Vanguard's sights set on financial advisers

The Vanguard Group Inc., the biggest mutual fund company in the nation, is dramatically stepping up its efforts to court financial advisers. The 36-year-old fund company, which rose to prominence by selling low-cost index mutual funds directly to investors, is more than doubling the number of sales representatives who work with financial intermediaries to 220, from 100. Also, for the first time, Vanguard is placing those sales reps in offices all around the country, rather than basing them out of its central sales office in Scottsdale, Ariz., or its headquarters in Valley Forge, Pa. The reorganization is intended to make Vanguard's sales team more efficient and allow the firm to better recruit and retain top salespeople. The moves by Vanguard, which manages $1.75 trillion in assets, represent the latest iteration in the fund company's efforts to target advisers who charge fees based on the assets they manage, rather than collect commissions for each transaction. In recent years, Vanguard's low-cost index mutual funds and its ETFs have gained popularity among fee-based advisers. Vanguard is the nation's No. 3 ETF provider behind BlackRock's iShares and SSGA, and saw assets in its 64 ETFs climb 20% over the 12-month period ended Feb. 29, to $200 billion. Meanwhile, BlackRock and SSGA's ETF assets climbed 8% and 6.7%, respectively, over the same period. Late start While Vanguard has long had a following among advisers who buy its funds directly, it never pursued those relationships actively until recently. For example, the firm didn't form a unit focused on advisers until 2002, and that unit remained tucked away in its institutional services arm until last May. “We're late to the game,” conceded said Martha King, managing director of Vanguard's Financial Advisors Services division. “But we've never offered commission-based products, so there wasn't much reason to actively be selling to advisers.” Even so, the firm has managed to earn the loyalty of advisers — no doubt due in large part to its reputation for low costs. About $250 billion of the firm's $1.75 trillion in assets now is overseen by advisers, up from $85 billion in 2002, when the adviser services division was first created. “We've been getting really good results from working with financial advisers but we can penetrate further into that market,” Ms. King said.