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The Future Is Here, and It Looks Like Vanguard’s New Platform

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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?

Many advisors already rely on a number of automated portfolio tools and techniques.

The Vanguard product, loosely speaking, puts this work more definitively into automated hands, while explicitly giving humans tasks like checking in and reworking the portfolio.

In Schmidt’s mind, that’s the way it should be. By extension, advisors don’t need to hide the important role technology plays from their clients. Instead, they should highlight the fact that such technology frees them up to do more important human-to-human work.

Tech-Oriented Future

“We used to have one-year to two-year product cycles, now we have one-day product cycles,” Schmidt said at Princeton.

The rapid iteration in computing means, for instance, that we will likely soon have more access to self-driving cars. Overall, such IT innovation means we’ll need to tap “machine intelligence” and find the right balance between computing and human power, he says.

For advisors, Vanguard’s hybrid advisor service could easily become the standard for the industry, at least at the mass-market investor level.

Hence, it’s probably a smart move to begin listing which functions your computer can do for your clients and which tasks and services only you (and your broker-dealer) can do for them. In addition, it’s a worthwhile time to plan for the additional services you know your clients want from you that the Vanguard service cannot provide.

The future is here. It doesn’t mean the end of the traditional advisor. But it does represent the beginning of a new, more computer-friendly one. 

— Check out Will Vanguard’s New Hybrid Platform Crush Robos? on ThinkAdvisor.


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