While most online advice firms have gotten more attention from VC firms than from clients, there’s one firm that could pose a serious threat to FAs: Vanguard. The online service that Vanguard launched in 2013 is still in development, with $755 million under management, and thus is still more of a phantom.
Featuring a big, trusted brand and 150,000 clients, the Vanguard service combines software and live financial professionals. It provides financial planning, asset allocation, monitoring and rebalancing for just 30 BPs, and is expected to be rolled out more broadly next year. Though no local offices have been announced, Vanguard does employ more than 200 certified financial planners.
Most FAs are not concerned, since the service seems to be targeted at clients with less than $50,000 and recommends mostly Vanguard funds. Some even see the service as a good resource for clients who cannot afford a live advisor. But the combination of brand, clients, low-cost online advice and live planners may be a threat to the so-called “robo advisers” — two of which recently raised $60 million.
So should plan advisors be concerned? According to a recent survey of large-market consultants, many plan sponsors perceive index funds to be risk free protection against litigation and less in need of monitoring. With no or little revenue sharing, plans might also perceive Vanguard to be a cheaper alternative. Combining an automated plan with technology-driven advice supported by live planners provided by a trusted brand could be appealing to some plans.
But small plans are sold, not bought. Plan advisors, most of whom are moving to a fee-based model, can offer Vanguard funds. In fact, they can even offer the Vanguard brand — either directly for larger plans or through Ascensus for smaller ones.
