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Vanguard CEO: How Advisors Can Keep the Robots at Bay

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Vanguard President and CEO Tim Buckley warmed up the crowd at Inside ETFs 2018 on Monday describing his “perfect hedge” for the upcoming Super Bowl.

“I’ll have a happy son with a Patriots win and happy colleagues if the Eagles do,” said the new chief executive of the fund family, which is based near Philadelphia.

He then shared his upbeat perspective on the role of advisors to many of the 2,400 guests at the event taking place in Hollywood, Florida, most of whom are financial advisors.

Despite the ways that technology has “quickly commoditized” many elements of advisors’ jobs — rebalancing, tax-loss harvesting, etc. — Buckley said he wanted to “focus on opportunities.” He did, though, begin his talk with a hard assessment of a few challenges technology has created.

In the past 10 years, fee-based advice has gone from being tied to one-fourth of client assets to one-half; at the same time, $893 billion has move out of equity funds not in the lower-cost quartile of all mutual funds and $829 billion has moved into these lower-cost products, he explained.

“It’s such a tough game in which excess returns are getting lower and lower,” Buckley said of the challenge of beating major market indexes.

A recent study at Oxford University, he explains, found that 58% of advisors and 64% of portfolio managers are susceptible to losing their jobs due to automation.

Vanguard’s own research aimed to dive deep into this disruption. It did so by looking at 18,000 work activities associated with 1,000-plus occupations and breaking daily job tasks into basic, repetitive and advanced categories.

“It’s a flawed assumption to think that each job has only one task,” Buckley said.

While repetitive tasks entail recording information, for instance, advanced activities involve maintaining relationships, applying knowledge, thinking creatively and assisting or caring for others.

“Today, my kids don’t ask me any questions. They ask Alexa,” the CEO joked.

Advanced Advisors

But one-liners aside, he says, time spent on advanced tasks is growing — from 30% in 2000 to 50% in 2015 and up to 80% in the future, according to Vanguard’s calculations.

“If 40% of your time is spent on being a portfolio manager, we say move up the chart and away from low-cost construction, rebalancing and tax efficiency to behavioral coaching” and custom solutions, he explained. “You all know that when volatility returns to the market, your clients will behave differently.”

Building custom solutions, Buckley said, “is so hard to pull off, but you’ve got to know your clients better” — which means getting to know their families, legacy plans, passions, estates and more.

“If you know these things, it’s easier to create solutions” that include retirement income, long-term care and more, he stated.

Research conducted by Bain & Co. has found that taking care of clients’ heirs and reducing their anxiety levels “has two times the impact on client loyalty” that transactional work and similar tasks have, the Vanguard CEO said.

Clients who share a high degree of trust and communication with their advisors are more likely to refer their FA to prospective clients than those who prioritize price and performance, he added.

Advisors, Buckley said, benefit from moving beyond “eking out extra returns” and focusing more on “generations two and three and their needs.” The task may be challenging, but should propel advisors and their businesses forward. 

— Check out 16 Best Fund Managers of 2017: Morningstar on ThinkAdvisor.


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