Mutual fund and ETF investment management company Vanguard has launched Vanguard Personal Advisor Services, a new advice service that combines an ongoing relationship with an advisor, a user-friendly online experience, and sophisticated investment modelling technology.
Vanguard Personal Advisor Services is now broadly available to individual investors with USD50,000 or more available for a managed portfolio. Personal Advisor, which has been in pilot for the past two years for investors with USD100,000 or more, is an evolution of Vanguard’s advice offerings that have been available to individual investors since 1996.
“Vanguard Personal Advisor Services represents our continued effort to lower the cost and complexity of investing by giving investors access to affordable, high-value financial advice,” says Vanguard CEO Bill McNabb. “Demographic and behavioural trends point to an increased demand for advice, and we believe this new service can help more of our clients reach their financial goals.”
Personal Advisor is distinguished in the advice marketplace as a hybrid model, marrying the sophistication of digital advice providers with the personal relationship and judgment of a human advisor. More specifically, the service features:
• Low costs. Personal Advisor is available at an annual advisory cost of 0.30% of a client’s managed assets, or USD150 on a USD50,000 portfolio annually. The advisory fee plus low-cost Vanguard funds provide a compelling “all in” cost proposition.
• Consultation with and ongoing support of a financial advisor. During the onboarding process, the client and an advisor work together to create a financial plan based on the individual client’s financial goals, time horizon, and risk tolerance. Thereafter, advisors monitor a client’s investment portfolio, rebalance as necessary, and recommend adjustments on a periodic basis. Advisors are also available on an ongoing basis via phone or videoconferencing to help clients navigate life changes and key decisions, such as when to retire. See accompanying fact sheet.
• Portfolio construction based on Vanguard’s time-tested philosophy. Vanguard’s philosophy of broad diversification, low cost, and tax efficiency with a long-term focus is applied to every Personal Advisor portfolio. The portfolio construction process starts with strategic asset allocation and focuses on decisions that have the greatest influence on the risk/return characteristics of the portfolio. This also includes fund selection and asset location to optimally position the types of investments across each investor’s various accounts to minimize taxes.
• An all-Vanguard investment portfolio. Based on a client’s individual needs and preferences, Personal Advisor recommends ultra-low-cost Admiral Shares of Vanguard index and active mutual funds (with expense ratios ranging from approximately 0.05% to 0.19%) that will serve as the core holdings of most portfolios.1 The service provides investors with the flexibility to include existing non-Vanguard holdings.
• In addition to low expense ratios, Vanguard funds have delivered strong returns relative to their peer-group averages on a one year (85%), three year (84%), five year (84%), and 10 year (93%) basis.
• Sophisticated modelling technology. Personal Advisor's advanced investment modelling technology is powered by Vanguard Capital Markets Model, Vanguard’s proprietary financial simulation tool. A number of factors, including market conditions and risk-return assumptions based on the client’s individual needs, feed into 10,000 simulated outcomes for an up-to-date assessment of how each client is tracking towards his or her goals.
• A robust web experience. Clients can log onto their personalised profile on vanguard.com at any time to check their balances, view their progress relative to their goals, and see advisor recommendations designed to help increase the likelihood of reaching their goals.
“We value the role that an advisor plays in helping our clients achieve better results,” says Karin Risi, head of Vanguard Personal Advisor Services. “In fact, Vanguard’s Advisor’s Alpha research quantifies the key role an advisor plays in constructing a portfolio and serving as a behaviour coach. In particular, an advisor can act as an emotional circuit breaker during periods of market volatility, make adjustments to a financial plan when a client’s financial situation changes, and counsel clients on other financial issues.”
A focus on retirement-minded investors
Vanguard believes that Baby Boomers who are near or in retirement are particularly well-suited for the service. This generation (born between 1946 and 1964) represents nearly 25% of the U.S. population or about 77 million individuals, the first of who turned 65 in 2011.4 According to analysis by the Pew Research Center, roughly 10,000 Americans will turn 65 every day for the next 15 years.5 While Personal Advisor could be valuable for investors at any stage, Vanguard’s experiences with clients has shown that as individuals near retirement and prepare to shift into the drawdown phase, the complexity of their financial situations increase significantly. Pew also reports that in excess of 60% of Baby Boomers use an advisor to inform their investment decisions.6
Personal Advisor offers a comprehensive approach to retirement planning whereby each client in or nearing retirement receive a customized tax-sensitive, total-return drawdown strategy that aligns with their unique financial goals. For example, an advisor and client discuss how to maintain a desired lifestyle throughout retirement, prepare for unknown future expenses like medical costs, incorporate Social Security benefits, and plan for future outlays such as a family member’s college tuition or a bequest.
Simplifying Vanguard’s advice offerings
Vanguard is rolling out Personal Advisor more broadly following the conclusion of a successful pilot phase, during which the service attracted more than USD7 billion in new assets through March 31, 2015. To simplify its multiple advice services, Vanguard is in the process of transitioning clients of Vanguard Asset Management Services (AMS) – an existing wealth management, trust, and estate planning services – to the new Personal Advisor platform. Through the end of March, nearly USD10 billion has been transitioned, giving Personal Advisor more than USD17 billion under management in aggregate.