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Vanguard advisory opens to smaller investors
Vanguard’s announcement this week that it would open up its new Personal Advisor Services to people with as little as $50,000 in savings could be a boon for small investors looking for a low-cost way to manage retirement savings, with some professional help. The service, which combines automatic “robo-adviser” services with advice from live advisers, will charge a management fee of 0.30 percent of managed assets, compared with the 1 percent typically charged to investors with less than $1 million under management.
Vanguard advisers will initially speak to clients by phone or videoconference to set up an investment plan and recommend holdings. They’ll monitor accounts, rebalance portfolios when needed, and connect periodically with clients by phone or videoconferencing for updates and changes.
The automatic portion of the service, a software-driven robo-adviser, will recommend all-Vanguard mutual funds for most customers’ core portfolio. In specific, the service will suggest index and actively-managed funds from among the company’s very low-cost Admiral share class. Top Admiral funds currently held in Personal Advisor managed portfolios have fees ranging from 0.05 percent of 0.19 percent of assets. (Customers can add non-Vanguard funds to their lineups as well.)
An investor with $50,000 entirely invested in Admiral shares of the Vanguard Total Stock Market Index Fund, with its super-low expense ratio of 0.05 percent, would pay $25 per year in fees. The $150 per-year advisory charge would bring total fees to $175 in that first year (probably a bit more, assuming assets grew over the course of the year). Advisory fees alone would cost $500 per year for such a client using a typical financial adviser.
Fees are competitive with other robo-advisory services. On a balance of $50,000, Betterment and Wealthfront charge 0.25 percent of assets. Financial Guard charges $15.95 a month ($149.95) as a flat fee, regardless of portfolio size; on $50,000, that’s equivalent to 0.30 percent, though that percentage drops as your portfolio grows.
Read about how to make investment products such as mutual funds, ETFs, and annuities work for you at the Consumer Reports Investing Center.
Now, the caveats. Unless you have $500,000 in assets, you won’t be assigned to a dedicated advisor, nor are you guaranteed an adviser who already has a Certified Financial Planner designation. According to Katie Henderson, a Vanguard spokesperson, you’ll be assigned a single person to help you get started. That includes filling out a form to determine your investment time horizon, your attitude toward investment risk, and other aspects that figure into your investment “profile.” After that, you’ll work with a team of planners, most of whom are CFPs, and others of whom are working toward the designation.
All Vanguard advisers are required to act as fiduciaries, meaning they must act in your best interest in recommending investments, Henderson told me.
There is no limit to the amount of time or the number of conversations you can have with your advisory team. (In the service’s two-year pilot program, which included folks with investable assets of $100,000-plus, most clients spoke to Vanguard advisers 2 to 6 times a year.) But it’s up to you to initiate the conversation. Advisers won’t be contacting you for, say, a year-end review of your accounts.
Your $50,000 in assets also must be outside an employer-sponsored retirement plan like a 401(k) or 403(b). While Vanguard advisers will consider those accounts when designing your plan, they won’t manage those assets. So, you’ll have to rebalance those holdings yourself.
The program also isn’t designed for employees participating in retirement plans administered by Vanguard.
When we recently evaluated several robo-adviser services, we found they were most useful for fledgling investors who needed basic guidance on accumulating wealth. But even beginning investors could benefit from having a human monitor their investments and rebalance assets periodically when one type of investment has grown too large in proportion to the others.
If you don’t want to devote even a couple hundred dollars to such a service, you could just log into a robo-adviser site, answer some questions, and check out the resulting asset allocation it suggests. You can then strike out on your own, using that allocation to design your own portfolio at no additional cost.
But the Vanguard option, which combines robo-advising with a relatively low cost for human advice, could work well for lots of savers. The very low cost of its base investment offerings and its fiduciary promise make the offer look pretty good.
Keep in mind that the more complex your finances are—and the closer you are to retirement—the more likely you’ll benefit from a human adviser, without an emphasis on the “robo.” If, for instance, you have a small business or need tax or estate-planning advice, you’ll need the human touch.
—Tobie Stanger (@TobieStanger on Twitter)
Get useful, unbiased money advice every month with Consumer Reports Money Adviser.
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