Here's a sarcastic communication from a member of the financial-services sales force. It's a good indication of why I think most people...

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Here’s a sarcastic communication from a member of the financial-services sales force. It’s a good indication of why I think most people are better off on their own.


“Perhaps you can address the following questions to your favorite company, Vanguard. Why are they raising their account minimums? If John Bogle is right about index funds, why does Vanguard offer funds that are not index funds? As a no-load (no-help) fund family, do all their employees work for free or volunteer their time?


Many people have been upset by the first question, the recent account minimum increase at Vanguard.


As of Nov. 1, new IRA and custodial accounts will have an opening minimum of $3,000, up from $1,000 before Nov. 1.


Investors with less money will still be able to invest in the Vanguard STAR fund, a fund of funds, which will retain the $1,000 minimum. For $3.70 a year in fees, your $1,000 investment in this fund brings you top 20 percent performance. That makes it a great starter fund.


Do the math, and it’s pretty easy to understand why Vanguard is raising account minimums.


Mutual-fund companies earn fees based on assets under management. So a $1,000 investment in a Vanguard index fund with an expense ratio of 0.18 percent brings in a total of $1.80 a year.


Increasing the minimum to $3,000 brings the annual income up to $5.40 a year. A managed fund such as Vanguard Wellington, with an expense ratio of 0.31 percent, brings in $3.10 for a $1,000 minimum but $9.30 for a $3,000 minimum.


Either way, it’s still a lot less than the average mutual fund. The average fund has an expense ratio of 1.37 percent and a typical minimum IRA investment of $1,000. It will receive $13.70 in annual revenue, well over what Vanguard will receive even with its higher minimums.


The answer to the second question is that John Bogle isn’t a one-trick pony.


While he is best-known as the creator of retail index funds, he created a mutually owned mutual-fund company first. It is a fundamentally different animal from traditional mutual-fund firms. The combination of the mutual structure and the practice of hiring outside money managers at well-negotiated fees worked to produce annual expense ratios that continue to challenge the entire industry.


The answer to the last question is that Bogle and his successor, Jack Brennan, know you have to offer competitive salaries and benefits to attract and retain good people. Trust me; they are not starving. The question people should be asking is how Vanguard can pay its people so well while charging its customers a fraction of what others charge.


Perhaps the others are overcharging.


Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest will be answered in future columns.