Vanguard eyes offering ETF model portfolios to advisers

The Vanguard Group is discussing offering model portfolios of its exchange-traded funds to adviser clients — yet another sign that adviser-customized portfolios are the next big thing for fund firms and their clients. The Malvern, Pa.-based firm yesterday announced it would launch 18 new mutual funds, each with an exchange-traded fund portfolio version, as well as an ETF version of its $91 billion S&P 500 Index Fund. Melissa Nassar, a principal in Vanguard's financial adviser services group, said Vanguard is looking at offering model portfolios for its adviser clients as a complement its low-cost ETFs. “We are finding that advisers are dealing with this erosion of confidence,” Ms. Nassar said in explaining why clients want model portfolios. “We are very disciplined with our product development and are evaluating the market receptivity of an offering.” Model portfolios appear to be the next big push for ETF providers as they continue to woo adviser assets, said Scott Burns, an ETF analyst at Morningstar Inc. “Five years from now, model portfolios are going to be where most of the adviser-held ETF assets are,” he said. That's not to say that ETF providers are going to completely shift their focus from reducing their costs to providing model portfolios, Mr. Burns said. “I don't think the price war in ETFs is over,” he said. “There are ETFs in Europe that have zero cost ratios.” As for Vanguard's newly unveiled ETFs: Costs for the funds range from 0.06%-0.20%. That beats competitors by 0.03%. “There is a lot of talk in the industry about first-mover advantage,” Ms. Nassar said. “But there has been a lot of data that shows that cost is a greater advantage.”