Vanguard, Fidelity bank on robos, low-cost strategies to ride DOL fiduciary rule wave

The regulation requires that brokers act in clients' best interests. Generally speaking, that means preferring cheaper investment options when possible.

Apr 7, 2016 @ 12:09 pm

By John Waggoner

In the shakeout over the Department of Labor's fiduciary rules for retirement accounts, mutual fund giant Vanguard is a clear winner — but archrival Fidelity won't be hurting, either.

The rules, announced Wednesday, require that brokers act in clients' best interests. Generally speaking, that means brokers should prefer lower-cost investment options when possible. And if you look up “low cost” in the dictionary, you'll see a picture of Vanguard founder John Bogle.

“By virtue of being the low-cost provider, Vanguard benefits tremendously from this,” said Dan Wiener, editor of The Independent Adviser for Vanguard Investors, a newsletter. Vanguard, which has about $3 trillion in assets, has said it's still reviewing the new rules, and hasn't made a public comment on them.

(More coverage: Vanguard raises some expense ratios)

Fidelity, which manages $2.1 trillion, has $5.1 trillion in customer assets. It, too, has been officially cautious in its reaction to the fiduciary rules. “We are currently evaluating the rule and what it means for investors, businesses and advisers,” said Fidelity spokesman Steve Austin. “Fidelity is focused on serving the best interests of its customers and clients. We support rules that protect and don't hinder workers saving for retirement.”

Behind the scenes, however, Fidelity has been working for years on its robo-adviser business, which would benefit enormously from the new DOL rules, says Jim Lowell, editor of Fidelity Investor, a newsletter. Robo-advice is a natural beneficiary of the DOL rules, which favor low-cost, objective advice. “It's going to create their next trillion-dollar book of business, if they play their cards right,” Mr. Lowell said.

Of course, Vanguard has been doing exactly the same thing with its Personal Advisor Services platform, which combines technology with human advisers. “The rules will favor on-scale robo-advice platforms and businesses,” Mr. Lowell said. “In that sea, the two battleships are Fidelity and Vanguard, and I'd hate to be caught between them.”

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