Vanguard Group’s new advice and wealth management unit is likely to appeal more to hands-off investors, Morningstar’s Vanguard analyst suggested this week, saying it’s unclear how well investors will take to the giant asset manager’s stepped-up efforts to enter the advice space.
Daniel Sotiroff, senior manager research analyst for Morningstar, noted in a video conversation posted on the research firm’s website Wednesday that the late John C. “Jack” Bogle, Vanguard’s founder, didn’t want to get into the advice business. The company, long focused on a direct-to-investor experience, has tried it off and on for 30 years, Sotiroff said.
Vanguard last month announced a new advice and wealth management division, led by Joanna Rotenberg, a former Fidelity executive.
“It’s a much more organized, it’s a much more serious effort this time around. But again, is that going to sell with investors? We think that remains to be seen because that’s not what Vanguard is really known for,” Sotiroff told Susan Dziubinski, a Morningstar investment specialist.
The new offering may not appeal as much to investors who prefer a close advisor relationship, he suggested.
“When I think of what Vanguard is trying to do, this almost sounds more of a remote virtual type of financial planner setup. I don’t see them setting up brick-and-mortar stores … Maybe they do, I don’t know. But it really seems to fit more with those sorts of clients that are going to be a little bit more hands-off, maybe bring you your financial life and say, ‘Hey, here’s my money. Let’s set up a plan and I’ll check in with you a few times a year,’” Sotiroff said.
“For those that are more hands-on and they’ve got to be in their advisor’s office face-to-face every week or something like that … I don’t know if that’s going to work for them, maybe it does, but I have a hard time seeing that. But we’ll see. We don’t really know what Vanguard is planning in this. They just brought in the new hire. I think we need to give her some time and let her figure out what she’s exactly going to do there. So it’ll be exciting to see,” Sotiroff said.
Addressing new Vanguard CEO Salim Ramji’s interest in making the firm relevant to newer investors and meeting the needs of retirees in drawdown mode, Sotiroff noted the different, competing goals involved.
Vanguard may need to teach younger investors about speculative meme stocks and cryptocurrencies, sending a message that “‘Hey, that isn’t the way you really invest money. … You don’t have to spend a lot of time doing this if you don’t want to,’” he said.
The online digital experience appeals to young investors, Sotiroff said, citing Robinhood, adding that Vanguard may need to fine-tune its technology to resonate more with that demographic.
Retiree solutions can be difficult on their own, but could be handled in the advisor business, he suggested. Retirees wonder how to sell assets and take money out to enjoy it, he noted. “I think if you have an advisor who is experienced in that, who knows how to do that, and can give you a repeatable paycheck over time by selling off your appreciated assets, I think that could really, really help.”
Speaking more broadly, Sotiroff noted that investors asking the “$10 trillion question” — how an outside hire like Ramji, a former BlackRock executive, might change the giant asset manager — might keep in mind that his role differs from his predecessors’.
Unlike Vanguard’s two previous chief executives, who also served as president and chaired the board of directors, Ramji occupies only the CEO spot, sharing leadership responsibilities with longtime Vanguard people, Sotiroff said. Chief Investment Officer Greg Davis became president and lead independent director Mark Loughridge became the board chairman, he noted.
“So Salim’s the CEO, he’s definitely going to be leading the company, setting its direction, charting its course,” Sotiroff said. But “what you’re seeing is that actually a lot of the responsibility of leading Vanguard has been split between those three people. So it’s not like Salim is doing this on his own. He’s actually going to have some Vanguard veterans right alongside him helping him out, which is good to know.
“This is a really tough job. This is a very different company than it has been under past CEOs. It’s going to take a lot.”
Sotiroff also suggested there’s little incentive for Vanguard to engage in a big overhaul.
“Vanguard’s winning. There’s no incentive to change anything. Most asset managers would love to be in Vanguard’s position,” he said. “Why would you go out and change this when, really, the whole investor-friendly ethos thing, that’s working, that’s what people want. They want someone they can trust and that is really prioritizing their interests. So for those two reasons, it’s really hard to see that this is really going to be anything different in the future.”
Vanguard’s U.S. mutual funds and ETFs brought in $222 billion last year, Sotiroff noted. “It’s a mountain of money that was second only to BlackRock, which I had at about $285 billion. So they may not be first place, but there isn’t a lot to complain about there. They’re doing great.”
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