As VC-backed robo-advisors struggle to gather significant assets — and some turn to traditional partners like Fidelity — Vanguard’s robo-advisor has managed to eclipse them all while still in pilot mode.
As of Q3 2014, Vanguard’s AUM stood at $4.2 billion, up from $755 million at the end of 2013 — a whopping 556% increase. It’s easy to grow quickly from a small base, but when you compare Vanguard’s number to Wealthfront’s $1.7 billion and other robo-advisor start-ups, the numbers are striking.
Vanguard’s robo-advisor, which charges 30 BPs, includes:
- Financial planning
- Asset allocation
- Ongoing monitoring and rebalancing
- Performance forecasting
Clients can access Vanguard’s army of telephone reps, many of whom are CFPs. Riding the indexing wave and hyper-focus on fees, Vanguard recently eclipsed Fidelity as the largest mutual fund and TDF fund provider and garnered 98% of new U.S equity funds net flow in 2013.
Vanguard’s small-market record keeping service — a partnership with Ascensus — was projected earlier this year to reach 2,000 new plans with just six wholesalers. That service, like their robo-advisor, is still in pilot mode.
But critics point to the fact that Vanguard relies on proprietary funds and ETFs and tends to attract clients that are driven by cost, not value. And to call what they do “financial planning” might be a stretch.
Regardless, Vanguard poses a real threat to small-market DC insurance providers and to the VC-backed robo-advisors struggling to get traction. The question for plan advisors is whether Vanguard is trying to disintermediate them as well. Do you see Vanguard as a threat or as an opportunity for your practice? Please comment below.
