Vanguard is testing a pure robo adviser that is pushing costs down even further for that automated investing service.
On Sept. 17, Vanguard filed a brochure for a trial service called Vanguard Digital Advisor, according to a Securities and Exchange Commission filing.
Initially, the trial robo adviser is available only to those with Vanguard brokerage accounts, who would hand over control of their money for a 0.15% fee.
But if and when the robo launches on a retail basis — and that’s unknown — Vanguard Digital Advisor could one day be available to America’s workplace retirement plans and employees.
In that scenario, Vanguard Digital Advisor would likely cost 0.20% annually and require at least $3,000 in assets, according to the filing.
What’s interesting about this new offering?
“We’re seeing the commoditization of financial planning tools,” said Adam Holt, founder and CEO of Philadelphia-based Asset-Map.com, which makes software for financial advisers.
Financial planners believe this could also be Vanguard’s way of luring back independent money managers and advisers as customers, a market that the Malvern giant has largely avoided until now. Charles Schwab, a competitor, has long sought financial advisers as clients, which then keep assets in custody at Schwab. In turn, Schwab markets low-cost Schwab funds and ETFs.
“Vanguard is in the early stages of a pilot for a new advice service. We’re not providing further details at this time,” according to spokesperson Charles Kurtz.
Another nugget within Tuesday’s filing shows how Vanguard will gain useful financial profile insights into these Vanguard Digital Advisor clients: “You’ll create a profile within the DA Website and Interface that provides us with information relating to your family, age, risk tolerance, specific financial goals, investment time horizon, current investments, tax filing status, other assets and sources of income, investment preferences, planned spending, and existing financial/investment accounts,” the filing said.
This Vanguard pure robo strategy is very much in line with the “goals-based” investing trend popular among advisers, Holt said.
“Vanguard now has a formula-based system that aligns a person’s goals with their investment allocation, which makes absolute sense. We’re seeing that being built by several companies now,” Holt said, including Principal Financial Group in Des Moines, Iowa.
In some cases, robo advisers are beginning to waive fees altogether just to get the assets in-house, he added.
Behavioral finance language describing your tolerance for risk also shows up in the new Vanguard offering: In Digital Advisor, “you will be asked to respond to customized scenarios with varying risk/reward calculations that are designed to tell us about your willingness to tolerate risk in connection with your financial goals. Based on your scenario responses, we will provide you with a risk attitude assessment derived from an assessment tool based on behavioral economics and decision science,” the filing said.
Not surprisingly, investors using Vanguard Digital Advisor will choose from a menu of Vanguard ETFs for their portfolios.
Equity portions of an investor’s portfolio are invested in Vanguard Total Stock Market ETF and Vanguard Total International Stock Market ETF, while bond portions are invested in Vanguard Total Bond Market Index ETF and Vanguard Total International Bond Index ETF. When cash is recommended as part of the asset allocation, the Vanguard Prime Money Market Fund will be the fund of choice.
Vanguard’s robo adviser pushes the fee war into new territory. Its Personal Advisor Service, which offers a once-a-year in-person consult with a financial planner, now charges 0.30% annually. There are no limits on the frequency of consultations with financial advisors. Personal Advisor Services clients can connect with advisors via phone, email or video-conference as often as they want.
The new robo adviser-only offering charges 0.20%.
Merrill Lynch charges 0.45% for its $5,000 minimum Guided Investing robo service, and 0.85% for the $20,000 minimum Guided Investing with a human adviser option, according to Fund Intelligence.
Schwab charges no advisory fee for its $5,000 minimum Intelligent Portfolios robo, a combination of its own and other firms’ ETFs, Fund Intelligence. says. Its Intelligent Portfolios Premium service, which comes with access to a financial planner, charges a $300 upfront planning fee, then a $30 monthly advisory fee.
Fidelity charges a 0.35% advisory fee for a $0-minimum investment Fidelity Go robo adviser, and 0.50% for its $25,000 minimum Personalized Planning and Advice hybrid service.