To match Special Report INVESTING/ETF

Vanguard unveils advice and investing program for the hoi polloi

NEW YORK (Reuters) – Arguing that many of its customers cannot afford to pay high investment advisory fees, The Vanguard Group on Tuesday unveiled a low-cost service combining an automated investment plan with advice from a Vanguard financial planner.

After more than two years of testing, the mutual fund giant is rolling out its Personal Advisor Services to individuals who invest a minimum of $50,000, far below most conventional advisers’ minimums. It will charge 0.30 percent of assets annually for the service – or $150 on a $50,000 portfolio – well below the 1.0-2.0 percent range that many full-service firms and investment advisers offer to wealthy clients.

Advisers will primarily invest client assets in the lowest-cost share classes of Vanguard’s famously low-cost mutual funds, but will consider written requests for other holdings. Individuals with $500,000 or more in assets will be assigned a personal adviser. Others will be assigned advisers at random when logging in.

Vanguard has offered advisory and trust accounts for years that generally charged annual fees of 0.70 percent of assets and required minimum investments of $500,000. Over the next year, it will transfer those investors to the lower-fee program. Some $10 billion has already moved.

Vanguard said that during the pilot it attracted more than $7 billion of additional assets without direct marketing or advertising.

Vanguard’s direct-marketing-savvy, consumer-friendly reputation and focus on low- and high-end investors have the potential to threaten conventional brokerage and advisory firms as well as new “robo-advisers” that create portfolios of low-cost exchange-traded funds for neophyte investors.

“Its niche is being the low-cost provider, and if the automation works well it could be just as profitable with giving advice as with selling funds,” said Len Reinhart, head of Wealthcare Capital Management, which oversees $1.3 billion for wealthy investors.

As a nonprofit company that pays salaries rather than fees and commissions to its advisers, Vanguard says its intentions are less about competition than about helping needy customers.

“Demographic and behavioral trends point to an increased demand for advice, and we believe this new service can help more of our clients reach their financial goals,” Vanguard Chief Executive Bill McNabb said in a statement.

Sophisticated investors will still need customized advice on taxes, estate planning and niche areas the new service will not offer, Vanguard officials said.

They have good reason for calming words. About one-third of the $3.6 trillion sitting in Vanguard funds were sold through brokers and advisers.

(Reporting by Jed Horowitz; Editing by Leslie Adler)


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