Vanguard, a leader in the low-cost index funds market, offers a hybrid investment advisory service known as Vanguard Personal Advisor Services®. This hybrid service combines unlimited human financial advisors with automated portfolio management, better known as robo-advising.
Robo-advisors have become a popular service for both small and large investors looking to build a diversified portfolio to maximize their investment returns while minimizing their risks. With the success of robo-advisors like Wealthfront and Betterment, all of the biggest investment firms and brokerages are starting to roll out their own automated investing services.
|Began Operations||May 1, 1975|
|Oldest Fund||Wellington Fund (July 1, 1929)|
|Total Assets||About $6.2 trillion in global assets under management, as of January 31, 2020|
|Number Of Funds||About 190 U.S. funds (including variable annuity portfolios) and about 230 additional funds in markets outside the United States, as of January 31, 2020|
|Number Of Investors||More than 30 million investors, in about 170 countries, as of January 31, 2020|
|Average Expense Ratio||0.10% (U.S. asset-weighted fund expenses as a percentage of 2019 average net assets)|
|Chairman and CEO||Mortimer J. Buckley|
|Number Of Employees (Crew)||About 17,600 in the United States and abroad, as of January 31, 2020|
|Core Purpose||To take a stand for all investors, to treat them fairly, and to give them the best chance for investment success|
Where Vanguard Personal Advisor Services shines is in its investment mix, its high performing minimal fund expense ratios with Vanguard’s branded ETFs, and its offering of unlimited access to human financial advisors
Vanguard’s first ETF, the Vanguard Total Stock Market ETF, entered the market in 2001. Since then they have enjoyed a meteoric rise to overtake State Street at the second spot in the ETF market. Moving forward they are set to continue their market dominance and are likely to challenge industry behemoth BlackRock for the top position. Recently, Vanguard’s ETF total assets were valued at over $1.2 trillion.
Vanguard is set to continue its tradition of disruption in the financial market space with its foray of Vanguard’s Personal Advisor Services into the burgeoning robo-advisor market. With over $161 billion in assets under management as of December 31, 2019, Vanguard already has a stable foundation for future growth in this area.
I’ll review Vanguard’s service offerings along with their advantages and disadvantages below.
About Vanguard Personal Advisor Services
|Annual Fee Schedule|
Vanguard provides a premium financial robo-advisor service. The minimum “buy-in” for a Vanguard Personal Advisor Services account is $50,000. While this will be a deterrent for entry-level investors, Vanguard has chosen this route because their investment portfolios are developed by real live human financial advisors and not just by some computer algorithm. It is also assuring to know the financial advisors are paid a salary rather than commission on sales, thus can provide objective advice.
New customers are required to fill in Vanguard’s detailed questionnaire, which is designed to get a comprehensive snapshot of their financial position and needs. A human financial advisor then examines this information and uses it to make an investment portfolio tailor-made to meet the individual client’s needs.
In fact, one of the greatest features of Vanguard’s robo-advisor service is the provision of comprehensive financial advice suited to each client’s investment goals. So, while Vanguard does not offer 401K plans, 529 plans, or college savings plans, their financial advisors will take these matters, as well as accounts held with other providers, into consideration when designing the best portfolio mix and account development strategy to suit each client’s financial goals.
Investors with between $50,000 and $499,999 get unlimited access to a pool of more than 100 financial advisors. Investors with greater than $500,000 get unlimited access to a dedicated financial advisor. Vanguard offers face-to-face meetings with your advisor via videoconferences.
The account management fee for Vanguard Personal Advisor Services is 0.30% annually on assets up to $5 million. That’s less than one-third the industry average of 1.01%. The cost of the service gets even lower with larger assets under management.
When you take into consideration the whole cost of investing, the meager fees charged by Vanguard’s branded ETFs make investing through this company quite competitive. In fact, when you compare Vanguard to Betterment, which I consider has the closest service offering to Vanguard, the total cost of investment stacks up quite well. For example, account management fees on Betterment’s Premium Account (unlimited calls with a team of licensed financial experts) are a flat rate of 0.40%, which is higher than Vanguard’s rate. However, Betterment gives an option to entry-level investors with their “Digital” account, which has a $0 minimum balance and an annual fee of only 0.25%.
Also, Personal Capital clients with under $1 million invested, who want to get access to real financial advisors, have to pay 0.89% for the privilege. While this is a good rate compared to the 1% or more charged by traditional financial advisors, it does not beat the whole cost of the service offering provided by Vanguard.
The net result of Vanguard Personal Advisor Services’ blended offering is a unique financial product which combines the inherent efficiency savings generated from automated services with the reassuring and personal touch of a finance professional, without the exorbitant price tag.
How Vanguard Makes Its Money
Vanguard has a reliable income stream from its robo-advisor business model. It provides a premium service, and as such, requires a high buy-in cost to invest. The company charges a flat rate for account management fees at 0.30% for assets up to $5 million.
As noted above, Vanguard currently enjoys a prominent position in the huge ETF market. Vanguard ETFs usually form part of their client’s investment portfolios. While the fees on Vanguard’s ETFs are meager compared with other ETFs, these charges are a good income stream for Vanguard, whose clients purchase their ETFs.
I think Vanguard’s Personal Advisor Services has a strong business model which will probably see it survive in the highly competitive financial marketplace and be around for its clients in the long term.
Vanguard’s Personal Advisor Services is at the premium end of the robo-advisor spectrum. It is an excellent choice for medium to large investors who want the cost-effectiveness of robo-advisor portfolio management, with the comfort and peace of mind which comes from knowing there are real human advisors on hand to help them reach their investment goals.
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