The Vanguard Cyborg Takeover
March 28 — April 3, 2016 ▶ ▶ The No. 1 mutual fund company wants waants to own ▶ ▶ The startups rtups “are are going up againstagain st firmsfifirms with chea cheapap advice trillion trillionsns ofdollarsofof dollars of assets assets”
Vanguard Group has grown to $3.4 trillion ion in inn assets by bby dominatddominat-i ing sales of low-cost loow-cost index mutual funds, the he ultimateulttimate do-it-yourself investments. ents.. Now it’s seized an early lead d in a new business: inexpensive financialfinan ncial advice.
Automated,matedd, Web-based “robo advisers”dvisers” such as the startups Bett Bettermentterment and Wealthfrontalthf front have attractedd a loot lot of attention in the investment vestmment industry. But Vangguard’s Vanguard’s new Personalsonaal Advisor Services platform, which combines ombiines tech with human man advisers reached by phonep phone or video chat,at, iss is drawing more money.oneyy. From its official launch auncch last May through Deceember, December, it brought in $121 $12 billion in assets. . That’s Thaat’s four times the e ammount amount held by eitherr Bettterment Betterment or Wealthfront hfront and more thanan twwice twice as much as th thehe automatededadvice platformlatfo orm Charles Schw Schwabhwab introducedced in n early 2015.15.
Vanguard’sard’s s massive scalee is one advantage:ge: Morem More than 90 percentent off clients had another conn connection nection to the company,pany y, such as a retirement account. The addition of real peoplele people maym may be helpinghel helpingi as w well. ““ThereT is something about aboutmoneymoney that t is different from booking a hotel,” s says Na Nancy Koehn, a Harvard Business Schoo School professor. “People have anxietyy anxiety abou about money. I think the human eelemen element matters even if you don’t usse use it.”
Robo- Robo-adviseradvviser a apps and websittes websites gui guide investors tthroug through a series of quuestio questions about theirr their age, salary, fifififififinancial financial gogoals, goals, a and risk tolerance.tolerannce. Th They then usuallly usually inve invest in one of severalseverral mo model portfolio portfolios,os, wh which are maade made up of a mix off of low-c low-cost exchan exchange-tradednge-tra index ffunds. funds. The program programsms automataut ically buuy buy and sell fund shares to keep assets inn in balan balance, while grradual gradually adjustin adjustingng the mix to lowerr risk a as the investor aages. ages. W While a human investment adviser may c charge 1 percent of assets per year, robo robos may charge 0.25 percent or les less. The Schwab Intelligent Portfo Portfolios service is free—it earnssearns reven revenue in part by investing clientts’ clients’ mo money in Schwab- Schwab-managedmanaged ETFSS. ETFS. Vanguard is a little moree more expe expensive, at 0.30 percent per year. Aftter After ans answering questions online, new cuustom customers must speak to an adviser emmploye employed
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