor (less than $50K in Vanguard Funds);
  • Voyager ($50 K to $500K in Vanguard funds),
  • Voyager Select ($500 K to $1 M in Voyager funds) and
  • Flagship ($1M up in Vanguard funds).

Only at the Flagship level would she receive the equivalent service to what Merrill Lynch now offers her through the full service brokerage account.

In addition, Vanguard has a ‘concierge’ service to aid in new account setups, retirement plan transfers and etc on a per time basis at no charge.

Vanguard offers products similar to Merrill’s – stocks, bonds, CDs, Vanguard and non-Vanguard mutual funds, EFTs, options and etc.

Availability and cost of advice
At Merrill Lynch, my friend can get advice from her broker whenever she requests it at no extra cost. Her broker can provide an analysis of her assets and recommendations for her at no extra charge. She typically does not get much broker initiated advice however. She doesn’t take advantage of the full service aspects that much. Her broker also has striven to educate her about finances each time she has a conversation with him.

At Vanguard, if you have $500K plus (in Vanguard mutual funds), you have free access to a Certified Financial Planner (CFP) whenever you want. You do not have access to the CFP if you don’t have the $500K (not even for a fee). You can get a financial plan at any asset level, but have to pay for it unless you have $500 K or more (in Vanguard mutual funds).

Ease of use
Hands down, Merrill Lynch full brokerage account is easier to use. My friend speaks to one person who knows her story and preferences and they handle all parts of the transaction for her.

Vanguard has multiple desks for area’s of expertise. You start with a phone call to one ‘desk’. The person who answers (not the same person all the time) will transfer you to the next person you need to transact with and so on. So, to get advice, you start with one person, get transferred to another (assuming you have enough assets to use the advice services) to get the advice and then potentially deal with another person to actually do the transaction. There is a desk for the various levels of service (Investor, Voyager, Voyager Select, Flagshi), a desk for concierge services, a desk for brokerage, a desk for fixed income investments and etc.

Ability to move up to more service
Both Merrill Lynch and Vanguard offer wealth management services (managed accounts) for those with significant assets who are willing to pay a percent of asset base as a fee.

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