Vanguard: The Real ‘Cyborg’ Threat
Let’s also not forget what Vanguard has been doing. In true Vanguard fashion, the firm is pioneering in a pioneer space, offering a unique take on the technology theme with an offering that’s part robo, part human.
The robo initiative here, Personal Advisor Services, includes an office staffed with 100-or-so financial professionals, but the interaction is done virtually, not in person. And portfolio management is high tech. They are using a lot of technology solutions, but are still offering human-based advice customized to clients.
“Vanguard is the most disruptive of all of these solutions because it competes with human advisors, and it does it at a robo price point of 0.3 percent,” Kitces said. “They are frankly the biggest threat to both worlds—they offer more value than a robo for the robo price, and offer as much value as a financial advisor at a fraction of the price.”
“But [Vanguard] is not really a robo even though it’s been characterized that way,” he added. “They’re really a hybrid—I like to call them cyborgs—and cyborgs are doing much better than either robos or advisors.”
Why This All Matters: Technology
At the core of the transformation taking hold across the advisory industry is a realization that in order to attract new—younger—clients, there needs to be a change in the delivery mechanism of advice and investment solutions.
But pursuing innovation can’t be done by losing sight of the fact that there’s no such thing as a generational divide when it comes to better technology. Everyone wants better tools and everybody uses technology.
The largest pure-robo advisors combined have total assets of maybe $6 billion—a miniscule fraction of the overall investment universe today.
“The need for face-to-face consultative relationships is not going to go away,” said Steve Blumenthal, head of CMG Capital Management Group. “To focus on creating a robo platform to capture the millennial generation is ignoring the 98% of where the wealth is.”
“The technology within the robo construct is what’s valuable to all advisors,” he said. “Our industry needs to get simplified that way, and make that experience better. The future is technology; it’s not robo.”