Vanguard Personal Advisor Services Review-Top AUM & Low Fee
Staff Columnist, Kevin Mercadante
Vanguard Robo-Advisor Expert Review
Vanguard Personal Advisor Services is part of the Vanguard Group, which is the world’s largest mutual fund company, and the second largest provider of exchange-traded funds (ETFs). The Vanguard Group has over $4 trillion in assets under management (AUM). The company was founded by John C. Bogle, who developed the first index fund.
Robo-advisor fever is sweeping the investment universe, with even large, well-established brokerages adding their own robo-advisor services as part of their overall product menu. Vanguard Personal Advisor Services is the Vanguard robo-advisor service, and it’s available to investors with at least $50,000 in investment assets.
Vanguard robo-advising began operations in 2013, and it is growing rapidly. The Vanguard robo-advisor AUM has reached $51.0 billion as of December 31, 2016, and it is already one of the largest robo-advisor services in the industry.
Vanguard Robo Advising Features at a Glance
|Overview||Automated investment management robo-advisor in concert with human financial advisors.|
|Minimum Investment Amount||$50,000|
|Fee Structure||0.30% of AUM below $5 million; 0.20% of AUM from $5 million to below $10 million;|
0.10% of AUM from $10 million to below $25 million; 0.05% of AUM of $25 million and above.
|Top Features||Financial advisors available for your account; Automatic rebalancing quarterly; Tax optimized asset locations.|
|Free Services||Automatic deposits; Mobile app.|
|Contact & Investing Advice||Phone & Video Chat M – F 8 AM to 8 PM ET; Chat available with human financial advisors; Email 24/7|
|Investment Funds||Low fee stock & bond mutual funds and ETFs selected from among the scores of Vanguard funds.|
|Accounts Available||Individual & joint investment accounts. Roth, traditional, SEP, Simple & rollover IRAs. Trusts.|
|Promotions||Not available at this time.|
What Differentiates Vanguard Robo Investing From Competitors
Robo-advising With a Personal Touch
The Vanguard robo uses basic portfolio allocation methods that are typical of robo-advisors. An algorithm creates a portfolio for each client, based on the client’s goals and risk tolerance. But Vanguard robo investing adds direct human involvement in the process. Your contact with the service is handled by an individual financial advisor, who acts as the point person in establishing your account and portfolio.
Along the way, and depending on the size of your portfolio, you will have access to a human financial advisor at all times.
Your Vanguard Financial Advisor Investment Minimums and Service Levels
For investors with at least $500,000 under management, you’re appointed an individual advisor. Much as is the case with traditional full-service investment brokers, the advisor assists you personally in all matters concerning your account. This gives larger investors similar investment management as they would get at traditional higher cost firms, but at a fraction of the cost.
If you have an account balance between $50,000 and $500,000, you won’t have access to a dedicated personal advisor, but you’ll have regular access to Vanguard’s large staff of professional advisors.
While you won’t have a personal advisor, this may not be the disadvantage that it seems. Vanguard is known for excellent customer service, and each advisor is thoroughly trained in Vanguard’s systems and methods of investing in low-cost index funds. As well, any advisor who you contact has full access to your account profile.
Vanguard Robo Advisor Video Chat Capability
The obvious advantage of this method of advisor contact is that you can have a remote, but face-to-face meeting. It also helps if either you or the advisor needs to bring visual aids into the discussion.
Unlike other robo-advisors, Vanguard doesn’t provide tax-loss harvesting on an across-the-board basis. Instead, it is provided on a client by client basis. However, Vanguard still engages in tax-advantaged investing with your account. In doing so, they allocate assets based on the taxability of that account. For example, interest and dividend bearing investments, with higher tax obligations might be held in tax-advantaged retirement plans. Growth type investments would be held in taxable accounts, where they can take advantage of favorable long-term capital gains tax rates.
The Vanguard Financial Advisor Services Low Fee Advantage
The low management fee of 0.30% can make a real difference over the long-term. Compared to the industry average of traditional full-service investment managers of 1.02%, Vanguard’s robo-advisor can improve your performance by nearly $100,000 on an initial investment of $250,000 invested at an average rate of return of 6% over a 20 year period:
Who Benefits from the Vanguard Financial Advisor Robo?
Naturally, the whole concept of robo-advisors is tailor-made for investors who prefer hands off management. But one major area where Vanguard robo-advisor stands out is the fact that the service includes a human advisor. Most robo-advisors specifically exclude human advisors in order to keep investment management fees low. But Vanguard gives you access to a human advisor whenever you feel the need.
That can be especially comforting during those times when the financial markets are not cooperating with your long-term plans. Sometimes just having a coach letting you know to stay the course is just what you need during those difficult times.
The other major group who can benefit from this service are larger investors. The basic fee structure of 0.30% is competitive, but it gets even better as your portfolio gets bigger. With the tiered pricing structure, a person with at least $10 million will pay a fee of just 0.10%. That means that the entire portfolio can be managed for just $10,000. That fee level can’t be beat by traditional financial advisors, in most cases.
Vanguard Personal Advisor Services Drill Down
Unlike other robo-advisors, Vanguard does not limit your investment choices strictly to ETF’s. Instead, they are comprised primarily of index funds, but may also include actively managed funds. The core holdings include Vanguard’s low-cost Admiral Shares, including:
- Total Stock Market Index Fund (VTSMX)
- Total International Stock Index Fund (VTIAX)
- Total Bond Market Index Fund (VBTLX)
- Total International Bond Index Fund (VTABX)
- Intermediate-Term Investment Grade Fund (VFIDX)
- Short-term Investment Grade Fund (VFSUX)
- Intermediate-Term Tax-Exempt Fund (VWIUX) (for taxable accounts only)
Vanguard Personal Advisors Rebalancing
Vanguard Personal Advisor Services performs rebalancing on a quarterly basis. Your investments will be rebalanced when your portfolio deviates from the target allocation by more than 5% in any position. This is less frequent rebalancing than many other robo-advisors provide.
Vanguard Personal Advisor Service Sign-up Process
The Vanguard personal advisor services has a simple online sign-up process that you can complete in about 10 to 15 minutes.
It flows something like this:
- Step 1: General information. This includes providing your name, address and contact information. They also ask if you are retired, or if you plan to retire.
- Step 2: Your spouse’s information, if you’re married.
- Step 3: Investment strategy. This is where they ask you questions that are designed to determine your risk tolerance (more detail below).
- Step 4: Income and tax status. This is where you indicate both your sources of income, the amount of income, including pensions and other sources. This is also where you provide your tax filing status.
- Step 5: Accounts and savings. Here Vanguard is looking to determine potential assets under management.
In regard to Step 3, risk tolerance questions include:
- ”Generally, I prefer investments with little or no fluctuation in value…?” To which you can indicate strongly disagree, disagree, somewhat agree, agree, or strongly disagree.
- ”How stable are your current and future income sources?” To which you can indicate the degree between very unstable and very stable.
- ”What other concerns do you have about market risks?” This is an essay type question, where you are free to record any concerns that you have.
Naturally, these questions are geared toward determining how comfortable you are with taking losses on your investment portfolio. Your portfolio will be constructed with these considerations in mind.
Once you have completed the initial questionnaire, you will have a telephone conference call with a Vanguard Advisor. After that, the service will take several days to set up another conference call – which can be done either by telephone or by video. The second conference call is where they provide your customized investment plan.
Vanguard Personal Advisor Services Pros and Cons
Vanguard Robo Advising Pros
- The management fee of 0.30% is well below the 1.00 – 1.50% charged by traditional investment managers.
- Your account is being managed by live advisors, using robo-advisor tools.
- The sliding fee scale is very generous for very large investors.
- Your account is invested primarily in Vanguard funds, which are some of the best funds available (Vanguard’s average expense ratio is 0.12%, compared with the industry average of 0.62%).
- Having a human advisor to speak to about your portfolio, especially during market downturns can save you from selling or buying into the market at the wrong times.
Vanguard Robo Advising Cons
- The Vanguard robo-advisor fees are higher than Wealthfront and Betterment, which charge 0.25%, while WiseBanyan and Charles Schwab Intelligent Portfolios are both free investment management services.
- Your account is invested primarily in Vanguard funds, which will exclude unrelated investments.
- The initial investment minimum is higher than most competitors and excludes smaller investors. Wealthfront has a $500 minimum, while Betterment has no minimum.
- Vanguard’s robo-advisor doesn’t offer an automatic tax-harvesting feature.
- The service is not for self-directed investors (which of course is not its purpose).
- Rebalancing is less frequent than it is with other robo-advisor services. This may or may not be a disadvantage, depending upon your preferences.
Vanguard Robo-Advisor Review Wrap Up
Vanguard is perhaps the most trusted name in mutual funds, and they have brought their expertise to robo-advising through Vanguard Personal Advisor Services. It offers professional management at a reasonable fee, though it is much more advantageous for larger investors who can take advantage of even lower management fees.
But even for investors who have less than $500,000 to invest, Vanguard Personal Advisor Services offers all of the advantages that people seek from robo-advisors, but with the added benefit of having regular contact with a live advisor.
That’s a tough combination to beat in an industry that’s becoming increasingly competitive. Vanguard is well-positioned with their robo-advisor service to meet the needs of an even larger number of investors than they already have.
Although, if you’re interested in a robo-advisor with human financial advisors, lower minimum investment amounts, tax-loss harvesting and the opportunity to invest in individual stocks as well, check out Personal Capital (they were among the top performing robo-advisors last year).
Kevin Mercadante is a professional personal finance blogger, and the owner of the personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry. He lives in New Hampshire and can be followed on Twitter at @OutOfYourRut.