24 August 2019

The Rise of Ultracheap Financial Advisers

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In a world in which the expected long-term return on stocks after taxes and inflation is 3% to 4% a year at best, financial advisers still typically charge 1% a year for their services.  Vanguard Group, which turned the fund industry upside-down and drove asset-management fees into the ground, is aiming to bring the same kind of disruptive change to the business of financial advice.

Vanguard manages $3 trillion in mutual funds and exchange-traded funds for a pittance of 0.19% in average annual expenses. The firm's Personal Advisor Services unit, which provides investment management and financial planning for a flat 0.3% annual fee for most clients, has $3.6 billion in assets, up from just $755 million at the end of 2013.

Vanguard is joining a fast-growing trend toward delivering dirt-cheap financial advice online. So-called robo-advisers such as Betterment and Wealthfront use computer models to provide automated portfolio management for fees of around 0.25% of total assets, or $25 per $10,000 invested.

At Vanguard, the more money you have, the more guidance you will get from the firm's advisers. At even higher levels—if you have more than $5 million—Vanguard will send your adviser to meet with you face to face as needed. Such clients will pay less than 0.3%.

To be sure, if you have only $50,000 to $500,000, Vanguard won't provide a butler to be at your side for every financial decision you make. Much of the advice will be generated automatically by the firm's computers and delivered online, based on information you provide about your income, assets, financial objectives and appetite for risk. One of the Vanguard program's financial advisers will then talk to you by phone or video conference to tweak your portfolio and your financial plan as needed.

Nor, at less than $500,000 in assets, will you get much of the valuable advice on insurance, mortgages, budgeting and the like that financial planners elsewhere may provide. And if the market crashes, no one from Vanguard will plop down on your living-room couch to prevent you from doing something rash. On the other hand, Vanguard charges so much less than the typical financial-planning firm, you might not object.

The fund giant is pushing hard into financial planning. It ranked sixth among all firms in the U.S. by the number of employees who took this June's exam to become certified financial planners, according to Joe Maugeri of the CFP Board of Standards, which awards the designation. Vanguard expects to double the number of CFPs working in the program to 500 from 250 over the next couple of years.

Though Vanguard previously offered financial planning to its wealthiest clients, virtually all the assets at Personal Advisor Services are new money rather than transfers from that program. Earlier clients, who paid 0.7%, will soon be switched to the 0.3% rate. Some advisers see the new service as a way to unload less-wealthy investors who aren't worth their time.

You might want more human contact than Vanguard's new service can provide, especially if you need complex financial planning or you tend to panic in bad markets—in which case paying a higher fee could still make sense. But at the least, you should ask your adviser to justify why his services are so much more valuable than what an industry leader has begun to provide.

Click here to access the full article on The Wall Street Journal. 

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