If you’re in the financial advice business, your competitive playing field just got a lot tougher.
Vanguard’s move Tuesday into the world of robo/human advising is huge. Investors with $50,000 can expect to pay just $150 a year for the service.
For that meager amount, they’ll get access to some of the lowest-priced active and passive funds in the business. Plus, they can make appointments with advisors, work with these individuals by phone or online and include non-Vanguard products in their portfolios.
Sure, there are plenty of robo-services out there. But Vanguard — which just pushed PIMCO out of the top spot for bond funds — is a well-respected, widely trusted entity. Not to mention enormous, with more $3 trillion in global assets under management, $1 trillion in its advisor-facing business alone.
True, plenty of investors with $500,000 or more in investable assets will continue to turn to human advisors for the bulk of their financial services.
But how can advisors — and by extension broker-dealers — best compete in the mass affluent baby boomer segment now that the fund giant has introduced such a competitive offering? Answering this question means we have to put the Vanguard move into context: Is it the end of traditional financial advisors and/or the beginning of a new financial era?
To paraphrase the words of Google Executive Chairman Eric Schmidt, this is the future. It’s time to come on board and shake hands with the world of robo-advising.
Schmidt’s thinking is that robo-anythings will be our future business partners. By embracing them sooner rather than later, we put ourselves in a better position to succeed.
Friend, Not Foe
“Computers will do what they do best, and humans will do what we do best,” Schmidt said in a talk delivered recently at his alma mater Princeton. “Think of it as: We can ask the questions,” Schmidt said. Computers “can answer the questions.”
In other words, Vanguard’s technology can crunch factors like market conditions and risk-return assumptions and also tinker with some 10,000 simulated outcomes to give investors portfolio assessments. Why not embrace such technology and spend more time focusing on clients’ non-robotic needs?