Vanguard offers the Vanguard Personal Advisor Services at 0.3% of assets under management. As of December 2020, Vanguard had a total of $148.6 billion enrolled in this program, far exceeding startups Betterment and Wealthfront.
In many ways, working with an Advice-Only financial advisor is still much better than using Vanguard Personal Advisor Services.
Investment Management vs Financial Planning
Vanguard Personal Advisor Services is primarily an investment management service. The emphasis is on managing your investments: coming up with an asset allocation and rebalancing. Although there’s an element of goal forecasting, it’s not comprehensive financial planning.
For instance, the word “insurance” doesn’t appear at all in the Vanguard Personal Advisor Services Brochure filed with the SEC dated March 30, 2021. You are not getting advice on life insurance, disability insurance, health insurance, or long-term care insurance. The phrase “tax planning” does not appear in the brochure either. Social Security appears once, relating to the projected income, not relating to planning a strategy for when you should take Social Security.
You can ask the Vanguard advisor questions on financial planning and you may get a high-level answer pointing you in a general direction, but don’t expect a detailed analysis on subjects beyond managing your investments.
A former client of Vanguard Personal Advisor Services reported that Vanguard did not use specific lot identification to minimize capital gains in rebalancing. The service also did not advise how much a client should convert from a traditional IRA to a Roth IRA.
If you need investment management and only investment management, and you are not too concerned about minimizing capital gains, Vanguard Personal Advisor Services may be OK. If you need advice on more than that, working with an Advice-Only financial advisor is much better. As I wrote elsewhere, the managing part is only mechanical and in some ways trivial. Once you have the advice on what to do, actually doing it is not a big deal. See Why Advice-Only?
Investments At Vanguard vs All Your Investments
Even for managing your investments, Vanguard Personal Advisor Services only deals with your investments at Vanguard. You can tell Vanguard about your other investments, but Vanguard does not plan around them. Vanguard expects you to mirror the recommended asset allocation in your other accounts.
Suppose the only good fund in your 401k account is an S&P 500 fund, Vanguard won’t say your domestic large cap allocation is taken care of in your 401k, and therefore they will use your Vanguard accounts to fill out the rest of your asset allocation plan. Instead, they will do a complete allocation in your Vanguard accounts and tell you to mirror it in your 401k.
The reason for this approach is that Vanguard is not able to monitor your 401k and in order to protect themselves they have to show the asset allocation for your assets at Vanguard is appropriate for you on a stand-alone basis.
An Advice-Only financial advisor doesn’t have this restriction. They can consider all your accounts whether you wish to consolidate to one place or keep them separate. Sometimes you have to keep the accounts separate, as in the case of an employer 401k plan. Sometimes you prefer to keep them separate.
If all your investments are at Vanguard or if you are able and willing to move all your investments to Vanguard, Vanguard Personal Advisor Services is workable. If you keep investments elsewhere, it’s better to work with an Advice-Only financial advisor on the full picture.
Rising Fees vs Level Or Lower Fees
Because the fees for Vanguard Personal Advisor Services are set as a percentage of assets, it has the same problem as other services priced on assets under management (see AUM Fees and Financial Planning: The Odd Couple). Fees for Vanguard Personal Advisor Services go up over time as your assets grow. Even after you retire and you start withdrawing, your assets typically still grow. As the replies to this tweet show, even advisors who charge their customers a percentage of assets don’t like paying their own technology vendors based on assets under management.
Advice-Only financial advisors base their fees on the actual or estimated hours, not on the size of your investments. The initial planning takes more time. The reviews and revisions in subsequent years typically take less time. As a result, your fees for the second year, the third year, and beyond are usually lower than your fees in the first year.
Vanguard Personal Advisor Services is great for people who have relatively small accounts. If you have $100k to invest, Vanguard charges only $300 in the first year. It’s hard to find an Advice-Only financial advisor to give you comprehensive financial planning for only $300. If you have $500k to invest, fees for Vanguard Personal Advisor Services will be $1,500 in the first year, which will go higher over time. When you work with an Advice-Only financial advisor, you may pay $3,000 in the first year for comprehensive financial planning but only $1,000/year in subsequent years for reviews and check-ins. Over multiple years you will pay less and receive more comprehensive advice, which is the most valuable part.
The advisors working for Vanguard Personal Advisor Services are Vanguard employees. They execute the asset allocation strategy set at the corporate level rather than from their own judgment and experience. For instance, Vanguard currently recommends 30% of your fixed-income allocation should be in international bonds. Then each of Vanguard’s hundreds of advisors will recommend 30% of your fixed-income allocation should be in international bonds.
As such, the Vanguard advisors don’t have to be very experienced themselves. Vanguard publishes a very brief bio for each of their advisors in this Supplement to the Ask a CFP Professional, Vanguard Financial Plan, and Vanguard Personal Advisor Services Brochures. You will see many Vanguard’s advisors came from their customer service or back-office departments. Many are under 30. They went through training and received a credential.
By comparison, Advice-Only financial advisors are typically principals of their own business. Many have been running their practice for over 10 years. Some are former business executives. They are much more experienced than the typical advisors working for Vanguard Personal Advisor Services. Please see some profiles of Advice-Only financial advisors in How Qualified Are Advice-Only Financial Advisors?
In conclusion, Vanguard Personal Advisor Services is a good service to have your investments managed consistently at a reasonable cost if:
- You only want investment management; and
- You are not too concerned about the tax consequences in managing investments; and
- Your investments are or will be all at Vanguard; and
- The size of your portfolio isn’t very large (say under $500k); and
- You are OK with having someone just communicate the corporate strategy.
However, working with an Advice-Only financial advisor is much better and often less expensive over time if:
- You need help beyond just investments; or
- You care about the tax consequences in managing your investments; or
- You value advice more than the mechanics of placing orders; or
- You must or you prefer to keep some investments outside Vanguard; or
- You already have a large portfolio; or
- You’d like to leverage the experience of a more seasoned advisor.