The Vanguard Group has a message for financial advisers: Stop resisting the robo-advice movement and instead, run toward it with gusto.
Speaking Wednesday in Chicago at the Morningstar conference, Vanguard chief executive William McNabb said his firm is doing everything possible to stay current with financial technology, and that financial advisers should be doing the same.
“Rather than push back on the technology, find ways to embrace it and use it,” he said. “The firms that learn to embrace the technology to go along with the advice they provide will be the winning firms. I would encourage people to learn as much as you can about it.”
Mr. McNabb referenced his early impressions of how technology was being used in the financial services industry, and said he has made it a priority to help Vanguard stay as close to the cutting edge as possible when it comes to technological innovation and enhancements.
“We took our whole executive team to Silicon Valley a year ago just to have exposure to what's happening in financial technology and other areas, just to help us create a healthy paranoia. You should always be imaging what the competition could do.”
While he said the odds of the $3.4 trillion asset management firm making an acquisition in the technology space are “pretty slim,” Mr. McNabb does not plan to be left behind when it comes to financial technology.
Vanguard's own robo platform, launched in May 2015, has grown to $40 billion, including an estimated $10 billion that came over from existing Vanguard programs, he said.
“Early on, we were really impressed by the way firms were taking technology and looking at advice a different way, and we were quite taken by it, and we knew it would be disruptive,” he said. “Key for us was could we match or exceed what robos do with our platform. We targeted clients from $50,000 to a couple hundred thousand, where we felt there was a need because a lot of advisers don't target that group aggressively.”
Asked about the Vanguard of 2026, Mr. McNabb said technology will continue to play a major part in how the company becomes more global, “not just in client reach, but in the way we run things.”
“Going forward, it's all going to be about simplification; moving away from desktop solutions, and toward more mobile and phone use,” he said. “I would encourage all the folks in the room to think about what the robos are doing, and think about ways to take advantage of it.”
In making his point, Mr. McNabb cited the fact that when Vanguard started in 1975 the
firm's average fund expense ratio was 85 basis points, compared to 12 basis points today.
“It's not just a size and capacity issue, the investment in technology also helped us,” he said.
Mr. McNabb also took a few swipes at the broader asset management industry for it “proliferation of products in the ETF space,” which is something he described as irresponsible, even though Vanguard is among those launching new products.
“I think the proliferation has gotten out of hand; it reminds me of the late '80s early '90s when there was a new fund created every hour,” he said. “Knowing what we know about behavioral finance, we were attracting people to these funds at the wrong time. We're not selling tooth paste or different color watch bands. It's not good for the industry, and I'd like to see us be much tougher on that.”
Asked to reconcile his position on ETF proliferation with Vanguard's own robust product lineup, Mr. McNabb acknowledged, “We're walking a very fine line. But we don't want to get into slicing and dicing to the point where you're essentially giving people an opportunity to hurt themselves. What I worry about is when I start seeing things that are pretty faddish out there.”
