Vanguard’s Robo-Offering: Good for Advice, Bad for Advisors

Expert Michael Kitces weighs in on the pros and cons of the industry giant's latest plans

Vanguard is trying to straddle a 'strange midpoint,' expert says. Vanguard is trying to straddle a 'strange midpoint,' expert says.

Next year, advisors will face more pressure for the Vanguard Personal Advisor Services, given the program’s recent expansion.

The pilot program – which pairs clients and advisors via phone or Internet – “reached a milestone of $4.2 billion in assets” as of Nov. 30, the company says, up from $755 million a year ago. That’s a jump of over 450% for the business; it charges 0.3% per year for those with $100,000 and up in assets.

“To me, what’s even more interesting about this trend is the growing acknowledgement of financial planning,” said Michael Kitces, director of research for Pinnacle Advisory Group, in an interview. “It’s now at the point that the big asset management firms are beginning to offer these services themselves – like Schwab and Vanguard, training advisors to work as CFPs.”

The step makes sense for these large firms, Kitces explained, since “financial planning builds relationships and is, thus, good for their businesses.” But for independent advisors, he added, this represents “a continuing threat to independent advisors” who aren’t working at a company that sells mutual funds or for a firm with its own custodial platform. “Broadly speaking,” Kitces said, “these advisors will [face] more competition [from] asset-management firms and the platforms [these firms] work with.”

Vanguard says it has been offering advice to retail clients with $500,000 in assets and up for 15 years. “We launched Personal Advisor Services, because we found that lots of clients – especially Baby Boomers getting closer to retirement – had a need for advice,” said Katie Henderson, a spokesperson for Vanguard, in an interview.

“The need was growing in our client base … so we wanted to broaden our service,” Henderson explained. “This has been a pilot program, and the aim is to open it up to more investors [with assets of $100,000 or more] next year, with the goal of eventually lowering [the asset minimum] to $50,000.”


Vanguard’s offering, which some observers see is part of the trend toward robo-advising, is different from exclusively online programs, since investors can work with actual advisors by phone or online. Plus, while robo-firms like Wealthfront may charge 0.25% a year for managing more than $10,000 in assets, Vanguard will charge just 0.05% more for a service that includes human-based advice.

(Other online services like Personal Capital, charge 0.49% to 0.89% for $100,000 and up.)

In other words, said Kitces, Vanguard has come up with a price point for planning services that is attractive. “It’s low enough for advisors charging 1% to have to explain what they do that is valuable” to warrant the difference of 70 basis points over Vanguard.

Still, he added, it’s “a strange midpoint” that Vanguard is trying to straddle: “This is a disruptor for the financial-services industry. Vanguard has a huge self-directed investor base and a huge advisor base that uses their products, too.”

To the wealth-management expert, “It feels like Vanguard is figuring out where the balance is in its offerings and how to position itself [to] not conflict with financial advisors selling its products.”

The asset manager, which has close to $3 trillion in total assets under management, “is certainly not late to the game” of automated advice, Kitces said. “And they have more money than all other robo-advisors combined,” since launching Personal Advisor Services.

Vanguard, of course, sees room for both its expanding advice service and its relationship with advisors “to co-exist,” said Henderson.

“We also believe that investors have differing preferences when working with financial advisors; some want a handshake, to be across the table from them and to run into them on the street,” she explained. “We would recommend an external advisor for those investors – in other words, a non-virtual advisor for those who are most comfortable working face to face.”

Kitces and other experts will play close attention to how the competitive situation plays out in 2015

“It will be interesting to see if any other large platform can find a way to compete with the price point, including advisors themselves,” the expert added.


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