Vanguard, low-cost king, has some advice for advisors on price

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Tim Buckley, the new chief executive of Vanguard, has some advice for financial advisors: Embrace the low costs that are coming for you.

He should know. Vanguard has grown into the world’s second-largest money manager on the back of its low-fee strategy and is now pioneering cut-price advice via its Personal Advisor Services. The unit, which has taken in more than $100 billion in a couple of years, charges just $3 for every $1,000 invested for its advice, which is generated by both humans and computers.

“Technology will change the advice industry, and that’s uncomfortable,” Buckley said during his keynote address at the "Inside ETFs” conference in Hollywood, Florida. “You can fight it, you can deny it, or you can embrace it as an opportunity to scale your business better and lower your cost structure.”

Financial advisors used to charge investors as much as $20 per $1,000 for choosing funds, rebalancing the portfolio and making it as tax efficient as possible. But more sophisticated technology has turned these functions into commodities, with some pure robo-advisors charging as little as $2.50 per $1,000 for the service, Buckley said.

His counsel for investment advisors is to focus on “behavioral coaching,” such as helping investors stay the course during a market downturn or cautioning them against going all-in on bitcoin.

“It’s very tough to code that,” he said. “That behavioral coaching really leans on you for the years to come.”

There’s also demand from retirees for customized approaches to matters such as estate planning and long term care, he said. But is there demand for advice to come from a completely robotic source? Will Vanguard shed the human touch and start a pure robo-advisor?

Buckley’s keeping his options open.

“People actually want to talk about what their goals are before you tell them how to save for their goals, so there was always this need for a person,” he said. “But that doesn’t mean that there will always be this need.”

Bloomberg News
Investment technology Investment costs Investment products Robo advisors Tim Buckley Vanguard