Vanguard Bets on Robo-Only Adviser

Vanguard Bets on Robo-Only Adviser


Money manager is aiming to capture younger, tech-savvy investors

By Dawn Lim and Anne Tergesen Sept. 20, 2019 10:24 am ET

Indexing giant Vanguard Group plans to launch a robo-advisory service that cuts out human financial advisers completely.

Vanguard is pilot-testing the new platform, in a sign of how the world’s second-largest money manager is aiming to capture younger, tech-savvy investors.
Vanguard’s robo-advisory push would increase the competition with companies including Charles Schwab Corp. and Betterment LLC for the money and data of this younger demographic. The automatic service would target fees of 0.15%, or $15 for every $10,000 invested, a price that undercuts many rivals. The total cost is expected to be about $20 on every $10,000 for individual investors once investment fees on the Vanguard funds the service will use are factored in.

Vanguard will have to contend with those earlier entrants into the fully automated robo-advisory market. The firm has also had to invest in improving its technology infrastructure after dealing with several website glitches in recent years.

The service, Vanguard Digital Advisor, will be offered to individual investors and members of workplace 401(k) plans when it goes live. The platform, which is only open to users by invitation for now, was disclosed in a regulatory filing this week. It is unclear when Vanguard will start to market the service more broadly.

Within the 401(k) market, Vanguard’s new service would be part of a trend toward offering more personalized portfolios at a low cost with the aid of technology. The firm is considering ways to allow users to set more customized financial goals beyond how much they plan to save for retirement.
Vanguard became a roughly $5.7 trillion household name on the back of index funds that track markets and don’t charge high fees. The Malvern, Pa., firm’s lower costs ignited a price war that is roiling the money-management world. It is now seeking new ways to press further into the business of advice-giving and become a bigger force in all aspects of the financial lives of individuals.

The firm’s new digital service works like this: Users will feed the system with personal data and financial goals such as how much they hope to amass by retirement, according to the filing. Algorithms will then construct a portfolio with risk and return characteristics that it devises as the best fit for the person. Investors will pay for Vanguard funds used to build their portfolios as well as the service. The account minimum is $3,000 for individual investors.

Over time, Vanguard is hoping to add new functions to the new platform including tools that could help users plan for college, save for a home or set aside emergency funds, according to the regulatory filing.

Vanguard already has an offering that pairs computer algorithm-driven advice with help from about 750 of its own advisers who give telephone and online assistance. That service, Vanguard Personal Advisor Services, charges not more than 0.3% for advice, on top of product fees, and has an account minimum of $50,000.

This hybrid algo-driven and personal-advice offering has ballooned into a roughly $140 billion advisory behemoth since launching in 2015, in large part thanks to its efforts to target existing Vanguard clients. The offering has dwarfed robo-advisory pioneers such as Wealthfront and Betterment LLC, which each manage about $20 billion. As of June 30, Charles Schwab’s two online offerings managed $41 billion.

Vanguard would join Schwab and Betterment in offering different models: a higher-priced one for those who want human help and a cheaper one for those who are comfortable with a more automated approach. A pure robo-advisory platform generally targets a different audience than financial-advisory services that often charge 1% of client balances and can offer personal interaction with an adviser, including assurance when markets fall.

Vanguard Chief Executive Tim Buckley said in an interview earlier this year that technology will continue to drive down the cost of financial advice.

Tom O’Shea, an analyst at Cerulli Associates, Inc., said Vanguard’s new service aims to appeal to millennials, especially those who leave jobs with assets in a 401(k) plan Vanguard administers and may want to roll the money over to an individual retirement account.

Vanguard’s push into the business of digitized advice-giving is being watched closely by wealth managers.

“Vanguard is saying that what can be automated, will be,” said William Trout, head of wealth management at research firm Celent. “Even the historically complex and emotion-laden financial planning process.”


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