Hey everyone,
Trying to workout whether to buy vanguard ETFs on Commsec (CHESS) or direct with vanguard that’s not CHESS.
In both cases my underlining holding is a Vanguard ETF. I wonder whether there’s any benefit of holding an ETF with Commsec (CHESS) over direct with Vanguard
Their auto invest feature is my big pull, plus $0 brokerage on their ETFs.
If vanguard goes bust we all screwed
CHESS is the settlement system not the ownership system. With commsec, you are a broker sponsored shareholder which means you authorise the broker to handle ownership of the shares for you. Your broker gives you a HIN which indicates what shares they manage for you.
You can also choose to hold your shares directly with the company in which case you will be issued a SRN (shareholder registration number) which is managed by their share registry service (eg computer share, link, automic), but if you want to sell your shares you need to transfer them to a broker or authorise the share registry to sell for you.
If you buy directly from vanguard you will be given a SRN.
Either method the shares will be in your name and not held in some collective trust account.
So how do you actually sell the share if buying directly from Vanguard? Can you just sell it back to Vanguard with a click of a button?
Thanks Star-ggg.
Let's pretend that Vanguard goes bust, which option would protect me the most? It sounds like in both options, I have the same legal ownership of my ETF units that represent a share in the underlying assets?
In a way aren't all ETFs pretty much using a custodian model, in that you own a share in the ETF and not the individual shares that the fund owns? If that's right then would it even matter if you bought direct with Vanguard under a SRN vs CHESS HIN?
Let's pretend that Vanguard goes bust, which option would protect me the most?
Neither.
CHESS deals with you vs your broker name being recorded on ASX as share owner. It affects the trade / settlement process.
if Vanguard went bust and they couldn't find someone to take over management of the ETFs (highly unlikely) then they would probably liquidate the funds and return them back to shareholders as capital returns. You are a direct shareholder regardless if you are SRN or HIN.
That's right you don't own the shares the fund does. You will lose money if there was outright fraud and Vanguard wasn't buying the shares with the money you give them. In that case you will lose money regardless if it's CHESS or SRN.
The Index Funds and ETFs in Vanguard consist of shares which are owned by Vanguard, those are physical shares, not synthetic (you need to educate yourself on this as well). These shares are held by a custodian: The Bank of New York Mellon.
When you buy an ETF on an Australian brokerage like from commsec, you get allocated a HIN (which is part of the CHESS system). This type of model is unique to Australia where the buyer actually holds the number of units in their name, elsewhere in the world usually the units will be held in the broker's name and the broker uses a custodian model.
Buying from Commsec:
You -> Commsec -> Computershare/Link Market Services (Vanguard ETF Units on ASX using CHESS/HIN) -> Vanguard -> The Bank of New York Mellon
Buying directly from Vanguard
You -> Vanguard (they manage the units creation and destruction) -> The Bank of New York Mellon
However, if we were all based in the USA. It would be something like this instead:
You -> Broker -> Broker's Custodian -> Vanguard -> The Bank of New York Mellon
The ones in bold are failure point risks.
Thank you for such a thoughtful response. Seeing it articulated like that makes a lot of sense.
I've decided to go direct with Vanguard given buying ETFs are free and they have an auto invest option. The extra brokerage with Commsec to get CHESS for Vanguard ETFs seems less valuable than it would be buying individual stocks.
I know this is an old post but really want to clarify something here.
There are Custodian options in the Australian system.
Also, I am not an expert in Vanguard's structure but would be surprised if it was all run as simple as you made it look here. Vanguard would likely have an EFT division and possibly run under a separate company to Vanguard consumer brokerage.
You -> Broker (Vanguard) -> Broker's Custodian -> Vanguard -> The Bank of New York Mellon
Meaning if Broker goes under it won't affect Vanguard the parent company but will affect anyone using the broker Vanguard.
@needitcheap: Hmm interesting thought, however what you wrote wouldn't make sense because vanguard (the broker) are essentially paying for 2 custodians.
@mrvaluepack: I was working on your original example. It is my understanding that most brokers are also the custodians. So your model would look like this. Your model should look more like:
You -> Broker (who is the Custodian) -> Vanguard -> The Bank of New York Mellon
My model would then look like:
You -> Custodian Broker (Vanguard) -> Vanguard -> The Bank of New York Mellon
Additionally your Commsec example I believe is also wrong
Buying from Commsec:
You -> Commsec -> ASX -> Vanguard -> The Bank of New York Mellon
Computershare/Link Market Services work for the listing company or ETF. If you buy an ETF through two different CHESS-sponsored brokers they will use the same service because they manage the registry for the company, not the buyer.
If you were to buy two different shares through the same broker could end up with one Computershare and one link market service share however both would hold the same HIN number.
This is worth noting as the ASX might be a point of failure but unlikely and if they to become insolvent it is also unlikely that they will destroy the CHESS database which shows your proof of owners. However, a Custodian Broker may become insolvent and as they are registered owned of the shares you're relying on them to hold the registry of ownership and not claim they own your shares for themselves or just lose them.
@needitcheap: I think you are incorrect. There might be rules where brokers cannot be custodians or its usually frowned upon. The brokers can set up a separate entity to be a custodian like superhero used to or engage a separate custodian holder.
@mrvaluepack: Custodian Model
A number of discounted brokers, robo-advice platforms and robo-investment platforms have increased the prominence of investors holding ASX-listed investments indirectly via a custodian.
Under this model the holdings of multiple investors are pooled under one HIN attached to the custodian (who is usually the broker or a nominee of the broker). The custodian will legally own the investments, and accordingly the custodian’s name will appear on the share register, not yours. Your ownership status will be limited to beneficial ownership but not legal ownership of your investments.
@needitcheap: This text shows exactly what I said. Brokers are share trading platforms. Custodians are a separate entity. Under the custodian model, the broker pools customers holdings under the broker's name but the separate custodian still holds the assets. If the broker goes bust, custodian still holds all the assets but separating them and working out which customer owns what might take a while compared to CHESS system.
@mrvaluepack: Ok I have actually looked into the original question about Vanguard model and here is the model in place
You -> Vanguard Personal Investor (administrated by FNZ) -> Broker (UBS Securities Australia Ltd) -> Broker's Sub-Custodian (JP Morgan Chase Bank) -> Vanguard EFT-> Shares in Company
FNZ (Australia) is the Administrator of Vanguard Personal Investor.
Australia and New Zealand Banking Group Limited is banking deposit provider for all payment services associated with depositing and withdrawing money in and out of your Vanguard Cash Account.
Vanguard Investments Australia Ltd is the operator of Vanguard Personal Investor.
Vanguard owns about 9% of JPMorgan. JPMorgan invests in Vanguard ETF. Vanguard is an investment management company. The company is owned by its funds; the funds are owned by the shareholders. So JPMorgan owns some of Vanguard.
Does CHESS Do Anything to Protect Your ETF Holding?
Yes
I wonder whether there’s any benefit of holding an ETF with Commsec (CHESS) over direct with Vanguard
Yes
In both cases my underlining holding is a Vanguard ETF.
Then no
Vanguard DOES charge $10 if they need to get them off the ASX!
I found out the HARD way!
Their fee free is for similar sounding funds of their own so beware.
But it is member owned so above average.
Use Comsec for free research, you get unshaven Tom, Laura and some oldies to help you. A -tube morning and trading end. Leftovers and indicative prices help too.
Then use a discount broker to do the trading, it is all fully legal.
Just bought and dumped some cba shares, a sweet $600 net in 20 days!
Oh forgot: Vanguard, no App and slow, clumsy but safe as a rock!
Note, Vanguard US is member owned. But Australian Vanguard is a subsidiary of the US parent, and is not owned by Australia members.
Note to Note, I'm with Vanguard, and I like Vanguard. Not sure that the lack of member ownership makes a significant difference in practice, as their philosophy seems to be about low fees (even if they are currently being undercut by competitors for some products).
Vanguard no longer the cheapest provider there are cheaper alternatives
That the market leader syndrome, you get lazy and no longer fight for market shares and be the cheapest provider, example
VAS mer is 0.10% been like this for years then comes along A200 with 0.07, then black rock drop to 0.6% then A200 response with 0.04%, VAS mean while sit on their ass and still charging 0.10%
So now VAS mer is more than double A200
They don't track the same thing though, VAS is ASX300 and A200 is the ASX200.
the variation are so small it makes bugger difference because the other 100 are tiny part of the index beside A200 outperformed VAS so it even better to get A200 cheaper fee plus outperformance. Even if it matches the performance, you still doing better because of cheaper MER
tracking 200 or 300 are practically the same thing due to index weighting
Investigate Vanguard wholesale option; their fees were cheaper than retail at least previously. You don't have to invest a minimum amount.
Do you mean the unlisted funds?
Hang on… buying directly from Vanguard, aren't you simply investing directly in their managed funds? Because an ETF is an Exchange Traded Fund ie it's traded on the exchange and can't be bought directly. Happy to be proven wrong here but pls check what you're looking at. The direct investment into managed funds has a roughly similar return to the ETFs but a higher management fee IIRC. They are two separate types of products.
Actually ignore that. I've just gone to their website and learned something new….
CHESS only.
A CHESS holding gives you actual owning of the shares, if the company you invest with goes bust you still hold your shares.