Vanguard’s always had a do-it-yourself ethos around their products and message, the idea that high-priced fund managers and stock pickers were inferior compared to the power of an individual investor using low-cost index exposure. But in recent years, its utility to the new breed of fee-only financial advisors and planners has exploded and a nice relationship has developed in the process between the pros and Valley Forge.
The first thing a breakaway broker does when he or she becomes a fee-only fiduciary is stop selling high-cost mutual funds and start lowering the internal expenses of client portfolios. No firm has been a better partner to the advisors endeavoring to do that than Vanguard. And thanks in part to this trend, Vanguard’s gotten itself over the $2 trillion mark in AUM, an historic milestone.
In a wide-ranging interview at Index Universe, Vanguard’s Chairman Emeritus Jack Brennan talks about this symbiosis…
…Parallel to the ETF explosion, if you will, was a relatively rapid change in the thoughts about the advisor-value proposition. Where is the advisor’s value? Is it in picking between Cisco and Intel today? Or is it picking between large-cap, growth-fund A or large-cap, growth-fund B? I don’t think so.
What’s happened is the value proposition of the advisor has gone up a level to strategy, such as helping people really do planning and helping people manage those plans and stay on that plan, rather than the small tactics of selection here or selection there. ETF fits beautifully into that. If your value added is that strategy, the tool is the ETF. That combination of a fabulous new tool in ETFs and the advisor’s change to an asset-based fee structure is a great explanation for the change…
…Most people need an advisor. They really do, because they serve as a guide, as a strategist, as a shock absorber for them. If you don’t have an advisor, then how do you establish your plan? Investing is for pros. It’s not a game. This is not whether the Raiders won or lost on Sunday. This is a 20- or 30-year endeavor. You should kick the tires before you hire an advisor. Look them in the eye. Do I trust them? Give me some client referrals? How do you think about implementation of strategies? And so on. It’s a big deal. This is arguably bigger than picking a doctor.
I would say that not everyone needs an advisor, but most people would benefit from having one at a certain level of wealth. Many people can invest for retirement themselves, it’s just a question of being willing to put in the time on an ongoing basis and block out powerful emotions (harder to do with one’s own money). And while most people need an advisor, no people need a broker. You don’t need Vanguard to tell you that.
The other thing I’d add is that the ETF and Index Fund Fee War being waged between Vanguard, BlackRock, State Street and Schwab is pretty fantastic for investors and an even greater boon for my colleagues in wealth management. When market exposure becomes essentially free or next to free, we can focus on the more critical aspects of the advisor-client relationship – retirement planning.