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May 05, 2015 at 08:05 AM
Just a day after it pushed PIMCO out of the top fixed-income fund slot, Vanguard’s new discount advisory service for investors has hit the masses.
Vanguard Personal Advisor Services is a hybrid approach that combines robo-advisor technology and real advisors. It’s been in the works for the past two years and comes to market at a cost of just 0.30%, or $150 per year for a $50,000 portfolio.
“Vanguard Personal Advisor Services represents our continued effort to lower the cost and complexity of investing by giving investors access to affordable, high-value financial advice,” said Vanguard CEO Bill McNabb, in a statement. “Demographic and behavioral trends point to an increased demand for advice, and we believe this new service can help more of our clients reach their financial goals.”
According to Vanguard, its hybrid model marries “the sophistication of digital advice providers with the personal relationship and judgment of a human advisor.”
As investors set up their accounts, they work with an advisor on a financial plan, which takes into account their goals, risk tolerance and time horizon. Later, advisors monitor the portfolio, rebalance it and recommend adjustments periodically.
Clients can speak to advisors via phone, video conference or email after booking an appointment online.
“We value the role that an advisor plays in helping our clients achieve better results,” said Karin Risi, head of Vanguard Personal Advisor Services, in a press release. “In fact, Vanguard’s ‘Advisor’s Alpha’ research quantifies the key role an advisor plays in constructing a portfolio and serving as a behavior coach. In particular, an advisor can act as an emotional circuit breaker during periods of market volatility, make adjustments to a financial plan when a client’s financial situation changes, and counsel clients on other financial issues.”
For existing robo-advisory firms, Tuesday’s rollout is likely to prove highly disruptive, though it remains to be seen whether or not Vanguard will become the Amazon.com of the online advice industry.
“Many eRIA firms find themselves in a tight spot; they often use low-cost Vanguard ETFs to construct their portfolios and will now have to explain how their service is superior to Vanguard’s,” according to a recent Cerulli report.
Portfolio Power
For the portfolios, the advisors are expected to recommends Admiral shares of Vanguard index and active mutual funds, which have expense ratios of about 0.05% to 0.19%. However, investors have the ability to include existing non-Vanguard holdings in their portfolios.
The robo-advisor in the program is Vanguard Capital Markets Model, a proprietary financial simulation tool. It takes into account factors like market conditions and risk-return assumptions and also “feed[s] into 10,000 simulated outcomes for an up-to-date assessment of how each client is tracking towards his or her goals,” according to the company.
Vanguard says it expects Baby Boomers in particular to take advantage of the new offering. “While Personal Advisor could be valuable for investors at any stage, Vanguard’s experiences with clients has shown that as individuals near retirement and prepare to shift into the drawdown phase, the complexity of their financial situations increase significantly,” it stated.
