While traditional financial advisors might scoff at the viability of pure robo-advisors, even with an estimated $15.7 billion AUM, it’s hard to ignore the efforts of indexing giant Vanguard and retail brokerage house Charles Schwab. Though Schwab was vague about the details of their efforts, CEO Walt Bettinger said that their offering would be “ground breaking.” Speculation is that Schwab’s service will focus on ETFs, leveraging its Windhaven unit.
Meanwhile, under the radar, Vanguard’s online advice group has quietly accumulated $1.3 billion using a combination of online and phone services. The Vanguard Personal Advisor Service (VPAS) helps investors create a financial plan with the help of a CFP by phone, annual reviews and periodic updates for a flat 30 BPs for accounts of $100,000 or more, focusing on accumulation and decumulation strategies.
Pure online robo-advisors will struggle to get clients because of their limited marketing budgets and few prior personal relationships, which is why many are trying to partner with traditional financial advisors or well-known online sites like Yahoo and USA Today. But Vanguard, as the second largest U.S. asset manager behind only BlackRock, has the potential to do to advisors what it did to active money managers — make them prove their value for the extra fees charged.
