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Investing Specialists

Clearing up Confusion about Vanguard Brokerage's Clearing

There's nothing to fear from the family bringing its brokerage clearing services in-house.

Vanguard has made some of its brokerage clients nervous. The family has been mailing out notices to Vanguard Brokerage Services users saying that it will assume the services of its clearing agent in the near future. This has caused several investors to contact me or our discussion boards with questions. Some who received the notice are worried about the security of their accounts; others are confused and can't figure out if the impending change is good, bad, of neutral.

I looked into the matter earlier this year and concluded that, at worst, the development is neutral. By the middle of this year, Vanguard's brokerage unit plans to take over all of the nitty-gritty trade processing work that it has outsourced to Pershing LLC for roughly the past decade. That means Vanguard will start providing all of the trade clearing, settlement, and custody services that Pershing had provided. Vanguard maintains that the only thing its brokerage clients will notice is a different account number. The company started notifying customers of the change this year.

Vanguard mutual fund shareholders should not be affected by the change at all, unless they trade stocks, bonds, ETFs, or non-Vanguard funds through the brokerage.