While much of the analysis of Vanguard’s planned digital-only robo-advisor has focused on its impact on digital-only advisors operating in the retail market, Moody’s Investors Service says the service could negatively affect a leading advisory firm operating in the retirement market, namely Edelman Financial Engines.

“Vanguard’s low advisory fee is credit negative for The Edelman Financial Engines Center… which targets 20-120 basis points to manage workplace retirement accounts, depending on the extent of human advisor involved,” writes credit analyst Stefan Kahandaliyanage. “Vanguard’s low fee product has the potential to compress fees and reduce profit margins for Edelman.”

(Related: Vanguard Preparing to Offer Digital-Only Robo-Advisor)

The Vanguard service, called Digital Advisor, will be available to retail investors for an expected all-in-one average fee of 20 basis points and to participants in work-based retirement plans if plan sponsors sign on. Fees for the latter could be more expensive than 20 basis points, however, because they will vary depending on recordkeeping and administrative fees and how much of those fees plan sponsors pass onto plan participants, according to Vanguard’s brochure filing with the SEC.

In both cases Vanguard will have the authority to trade on behalf of clients and maintain a mix of recommended investments based on clients’ “personalized, goal-based financial plan.”

Edelman Financial Engines, formed from a merger between Edelman Financial Services and Financial Engines last year, is the largest U.S.-based RIA with more than $200 billion in assets under management. The bulk of its assets are in retirement accounts as a result of the merger since over 90% of Financial Engines’ $169 billion in assets were retirement plan assets at that time. (Edelman Financial Engines does not disclose its retirement plan assets vs. retail assets.)

A key rationale behind the merger, according to Kahandaliyanage, was the prospect of converting Financial Engines retirement accounts into Edelman Financial’s advisor-serviced managed retail assets. Vanguard Digital Advisor challenges that process, writes Kahandaliyanage.

He expects Digital Advisor will compete more effectively with Edelman’s low-touch, low-margin retirement plan services rather than its high-touch, high-margin traditional retail advisory product sold through dedicated advisors because the Vanguard product is digital-only and does not include support from human advisors. Moreover, it “may not resonate with all consumers, particularly baby boomers who are less tech savvy or are in need of complex financial planning and advice,” writes Kahandaliyanage.

Vanguard pretty much says the same in its SEC filing. “The retirement savings accumulation goal-setting experience … is designed based on a long-term asset allocation strategy and may not suit your needs if you are nearing (within 5 years) or in retirement.”

Digital Advisor, however, could pave the way for other investors to move eventually to Vanguard’s Personal Advisor Services, a hybrid offering that combines digital and human advice for a marginally higher fee of 30 basis points. That service also competes with Edelman Financial Services and financial advisory services based for those clients who are comfortable with advice that is not anchored by human advisors.

Edelman Financial Engines had no comment on the Moody’s report.

— Related on ThinkAdvisor: