Vanguard pilots digital-only financial planning and advice product

According to an SEC filing, Vanguard's new service will be cheaper than its hybrid robo, Personal Advisor Services

Sep 18, 2019 @ 2:18 pm

By Ryan W. Neal

Vanguard Advisers have filed an initial disclosure brochure with the Securities and Exchange Commission signaling the company's plan to launch a new, digital-only financial planning and automated investing service it calls Vanguard Digital Advisor.

According to the brochure, retail clients and participants in employer-sponsored retirement plans can use Digital Advisor to create a personalized, goal-based financial plan. Users can set a standard goal, such as saving for retirement, or customized goals, such as making a large purchase in the future.

Like other planning tools on the markets, Vanguard Digital Advisor will collect information on things like an investor's risk tolerance, time horizon, current investments and tax filing status to recommend investments to help achieve the goal.

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Users can then enroll in an account, and Digital Advisor will automatically make trades to build a portfolio that aligns with the goals, like any classic digital-only robo-adviser.

Vanguard will charge 15 basis points for the service, about half what it charges for its Personal Advisor Services, which combines automated advice with access to a human financial adviser.

Digital Advisor also has a lower account minimum, at $3,000, compared to the $50,000 minimum at Personal Advisor Services. And Digital Advisor can manage 401(k) accounts that have as little as $5 invested.

"In typical Vanguard fashion, this product will undercut the cost of most of the other digital advice products available," said David Goldstone, head of research at Backend Benchmarking, noting that the true cost of Digital Advisor will be 20 basis points when the expense ratios of underlying funds are included.

But Vanguard's new robo comes with a cost, Mr. Goldstone said: "This product will increase an already highly competitive market for digital-only advice products and amp up pricing pressure in an industry that already operates on thin margins."

[More: Vanguard digital-only tool could pinch Wealthfront, Betterment]

A Vanguard spokesman, Charles Kurtz, said in an email, "Vanguard is in the early stages of a pilot for a new advice service. We're not providing further details."

William Trout, head of wealth management for Celent, called Digital Advisor a "shot across the bow of Schwab" and its digital planning solution, Intelligent Advisory.

"I think Vanguard is really sticking to their knitting, which is about democratization, empowering the individual investor and making things cheap, transparent and easy," Mr. Trout said.

[More: Will Vanguard's new robo send 401(k) advice fees to zero?]

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