Vanguard officially launches its robo adviser, drops minimum investment to $50,000

After more than two years in pilot and $17B in assets, Personal Advisor Services ready to take on the expanding field

May 5, 2015 @ 1:40 pm

By Alessandra Malito

The Vanguard Group Inc.'s Personal Advisor Services, the mutual fund company's robo-adviser, is officially open to the public.

The automated investment platform, which also offers investors the option of consulting with an adviser, draws only from Vanguard's array of funds for its portfolios.

Even so, the robo, which has been in pilot mode for two years, currently has $17 billion in assets under management. As of March 31, it had gathered $7 billion in new assets, and Vanguard has transferred $10 billion in client assets to it from Vanguard Asset Management Services, the company's existing wealth management service.

Along with the public release of Personal Advisor Services, Vanguard lowered the platform's minimum investment requirement to $50,000 from $100,000. Investors are charged an annual fee of 30 basis points on managed assets, plus fund expenses, which typically range between five and 19 basis points.

“We offer a virtual engagement so that there is a customized financial plan, which is specific to each individual client,” Katie Henderson, a spokeswoman for Vanguard, said. “We really believe in the value advisers play in this in terms of being a behavioral coach.”

Vanguard's official entry into the robo-market adds another serious competitor to the industry, especially among current online investment platforms such as Wealthfront and Betterment.

“Vanguard changed the market for the vanilla robo-advisers,” said Mike Kane, chief executive of Hedgeable, an online investment platform that focuses on downside protection. “It's going to force the more vanilla, commoditized robo-advisers to add a human adviser element to their platforms.”

Wealthfront CEO Adam Nash said the two services are different though.

“At 0.30%, they offer an incredible value for a traditional advisory service towards the growing needs of the Baby Boom generation,” Mr. Nash said in an email. “At Wealthfront, we're focused on the ascendant millennial investor, who prefers a fully automated investment service.”

WORKING WITH ADVISERS

Although there were talks about Vanguard creating a white-label adviser-facing version of the platform, Ms. Henderson said the company's focus is on retail business.

Still, the defining element of Vanguard's Personal Advisor Services platform is that investors will be matched with traditional advisers, who will be available through phone, email or videoconferencing.

Clients with more than $500,000 in assets will have a dedicated adviser, while anyone below that will work with a team.

Advisers will create a financial plan for the client based on goals, time horizon and risk. From there, the adviser will monitor the portfolio, occasionally rebalancing if necessary or recommending adjustments. Investors will be able to access the platform to see if they are on track for their goals or not. They will also receive quarterly reports.

Ms. Henderson said baby boomers near or entering retirement need financial advice as their situations get more complex, while other clients just need a help managing their money, she said.

In addition to being a threat to existing smaller robo start-ups, at least one financial adviser sees it as a threat to traditional advisers as well.

“With investment management being commoditized with robo-advisers, planners will need to focus on planning to keep clients,” Carolyn McClanahan, director of financial planning at Life Planning Partners in Jacksonville, Fla., said. “Advisers who are delivering cookie cutter advice will suffer, and they should suffer. They either up their game or [they will] be put out of business.”

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