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Vanguard Review

Vanguard Review

Description

Vanguard offers premium hybrid-advisory services at a comparatively low price. But are their usability issues and high account minimum worth it?

Vanguard Review

Introduction

Vanguard Personal Advisor Services isn't your typical robo-advisor.

One of the two robo-advisory pioneers, Wealthfront, set the tone for newer rivals such as Acorns by offering a cheaper, digital-only solution to high independent financial planner fees. Betterment, the older of the pioneers, is more accurately a hybrid-advisory that combines computer-generated algorithms with human financial advisors.

Vanguard is well-known for having pioneered low-cost mutual funds. In fact, many of their competitors rely on Vanguard's mutual funds to provide the same option for their own clients.

And by electing to follow in Betterment's footsteps as a hybrid-advisory, the company continues to reduce fees for investors.

Managing $5.3 trillion in client assets, there's no denying that Vanguard is one of the biggest players on the market. It's precisely due to their size that they've been able to help turn the notoriously exclusive practice of investment into a viable option for the general population.

As part of their sign-up process, you'll be asked a number of questions. These help Vanguard to create a personalized investment plan for you, based on your age, income, current assets, financial goals, and any investments you currently have.

It does take longer for Vanguard to formulate that personalized investment strategy than most of their competitors: approximately three weeks. But once they have that plan ready, they'll set up a consultation appointment with you. You'll get to speak to one of their certified financial planners via phone or video chat.

If you decide to move forward with the recommendations presented during this consultation, Vanguard begins building your investment portfolio according to the agreed-upon asset allocation. While this will be predominantly dependent on your stated financial and investment goals, you can expect there to be a healthy dose of low-cost stocks and bonds.

At first-glance, Vanguard may seem more expensive than their competitors. While Betterment and Wealthfront only charge 0.25% of assets owned, Vanguard charges 0.30%. However, you have to remember that once your Betterment account reaches $100,000, their fees increase to 0.40% to account for the human advisors. Vanguard's fee actually drops the higher your account balance reaches.

While Vanguard deals predominantly with commission-free exchange-traded funds (ETFs), you can still expect to pay 0.04% to 0.12% in trading fees. However, this is still relatively low-cost: after all, that's the company's claim to fame.

Clearly, there's a lot to consider before deciding whether Vanguard Personal Advisor Services is the right option for you.

That's what our review is for – to help you make an informed decision.

Quick Facts

  • Management fees: Starting at 0.30% and dropping down the pricing tier with higher account balances.
  • Account minimum $50,000

Vanguard is Best For

Vanguard has a lot going for themselves – and we'll be looking into all of it in the next section. Here are the type of investors who will best benefit from Vanguard's services:

  • Investors with high account balances
  • Those looking for both robo-advisory services and access to certified financial planners at a low cost
  • Investors who want/need comprehensive financial planning

Pros

There are definitely many areas wherein the Vanguard Personal Advisor Services shines. These are the reasons we're fond of the company:

+Free Consultations & Financial Planning

That three-week wait after completing the sign-up questionnaire is definitely worth the quality of the resulting consultation.

As mentioned in our introduction, this phone or video chat consultation session includes a complete breakdown of the personalized financial plan their algorithms have generated for you.

Best of all, you're under no obligation to complete the registration process by becoming a paid customer.

You can walk away with a comprehensive financial and investment plan free of charge.

+Low Management Fees

If you do decide to become a client, you'll get to enjoy Vanguard's comparatively low management fees.

0.30% may seem like a lot when compared to Wealthfront's 0.25%. It would be more apt to compare Vanguard Personal Advisor Services to Betterment Premium, another hybrid-advisor plan that's more similar to what Vanguard offers.

As mentioned earlier, Betterment Premium carries an account minimum of $100,000 (double Vanguard's) and management fees of 0.30%.

Here's how Vanguard's pricing tier works out:

Account Balance Management Fees
$50,000 to $5 million 0.30%
$5 million to $10 million 0.20%
$10 million to $25 million 0.10%
$25 million and up 0.05%

By the time your assets total $5 million, Vanguard actually becomes one of the cheapest options available, for both robo- and hybrid-advisors.

+Low-Cost Funds

Each Vanguard portfolio is developed on a client-by-client basis and uses Vanguard funds primarily. Because the company carries some of the lowest expense ratios on the market, this is a huge benefit for investors.

These portfolios mainly contain index funds and (in select cases) actively managed funds. However, clients also have the option of including a money market fund for liquidity.

With the Core account, you'll also enjoy access to Vanguard's Admiral Shares. Usually reserved for high-net-worth customers only, these stock market index funds are easily the lowest-cost assets available.

Additionally, your portfolio may include a total bond index market fund, international bond index market fund, international stock market index fund, and municipal bonds. The latter is comprised of limited-, intermediate-, and long-term funds that are tax-exempt.

+Comprehensive Management

As a Vanguard Personal Advisor Services customer, your trusts, brokerage account, and individual retirement account (IRA) will be directly managed by the hybrid-advisor.

However, so long as you've divulged information regarding other accounts – such as your 401k, 529 college savings plan, and any other brokerage accounts you have – you can also get advice on these. Vanguard takes these into consideration when formulating your financial plan.

While the company will not be managing these separate accounts for you, the advice given can be invaluable.

+Account Rebalancing

Part of their direct management services includes automatic account rebalancing.

This is one of the largest benefits afforded to robo-advisor customers. Because the computer-generated algorithms are constantly monitoring your account, Vanguard's financial experts will intervene as soon as your portfolio deviates as little as 5% from your investment targets.

These deviations can happen for a myriad of reasons: deposits, withdrawals, fluctuations in the market, etc. Staying on track with your goals is key to a successful investment career. Automatic rebalancing will take a huge weight off your shoulders.

+24/7 Monitoring & Quarterly Reports

While there's no real need for you to personally monitor your portfolio, it's always the sign of a smart investor.

Vanguard allows you to monitor your account 24/7, through your online dashboard, as well as the app. If your goals change – which they tend to do as time goes by – you can easily adjust them yourself.

However, for the most part, you'll want to merely observe. Vanguard's certified financial advisors are available for consultation more often than not (see next “pro”).

As an added benefit, Vanguard will also send you quarterly progress reports. This helps you to better understand how your investments are performing. It's also nice to have that information available on paper, especially for quick reference during a consultation.

+Financial Advisors

One of the biggest benefits to Vanguard being a hybrid-advisor rather than a regular robo-advisor is human contact. Having human contact is invaluable to the smart investor.

Your financial advisor is your solid foundation when times are turbulent. It's easy to trade reactively – going into something of a blind panic when the stock market is on a downward trajectory (for example). In times like these, we tend to make emotional decisions regarding our investments.

This is never a good idea. Your financial advisor will help you to make genuinely necessary adjustments to your portfolio, such as major milestones like marriage or having a child. Just as importantly, they'll be a voice of reason against making poor investment choices.

A robo-advisor, on the other hand, will typically send you a notification stating that a change you're about to make will impact your portfolio performance negatively in the long-term. But it won't be able to effectively convince you against making those changes regardless.

Vanguard has some of the best certified financial planners in the industry.

One thing they don't make quite clear enough is the fact that you need an account balance of at least $500,000 in order to access a dedicated advisor for a fee. It's only once your account is in excess of $1 million that you'll be able to have a dedicated financial planner available at no extra cost.

However, you'll still be able to contact one of their certified financial planners via email, or set up a phone or video consultation appointment, regardless of your account balance. The only difference is that you won't be guaranteed of getting the same person each time.

+Tax-Advantaged Asset Allocations

Investments can be tax-heavy in terms of your liabilities. One of the services you can expect to receive during your consultations is assistance in careful portfolio diversification.

Diversification is first and foremost a means of optimizing your portfolio performance in terms of overall returns. However, in terms of asset allocations, diversification also means that tax-deficient assets are going to be placed in tax-advantaged accounts. Assets that are more tax-efficient will be favored in your taxable accounts.

Cons

While there's a lot to love about Vanguard Personal Advisor Services, it's not a perfect solution for everyone. Here are the four areas where their competitors outperform.

-Account Minimum

Robo-advisors typically carry a low account minimum, such as Betterment's $0 or Wealthfront's $500.

Hybrid-advisors, on the other hand, have much higher account minimums. Vanguard is no exception to the rule. By any measurement, $50,000 isn't an amount most people have available to start investing with.

On the plus side, it's more accessible than Betterment Premium and Personal Capital. Both hybrid-advisors carry an account minimum of $100,000.

-No Automatic Tax-Harvesting

While Vanguard does offer tax-advantaged asset allocation portfolio diversification, as mentioned in the previous section, they don't perform automatic tax-loss harvesting.

Instead, the company approaches tax-loss harvesting on a client-by-client basis. This means that if you don't know about the practice and its advantages, you're less likely to benefit from its use. Even if you do request tax-loss harvesting, you may have to request it each time, as Vanguard won't monitor your account on a daily basis with the specific intent of finding tax-loss harvesting opportunities.

The company says this is by design due to the risks of tax-loss harvesting. While they make a valid point, many financial experts consider the rewards to outweigh these risks (though not always).

Unfortunately, this means that investors who understand the benefits of tax-loss harvesting are likely to find better value elsewhere.

-Customer Experience

Vanguard's website is fairly straight-forward, even though they have an extensive range of investing tools. These include calculators, education materials, retirement planning guidelines, and simulators.

However, the trade-off is that it's often frustratingly difficult to find what you're looking for.

When testing such complaints for accuracy, we found ourselves turning to Google search at least half the time. And even then, you need to be careful which link you click. When looking for the Vanguard Personal Advisor Services home page, for example, their landing page comes up first.

Their app isn't much better, unfortunately.

Is Vanguard Right For You?

As a hybrid-advisor, Vanguard combines the strengths of independent financial planners with those of robo-advisors. As such, they seem a little pricier. But when properly considered in terms of their competition, they actually offer premium services at very reasonable rates.

Still, you want your investment activities to be as smooth-sailing as possible. The considerable usability issues are sure to give discerning investors pause.

There's clearly a lot of factors to consider before making a judgment call.

Conclusion

As a high-net-worth investor, you'd be hard-pressed to find better service quality than that provided by Vanguard. And if you take a more hands-off approach, the usability issues shouldn't be of much concern.

And if you don't fall into the company's target market, it would still be highly beneficial to take advantage of their free consultation.

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