Vanguard’s digital advice platform crosses $100B
Vanguard’s Personal Advisor Services crossed the $100 billion in assets under management milestone, making it the first digital advice platform to do so.
While independent advice platforms continue to raise millions in venture capital but are far from reaching profitability, Vanguard’s AUM figure — gained in just three years — reflects the quick dominance achieved by large institutions in the online space.
“A growing number of our clients are entrusting their assets to PAS and benefiting from our high-tech, high-touch approach to advice,” says Vanguard spokesman Timothy Stokes.
Ninety percent of the platform’s $101 billion in AUM, as of Dec. 31, 2017, are from clients that already had accounts with Vanguard, he says.
“We believe our model, which integrates a robust online experience, advanced technology, and a human advisor, will continue to resonate with clients seeking comprehensive financial planning services to help them reach their goals and achieve financial peace of mind,” Stokes adds.
Vanguard is on the leading edge of analyst forecasts that predict the digital advice industry will grow to new heights. The latest prediction, from research firm Juniper, is that robo advice will cumulatively manage $4.1 trillion by 2022.
Robo advisors and digital-first advice firms have bucked against being lumped together in industry estimations with Vanguard PAS, arguing that they offer automated advice, whereas Vanguard’s service is wealth advice offered over the phone, with a digital platform as a front.
Still, the success of Vanguard's offering is privately cited by a number of wealth management firms who have all launched similar hybrid advice platforms. Schwab, Merrill Lynch, Wells Fargo and TD Ameritrade are among the traditional brands that have since entered the digital advice space.
Schwab’s trio of digital advice offerings — Intelligent Portfolios, Institutional Intelligent Portfolios and Intelligent Advisory — command a total of $25 billion in AUM. The largest independent robo advisor, Betterment, has over $10 billion in AUM.
“Vanguard is genuinely disruptive for the industry,” says United Capital CEO Joe Duran. “What they’re offering is hard to replicate for almost any financial services firm. Robo advice is incredibly easy to replicate — it’s just technology. You can rent or build it; it’s not that hard to do. But Vanguard has a great brand and human advice for 30 basis points. Those economics are hard to replicate.”
Some early critics suggested Vanguard simply copied Personal Capital's approach, but the entire industry now accepts hybrid advice as the default model for digital offerings.
"Over the years, dozens of financial startups said they would disrupt incumbent financial services firms with their software-only approach, only to see them later pivot their business models to a hybrid of software and humans or lag incumbent firms in asset accumulation," says Bill Winterberg, tech consultant and founder of industry blog FPPad.com.
Vanguard’s platform has indeed exceeded industry expectations, says Orion Advisor Services CEO Eric Clarke.
“Vanguard will be wildly successful as we move forward,” he says. “Those assets are coming from DIY-type investors that were traditionally picking a basket for their own portfolio, but now they’re hiring Vanguard to help them with that. Clients that need tax planning, estate planning and other holistic services need and will continue to need a human investment advisor.”
The milestone demonstrates how Vanguard has normalized the hybrid advice model, says Riskalyze CEO Aaron Klein. “$100 billion here, $100 billion there and pretty soon you’re talking real money,” Klein says.
“Vanguard has found a way to profitably bring hybrid human-robo advice to the market, and there is absolutely a need for better advice among smaller investors,” he adds. “The big realization most advisors have had is that Vanguard is serving a different market — one that will accept simpler, phone-based advice. It’s a rising tide that is lifting the advice boat and that’s a good thing for the industry.”