And Charles Stein �Margaret Collins

by Vanguard before the plan is set in motion. (About 40 percent of customers connect by video chat at some point.) The conversation gives the adviser a chance to ask about other savings or assets people have and to gauge their investment preferences, says Karin Risi, managing director and head of the retail investor division at the company.

Many of the Vanguard advisers have a credential as a financial planner or are working toward one. Customers need at least $50,000 invested at Vanguard to participate, but only those with at least $500,000 to invest get a dedicated adviser. Clients with less money could end up speaking to one of several members of a team when they call in.

The market for digitally based advice is expected to grow to $285 billion by 2017, according to researcher Aite Group. Millions of baby boomers are nearing retirement and need help figuring out how to make the money last. At the same time, widespread acceptance of index funds has helped make automated portfolios possible. Investors don’t necessarily look to advisers to help them pick individual stocks and bonds.

“We aspire to serve hundreds of thousands of clients over time,” Risi says. In addition to the $12 billion from new advisory clients since May, Vanguard has brought in $9 billion from customers who were part of an earlier pilot program. The company did not reveal the number of accounts.

At Schwab, three-quarters of those who’ve joined its automated service were existing customers. The company oversees $2.5 trillion in total client assets, and by December it had attracted $5.3 billion to Intelligent Portfolios, with 63,000 accounts. Clients can reach out to the company by phone or online, but it’s not required, like it is at Vanguard.

“The startups are facing an uphill battle,” says Scott Smith, a director at Cerulli Associates in Boston. “They are going up against firms with trillions of dollars of assets.”

Executives at both Betterment and Wealthfront say there’s room for established companies and pioneers. Adam Nash, chief executive officer of $3 billion Wealthfront, which launched in 2011, says his company focuses on younger investors with different ideas about technology and investing while incumbents are battling for boomers’ assets. “Those older investors aren’t looking for the same things,” he says. “We want to be the Amazon, the Netflix in this category.” Nash says 90 percent of Wealthfront customers are younger than 50, and 60 percent are under 35.

About two-thirds of the Vanguard service’s clients are nearing retirement age or retired. Roughly half of those who signed up for Schwab’s robo are over 50, says Tobin Mcdaniel, president of Schwab Wealth Investment Advisory. Of course, older savers are also where most of the money is.

Burton Malkiel knows both sides of this new industry. The Princeton economist’s book A Random Walk Down Wall Street championed the idea of index investing, and he spent decades on the Vanguard board. He’s also chief investment officer for Wealthfront. Malkiel says the robo-adviser trend is about the “Vanguardization of investment advice.”

As happened with index funds, cut-rate competition will push fees down for all kinds of advice, and more people will be able to get help building portfolios. “The presence of Vanguard and Schwab—consumer-friendly companies—is a good thing, not a bad thing,” Malkiel says. hoops to even get anyone’s attention.”

Such conditions led the U.S. Department of Housing and Urban Development in February to cut off rent subsidies for more than 1,000 residents. Those federal dollars were to be used to repay $12 million of bonds sold by the apartments’ owner, Global Ministries Foundation. Without that money, the bonds went into technical default, pushing their price to as little as 21¢ per dollar of their face value.

The GMF debts were municipal bonds, government-sponsored debt that offers investors income free from taxes. Munis may call to mind investments in toll bridges and sewers, but they also include bonds like GMF’S issued through “conduits”—local agencies with few, if any, employees that exist only to sell tax-exempt debt for a fee. With little responsibility for the projects they finance—sometimes in different states—the authorities have raised money for privately run nursing homes, charter schools, and even amusement parks.

“Conduits have been a perennial problem in the market,” says Christopher Taylor, the former executive director of the Municipal Securities Rulemaking Board, the industry’s regulator. About 60 percent of muni bonds that default are issued by such conduits, according to Matt Fabian, a partner at Municipal Market Analytics.

The market for conduit bonds is one of Wall Street’s most opaque niches. Seven days after GMF issued a letter to the bond trustee about the default, some bonds were sold in lots of $25,000 and $50,000 for as much as 10 percent

The bottom line Startup robo advisers have pointed the way to cheaper investment advice. But an established player is taking over the game.

HUD said the Warren and Tulane

apartments deteriorated under

its owners

$

more than face value. Neither the buyers nor sellers are known. The trades suggest that smalltime investors may not be getting important information when they buy bonds. In 2009 the muni rule-making board launched a website for reporting such information, but investors may not know the records are available.

GMF, which says on its website that it works “for the glory of God and the eternal welfare of mankind,” owns 10,500 low-rent apartments in eight states. It financed its purchase of the Memphis apartments through the city’s Health, Educational, and Housing Facility Board. The agency’s head says that GMF had a good reputation with the investment community before the default.

Richard Hamlet, GMF’S president, says his organization has invested more than $3 million in the Memphis apartments, which were suffering from crime and poor maintenance before GMF purchased them in 2011. “Our management team, in addition to outside contractors we engaged, worked hard under very stressful conditions to mitigate physical deficiencies on the sites,” Hamlet says.

GMF is a nonprofit. According to its tax records, Hamlet was paid $535,000 in salary and benefits in 2014. He says that’s in line with his industry peers.

Conditions deteriorated after the GMF acquisition, federal reports say. An April inspection of 30 buildings and 25 units found “life-threatening” breaches including exposed wires and blocked emergency exits. Although GMF hasn’t missed payments on the bonds, it’s likely to do so within two years unless it can sell the buildings, Standard & Poor’s Financial Services said on Feb. 19. The end of HUD subsidies put the bonds in technical default. Hamlet says this “is the first bond default I have had in my career in this space.”

Federal housing officials have begun planning to relocate residents of the Warren and Tulane apartments. “I’m ecstatic,” Johnson-peterson says. “I feel like it’s an opportunity to be able to provide better chances for my children and a better environment to raise my children.” �Martin Z. Braun Bloomberg with total returns for the second half of 2015 lost 3.6 percent on average. In the same period, the Standard & Poor’s 500-stock index earned a slight gain with dividends. While global markets have revived recently, endowments may struggle to make up for lost ground by the time their fiscal year ends in June.

“At this moment in time, it doesn’t look like it’s going to be a fantastic year,” says Tim Jarry, chief investment officer for the College of the Holy Cross in Worcester, Mass. The private college’s endowment saw a loss of 4 percent from July through December. Investments contribute to a school’s annual operating budget, though schools determine spending based on average returns over a few years. Investments used for diversification were mainly a drag. The $3.1 billion University of Washington fund, down 3.8 percent, was hurt by emerging markets. The University of Iowa, with $1.3 billion, lost 4.6 percent, thanks in part to global bonds and real assets, including natural resources. Hedge funds, which can bet on a variety of securities either rising or falling in value, contributed to the University of California’s 2.5 percent loss on its $8.7 billion portfolio.

Endowments have expanded the range of their investments to include not only commodities and hedge funds but also venture capital and private equity, or buyout, funds. This is the Yale model, named for that school’s legendary $26.5 billion fund, which has earned a 10 percent annualized return over the past decade. ( Yale hasn’t reported returns for the latest six-month period.)

Despite this shift, there remains a persistent long-term performance gap between large endowments such as Yale’s and smaller ones. Schools with funds of at least $1 billion have earned 7.2 percent annually over the past decade, compared with an average of 6.2 percent for those from $101 million to $500 million. “A one-point difference over 10 years is pretty substantial,” says Ken Redd, director of research

“Our management team, in addition to outside contractors we engaged, worked hard under very stressful conditions to mitigate physical deficiencies on the sites.” ——Richard Hamlet, Global Ministries Foundation The bottom line Municipal bonds don’t only fund government and big public works. Sometimes the borrowers are private groups with shaky projects. $12m

Value of bonds issued for the apartments By endowment size More than $1b 7.2% $1b to $501m 6.7% $500m to $101m 6.2% $100m to $51m 5.9% $50m to $25m 5.6% Less than $25m 6.0%