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.
Pros and Cons of Vanguard
- Outstanding Investment Pedigree. Vanguard’s investment pedigree is excellent. Its ETFs are some of the best performing and lowest cost on the market. In fact, Vanguard’s ETFs are so good their robo-advisor competitors use them in their service offerings.
- Diverse Range Of Investment Options. Vanguard follows modern investment practices by diversifying its investments as much as possible to increase investment returns and decrease losses. Vanguard’s impressive investment mix includes bonds, to give its clients fantastic portfolio diversity and a broad mix of investments.
- Unlimited Access To Live Human Financial Advisors. Unlike most other robo-advisor services, Vanguard provides its clients with unlimited access to human financial advisors, which gives their clients the peace of mind that comes from knowing a person is assisting the robo-advisor algorithm to manage their investment portfolio. Investors with over $500,000 enjoy the dedicated services of a financial advisor. As such, premium investors get continuity of contact and the ability to build rapport with their advisors over time. Premium investors enjoy a personal relationship with their advisor who will get to know their client’s investment portfolio intimately. Such in-depth knowledge means premium clients enjoy dynamic portfolio management which is updated and amended according to their needs. It also creates a situation where the financial advisor can predict and recommend investment options they know would benefit their clients.
- Individual Taxation Optimization And Minimization Plans. It is tempting for robo-advisor services to include tax optimization and minimization into the algorithms of their automated service offering. However, one size does not always fit all. Vanguard designs tax harvesting packages on a client by client basis which has the effect of maximizing the savings on each account. Vanguard will also create a portfolio that strategically allocates assets among tax-advantaged and taxable accounts.
- Accounts Are Insured. Vanguard’s accounts are covered up to $500,000 via SPIC insurance and up to $50,000,000 through Lloyds of London, to give their clients peace of mind.
- Automatic Deposits. Vanguard allows its clients to make automatic deposits weekly, bi-monthly, or monthly. Automatic deposits make for great convenience and helps the investment account to continue to grow.
- Access To Admiral Class Shares. Vanguard is replacing regular Investor Share with the lower-cost Admiral™ Shares for many funds. This is a great benefit as Admiral Shares are usually charged 0.10% lower than other comparable investor class shares. Previously, access to Admiral Shares required meeting $10,000 per account threshold.
- Not Accessible To Small Investors. Anyone with under $50,000 is locked out of this service. Other robo-advisors, such as WiseBanyan, Wealthsimple, Wealthfront and Betterment have low or no account minimums and are better suited to small investors with a limited pool of capital.
- Vanguard Charges Account Management Fees On All Accounts. Individuals with up to $5 million invested with Vanguard are required to pay a flat rate of 0.30% in account management fees. Other robo-advisors, such as Schwab’s Intelligent Portfolios, do not charge any account management fees at all. Wealthfront, which does not charge account management fees for deposits under $10,000 (they will no longer manage $10,000 for free for new clients starting April 1, 2018), does charge a flat rate of 0.25% for accounts over that amount. When you compare these fees with Vanguard’s rate of 0.30%, most would think Vanguard’s fees are higher than average market rates. However, as with all things, it is important to make sure you are not comparing apples to oranges. In the cases of Wealthfront and Schwab Intelligent Portfolios, investors do not enjoy the services of a human financial advisor, which is the very feature of Vanguard’s service which makes it a standout performer in this market. Investors are not allocated one or two personal financial advisors until their accounts are greater than $500,000. This information is not readily clear on Vanguard’s website. Smaller investors need to be aware that while this service will give them unlimited access to real financial advisors, their access is to a pool of advisors and there will be no continuity in their point of contact.
- High Buy-in To Get Discounts On Account Management Fees. Vanguard does not offer discounts on account management fees until you have more than $5 million dollars invested. This target is well and truly out of reach of the majority of investors. Clients need to be proactive and self-disclose financial aspects which should be considered by Vanguard’s financial advisors when creating advice to suit their client’s financial situation. Failure for clients to disclose important considerations, such as 401K plans or college savings plans could result in a mismatch between the investor’s savings goals and the ability of their portfolio to meet those goals.
- You Could Be Charge Transaction Fees. Vanguard’s robo-advisor competitors often cover the cost of any transaction fees charged on their client’s accounts. Vanguard does not. While this would not be a problem if Vanguard was restricted to its own branded ETFs (which come at very little cost), one of the great features of investing with Vanguard is its access to an incredibly diverse investment mix which, for example, includes bonds. All in all, I think these fees should be considered as part of the cost of the wide range of investment offerings Vanguard has on hand. However, it is worth mentioning Vanguard reports it usually recommends no-load mutual funds and Vanguard funds to its clients (presumably to keep total portfolio costs down).
- No Fractional Shares. Unlike some of its competitors, such as WiseBanyan, Vanguard does not allow for fractional shares. This means any funds remaining after the purchase of whole shares will not be working to get a return for their owners.
- No In-Person Meetings. While Vanguard offers a myriad of methods to communicate with its financial advisors, in-person meetings are not one of them. Some might see this as a negative, (hence why I have mentioned it here), however, I think people should think of it as a concession to the provision of such a low-budget, yet premium financial advice service. Also, Vanguard offers face-to-face meetings via videoconferencing.
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.
Unfortunately, Vanguard is not accessible to individuals with under $50,000 to invest. For those with over $50,000 to invest, it is a great option.
See the list of the current best Robo-Advisors here.
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