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Portfolio > ETFs

Vanguard Boasts a Trillion Dollars Worth of Boredom and Counting

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The past year has been an especially good one for Vanguard’s Financial Advisory Services (FAS) unit.

The index fund giant’s advisor-facing business hit the $1 trillion mark, accounting for a third of Vanguard’s total assets.

The company, known above all for its low-cost index funds, surpassed State Street to become the second biggest player in ETFs (after BlackRock).

And those mighty 1,000-plus advisory firms who have delivered that trillion to Vanguard accounted for about half of Vanguard’s cash flow, making 2014 a record-setting year for the Malvern, Pennsylvania-based firm.

“None of those are goals, but rather they’re reflective of the fact that we’re continuing to gain traction with advisors in the U.S.,” says Martha King, who heads FAS, in an interview with ThinkAdvisor at’s annual InsideETFs conference in Hollywood, Florida.

If your mother ever told you to focus on doing the right thing, and the rest — i.e., your income — will take care of itself, that seems to be the operating principle behind most of what King had to say.

In that sense, King stands out from the army of product vendors hawking their shiny wares to any of the more than 1,800 attendees, mainly advisors, who might listen.

“We’re not here to promote a hot product; we’re never here to promote product per se,” says King, a regular at the ETF industry’s largest annual conference. It is only in passing that she makes mention of two product launches expected this year—a muni bond ETF and an ultra-short bond ETF.

She does not, as is common practice here, launch into a sermon as to why the two new funds are the best new mousetraps, noting only that they fill “minor gaps” in Vanguard’s overall product menu, of which she remarks:

“Our lineup is fairly complete. I know that doesn’t make for a great story, but that’s the reality.”

Indeed, King makes the non-excitement of Vanguard into a virtue, and in so doing draws a stark contrast with all the bling of the best new mousetraps that an ETF conference attracts.

“I know our message is a little boring, but the challenge for advisors is that a lot of information is coming at them,” King says. “Sorting through what information is lasting and important versus what is maybe just an idea du jour — that’s the challenge of any attendee.”

What King regards as timelessly true versus what is merely fleetingly attractive is that advisors add value through their relationships with clients.

“It’s no longer about being the best stock picker or fund picker,” she says. “It’s about helping clients make the best decisions and helping clients avoid bad decisions.”

Research by Vanguard to quantify the value of this kind of advisory assistance — through tax location, diversification, rebalancing strategies and behavioral coaching — has found that advisors can add as much as 3% to a client’s portfolio with this kind of support, which Vanguard dubs “advisor’s alpha.”

A simple but commonplace illustration she offers is preventing a client from poorly timed panic selling, acting as an “emotional circuit breaker.”

It may take a certain kind advisor, perhaps a boring one, who wants to eschew stock and fund picking in favor of emotional circuit breaking, but the advantage to such advisors are the many boring clients looking for just that.

“We’re looking for like-minded advisors,” says King. “Those who prefer a more tactical strategy may feel less aligned with the Vanguard strategy.”

“But,” she adds, “the value of Vanguard in the eyes of their clients is quite meaningful. Vanguard has earned a reputation for quality, for reliability, and for doing what’s right for the investor above all else.”

A key part of doing what’s right for the investor is the firm’s vaunted low-cost investing. While low fees appealed to individual investors from the get-go, it took the movement to fee-based investing to generate interest among advisors, who shunned the firm in the days when commissions predominated.

Today, Vanguard’s Financial Advisory services offers a dedicated team of wholesalers who live in the same communities as the financial advisors, meeting with them personally or maintaining the relationship via phone if that’s the advisor’s preference.

While King says it is the rare advisor who uses just one product provider, “I love it when I talk with an advisor who is rooting for Vanguard,” she says, recounting one advisory client who recently told her:

“You know the other guys are doing X, Y and Z; you could easily outdo them in that area.”

While she politely abstains from naming the competitor or the referenced activity, she says “having an advisor coach me in how to beat the competition … says to me that it’s become more than a transactional relationship. That’s partnering.”

“That’s not obtainable in every relationship we forge,” King says, “but it’s certainly an aspiration.”

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