How Advisors Can Compete With Vanguard

At the Schwab Impact conference in Chicago this week, where some 5,000 advisors and wealth managers descended to talk about the latest in the industry, one question stood out: How do you compete with Vanguard?

In 2016 alone, when mutual fund and ETF providers collectively saw fresh net inflows of some $400 billion in assets, according to Morningstar data, Vanguard attracted a net of about $303 billion into its U.S. mutual funds and ETFs.

The firm’s version of a robo platform, Personal Advisor Services, continues to grow, and today already boasts some $90 billion in assets under management (AUM) gathered in just three years. No other robo—or hybrid—comes close.

‘Assault On Investment Management’

These statistics quantify what Joe Duran, founder and CEO of United Capital Financial Advisers, calls Vanguard’s “assault on investment management.”

Duran, who started his RIA firm 12 years ago, and today manages some $20 billion in AUM, is widely regarded in this industry as an advisor who built a firm from nothing, and one who’s managed to double his firm in size in the past three years.

“About 76% of advisor growth today is coming from formerly do-it-yourself investors, and most of them go to Vanguard,” he told a room full of advisors at the conference. “I’m not overly concerned about the robos, because they don’t have the brands to compete against advisors, but Vanguard does.”

The kicker, too, according to Duran, who secretly shops various robo platforms, is that as a consumer, the experience in Vanguard’s platform is “great, digital, really comfortable and really cheap.” There’s nothing not to like about it.

So, how do advisors compete with Vanguard?

Advisory Roots In Sales

If you talk to Michael Kitces, a certified financial planner and the director of wealth management at Pinnacle Advisory Group—which manages $1.8 billion in assets—you are reminded that the advisor business itself was originally built on product sales. Advisors started out as salespeople, and it was only after a few years on the job that they “graduated” to investment advice.

Today, with investment products and asset allocation models largely commoditized, it’s become increasingly difficult to compete in the advisory space, especially against titans like Vanguard.

“For a huge swath of financial advisors, they never actually gave advice,” Kitces told ETF.com. “They sold products. It’s the product-based ‘advisors’ that are being displaced.”

In an effort to survive, many have become what Kitces calls “generalists”—people who know a little bit more about everything than the next person.

“The problem with generalists is that they get commoditized, and commoditized markets go to the players with the biggest scale, players like Vanguard,” he said.

Vanguard’s lead in the space is undisputed, but there’s opportunity for advisors to grow. While there’s no single path, tapping on his own experience building an advisory from the ground up, Duran offered advisors at the conference a few thoughts:

Be where your clients are be on demand

Everyone is glued to their phones, including investors. Everyone expects immediate responses to their queries. As an advisor, offer that to clients.

“We all think the interaction face to face is the magic, but the alarming thing is that if you’re not on that phone, you’ll become irrelevant,” Duran said. “The Amazon-ing of business is unavoidable.”

Remember that the job is to make people live richly, not die rich

Know what purpose money has to a client. Don’t focus so much on investments—or product sales—and keep financial planning an ongoing exercise.

“We don’t get paid to build a plan, but we get paid to change the plan as life unfolds,” he said. “Charging for managing changes in their plan is how you’re going to compete and beat a Vanguard or anyone else who goes directly to consumers.”

Know and understand your clients better than anyone else in the industry

“If you don’t know what your clients want, it’s impossible for you to beat competitors,” Duran said. “If you can answer key questions about your clients, you can charge 1% and you will never lose them.”

Each generation has unique value drivers, according to him, with millennials prioritizing personalization, Gen X-ers convenience, and baby boomers trust. Know their priorities.

Be a coach for clients, not a teacher

Help clients understand what they are doing with their money, and also own their decisions. “More collaborative” fintech tools help with this.

“The role of technology is to provide scale; advisors provide perspective,” Duran said.

Focus on your core competency

This goes back to Kitces’ comment about “generalists”: Don’t be average at a lot of things. Instead, outsource everything you are not exceptional at doing, Duran says.

Charge for advice

Advice is what clients value, because investments can be automated and done by computers.

“If you’re not growing, the bottleneck is always at the top of the bottle; it’s you,” Duran said. “There’s great opportunity, but it requires you to think differently about client relationship.”

Contact Cinthia Murphy at [email protected]