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Vanguard's $10B Digital Juggernaut You Don't Know About

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As the competition between robo advisors and traditional firms becomes at times very personal, Vanguard is growing its digital financial advisory unit at an astounding rate -- all before its official launch.

Vanguard says assets in its Personal Advisor Services start up, still in the pilot phase with no paid advertising support, rose from $755 million in 2013 to $10.1 billion at the end of last year. Overall, the firm has 20 million clients with more than $3 trillion in U.S. fund AUM with approximately one-third of those assets from the advisor-sold channel.

Because so much of its business is dependent on financial advisors selling its funds, Vanguard must walk a fine line. But it believes it can successfully build Personal Advisor Services into a behemoth in its own right without alienating its distribution partners.

Karin Risi, principal of advice services at Vanguard, discusses how the company will strike that tricky balance, as well as her vision for growing Personal Advisor Services.

What is Vanguard’s ultimate objective for Personal Advisor Services? How does it complement the firm’s asset management business?

Vanguard Personal Advisor Services was developed to give our clients the best chance for long-term investment success, which is core to Vanguard’s overall mission. Personal Advisor meets an increasing need from our clients -- they need financial advice and have been asking us for it for years.

While we have offered advice and wealth management services to our individual investors since 1996, we saw an opportunity to lower the cost of advice -- making comprehensive financial planning affordable. At just 0.30% on AUM [and a required $100,000 account mininum], Personal Advisor offers a streamlined financial planning service through a combination of a client-friendly online experience and an ongoing relationship with an advisor.

And yes, we certainly see Personal Advisor as a very important service for our clients and a larger focus for Vanguard as a whole going forward.

Who do you see as the target demographic or core user profile of Personal Advisor Services? As investor demographics shift, how will you be able to adapt?

Personal Advisor is suited for all demographics, but as we talk to investors we are hearing a particular need from pre-retirees and retirees. In general, the closer our clients get to retirement and prepare to shift into to the drawdown phase, the more complex their financial situations tend to be.

However, we built Personal Advisor to grow with our clients throughout the accumulation and the drawdown phases. As a client’s financial situation becomes more complex, as goals shift, or as tradeoffs arise, an advisor is available to help the client adjust his or her portfolio as needed.

As baby boomers near retirement, we anticipate an increase in the need for financial guidance and advice. Our financial advisors play a big role in guiding clients through those complex and sometimes emotional financial decisions.

Given that the advisor-sold/broker-sold channel is important for Vanguard’s fund distribution, how will you address those advisors and B-Ds who may perceive Personal Advisor Services as a competitor?

As I mentioned before, the need for advice is growing, which creates opportunity for advisors. With a growing universe of investors who need advice, firms like Vanguard and traditional advisors are both able to successfully serve clients.

At Vanguard, we believe in the value of advice and the value of an advisor, but we are also realistic. Like with any decision, investors have preferences in choosing an advice solution. Some investors might be comfortable constructing and monitoring a portfolio on their own using a broad range of low-cost mutual funds and ETFs.

For those who are comfortable with a virtual advisor relationship and who are looking to partner with a professional to make investment decisions, Personal Advisor might be a strong fit. And for those investors who prefer working with an advisor in person in their community, a local, independent advisor might be the better choice.

How did you think through the features, functionality, user interface and user experience of the Vanguard Personal Advisor Services web portal?

In developing Personal Advisor, we combined our time-tested investment methodology with a best-in-class online experience to augment the advisor/client relationship. The advisor relationship is the key component to our service -- and the robust online experience is the support.

Through extensive investor research, we learned that many clients actually prefer to look at their finances in terms of specific goals. So, we developed a goals-based methodology where clients can track their progress towards each goal, such as retirement, college savings, or buying a home.

Vanguard also has a great deal of experience in developing web capabilities, driven by our clients’ feedback and several rounds of usability testing. For the development of Personal Advisor, we adapted some of Vanguard’s best practices in developing web capabilities and user experiences for a more robust online experience.

Personal Advisor clients are able to schedule an appointment with their advisor online, view their financial goal and progress toward that goal at a detailed level, access the investment plan developed with their advisor, and review quarterly progress reports.

Additionally, an important part of the Personal Advisor experience is the ability for our clients to meet with their advisor via video conference. Client feedback has been extremely favorable across all demographics indicating this is a valuable feature of the service. Video offers an opportunity for the advisor to build trust with clients, which is important as they establish an ongoing relationship.

Any plans for a mobile app for smartphones or tablets?

The online portion of the Personal Advisor experience was built with responsive design, an approach that provides optimal viewing experience across a wide range of devices including smartphones and tablets. The content adjusts automatically to the screen size of the device being used to enable easier reading and navigation. We continually look at technology ideas to ensure we are delivering Personal Advisor to our clients in the most user-friendly way.

What are some of the key elements of the marketing plan that you’re using to raise awareness and boost adoption of Personal Advisor Services?

While still in pilot phase, we’re not currently running broad marketing campaigns. For some time, our focus will remain on educating our clients on what the service offers. When Personal Advisor is offered more broadly, our marketing and advertising efforts will be primarily focused on digital channels.

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