Vanguard said to offer Digital Advisory Service [Robo-Advisor]

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Re: Vanguard said to offer Digital Advisory Service

Post by abuss368 » Sat Sep 21, 2019 7:49 am

Gleevec wrote:
Fri Sep 20, 2019 12:00 am
bluquark wrote:
Thu Sep 19, 2019 11:50 pm
Auto-TLH benefits are overwhelmed by roboadvisor fees; that's mostly a marketing bullet point to make it sound to people who haven't done the math that it's worth the cost. The 10bp savings compared to Betterment/Wealthfront here are a much better value than that feature.

For us hobbyists, it has no point, sure. But human advisers equally don't.
I would hope Vanguard would disrupt autoTLH robo fees the way it disrupted ER. Otherwise just buy target date or lifestrategy fund
That an interesting thought. There was no shortage of opportunities for TLH with international over the past decade.
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Re: Vanguard said to offer Digital Advisory Service

Post by livesoft » Sat Sep 21, 2019 7:50 am

This new thing will make it easier for Vanguard to buy out other roboadvisors such as Betterment and Wealthfront.
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Re: Vanguard said to offer Digital Advisory Service

Post by LadyGeek » Sat Sep 21, 2019 8:00 am

I merged BeachPerson's thread into the on-going discussion.
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Re: Vanguard said to offer Digital Advisory Service

Post by stan1 » Sat Sep 21, 2019 8:01 am

livesoft wrote:
Sat Sep 21, 2019 7:50 am
This new thing will make it easier for Vanguard to buy out other roboadvisors such as Betterment and Wealthfront.
Think so? I'm betting on slow strangulation not assimilation. Maybe Chase or B of A would buy Betterment or Wealthfront?

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Re: Vanguard said to offer Digital Advisory Service

Post by columbia » Sat Sep 21, 2019 8:03 am

abuss368 wrote:
Sat Sep 21, 2019 7:49 am
Gleevec wrote:
Fri Sep 20, 2019 12:00 am
bluquark wrote:
Thu Sep 19, 2019 11:50 pm
Auto-TLH benefits are overwhelmed by roboadvisor fees; that's mostly a marketing bullet point to make it sound to people who haven't done the math that it's worth the cost. The 10bp savings compared to Betterment/Wealthfront here are a much better value than that feature.

For us hobbyists, it has no point, sure. But human advisers equally don't.
I would hope Vanguard would disrupt autoTLH robo fees the way it disrupted ER. Otherwise just buy target date or lifestrategy fund
That an interesting thought. There was no shortage of opportunities for TLH with international over the past decade.
I used Betterment for about 6 months and trying to import the cost basis info from all of the churn into H&R Block the next tax year was a bit of a nightmare. I don’t know whom to “blame”, but I hope that’s improved.

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Re: Vanguard said to offer Digital Advisory Service

Post by drzzzzz » Sat Sep 21, 2019 8:23 am

I think many of the comments about TLH might be wishful thinking and more positive than what their statement actually says. When we used Vanguard PAS, for example, I had numerous discussions with them about TLH since their approach at that time made no sense to me - they only used average cost at that time rather than specific ID for identification purposes which meant that TLH would only occur if the entire position was underwater (we never did discuss what they would TLH into) - one of the major reasons we left PAS since you can't TLH without using specific ID or some other methodology that works. I got the impression TLH was more a hassle than a feature to them and at least with PAS I don't think they had any interest in looking at the account regularly to TLH, but more like at quarterly reviews.

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Re: Vanguard said to offer Digital Advisory Service

Post by ksJoe » Sat Sep 21, 2019 9:21 am

columbia wrote:
Sat Sep 21, 2019 8:03 am
abuss368 wrote:
Sat Sep 21, 2019 7:49 am
Gleevec wrote:
Fri Sep 20, 2019 12:00 am
bluquark wrote:
Thu Sep 19, 2019 11:50 pm
Auto-TLH benefits are overwhelmed by roboadvisor fees; that's mostly a marketing bullet point to make it sound to people who haven't done the math that it's worth the cost. The 10bp savings compared to Betterment/Wealthfront here are a much better value than that feature.

For us hobbyists, it has no point, sure. But human advisers equally don't.
I would hope Vanguard would disrupt autoTLH robo fees the way it disrupted ER. Otherwise just buy target date or lifestrategy fund
That an interesting thought. There was no shortage of opportunities for TLH with international over the past decade.
I used Betterment for about 6 months and trying to import the cost basis info from all of the churn into H&R Block the next tax year was a bit of a nightmare. I don’t know whom to “blame”, but I hope that’s improved.
Did you transfer assets out, then try to identify the cost basis per lot? That would hurt. I've been with Wealthfront for less than 2 years and taxes were easy, they just gave me summary totals (the deduction far exceeded their fee the first year).

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Vanguard Bets on Robo-Only Adviser

Post by usagi » Sat Sep 21, 2019 9:43 am

Vanguard Bets on Robo-Only Adviser

Source:

https://www.wsj.com/articles/vanguard-b ... 1568989446

It is a more fleshed out version of this Boglehead topic:

viewtopic.php?f=10&t=290769

The salient points I saw were:
Indexing giant Vanguard Group plans to launch a robo-advisory service that cuts out human financial advisers completely.

The total cost is expected to be about $20 on every $10,000 for individual investors once investment fees on the Vanguard funds the service will use are factored in.

Vanguard will have to contend with those earlier entrants into the fully automated robo-advisory market. The firm has also had to invest in improving its technology infrastructure after dealing with several website glitches in recent years.


My take away from this article is Vanguard is launching an offering that sounds fairly beta. There are references that seem to indicate they are not sure aside, from more customization, what the extent of the offering will be and it does acknowledge some technological challenges. It seems they clearly know they are playing catch-up but plan to dominate the space.

This is targeted at young investors.

I predict, the 2 or 3 fund portfolio will outperform simply do to the expense. It seems to me this is fairly pricey, (maybe all the robo-advisors are?). If I read this right it is about 2,000 per 1 million of assets. If you are one of the 2 or 3 percent safe withdraw rate types like I am, that is expensive relative to cash flow (and likely most robo-advisors are? I don't know Fido gives me access for free).
Last edited by usagi on Sat Sep 21, 2019 9:53 am, edited 4 times in total.

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Re: Vanguard said to offer Digital Advisory Service

Post by LadyGeek » Sat Sep 21, 2019 9:48 am

^^^ I merged usagi's post into the on-going discussion.

I also clarified the thread title. "Digital Advisory Service" means "Robo-Advisor".
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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by whodidntante » Sat Sep 21, 2019 9:58 am

Vanguard is late, and they are charging for basic things you can get elsewhere for free. Standard forum decorum applies though, cause Vanguard. Let's all assume it's better and make excuses if it's not. Pitter patter.

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Re: Vanguard said to offer Digital Advisory Service

Post by Gleevec » Sat Sep 21, 2019 10:16 am

livesoft wrote:
Sat Sep 21, 2019 7:50 am
This new thing will make it easier for Vanguard to buy out other roboadvisors such as Betterment and Wealthfront.
Maybe they can take one of the money market based checking options from Betterment and Wealthfront and rebrand it for Vanguard

My vote would be to call this new higher yield checking option, something that denotes the advantage of Vanguard... maybe something like VanguardAdvantage?

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Re: Vanguard said to offer Digital Advisory Service

Post by livesoft » Sat Sep 21, 2019 10:47 am

Gleevec wrote:
Sat Sep 21, 2019 10:16 am
d... maybe something like VanguardAdvantage?
Funny!
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Re: Vanguard said to offer Digital Advisory Service

Post by usagi » Sat Sep 21, 2019 11:04 am

livesoft wrote:
Sat Sep 21, 2019 7:50 am
This new thing will make it easier for Vanguard to buy out other roboadvisors such as Betterment and Wealthfront.
LOL. I am trying to imagine Vanguard's IT department trying to cope with using another companies technology...it would be hilarious. Vanguards has its fiefdoms and IT is one of them. They would end up spending millions only to encounter internal resistance [removed comment -mighty72(moderator)]. I would love to get a bowl of popcorn and watch that spectacle unfold.

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Re: Vanguard said to offer Digital Advisory Service

Post by Silence Dogood » Sat Sep 21, 2019 2:55 pm

columbia wrote:
Sat Sep 21, 2019 7:33 am
I’ve never actually called Vanguard, because I’ve never needed to. I’ve set my preferences to not receive any physical mail and I can’t recall ever getting a sales email from them.
To be clear, my preferences are and always were set to paperless.

I also rarely need to call Vanguard. After all, I have a one-fund portfolio.

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by tj » Sat Sep 21, 2019 3:03 pm

I have everything set to paperless, but I still get a ton of stuiff in the mail from Vanguard like an address change confirmation for each account.

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by Silence Dogood » Sat Sep 21, 2019 3:37 pm

tj wrote:
Sat Sep 21, 2019 3:03 pm
I have everything set to paperless, but I still get a ton of stuiff in the mail from Vanguard like an address change confirmation for each account.
Address change confirmation makes sense (for security).

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by tj » Sat Sep 21, 2019 3:40 pm

Silence Dogood wrote:
Sat Sep 21, 2019 3:37 pm
tj wrote:
Sat Sep 21, 2019 3:03 pm
I have everything set to paperless, but I still get a ton of stuiff in the mail from Vanguard like an address change confirmation for each account.
Address change confirmation makes sense (for security).
Indeed, I've also received postcards for VPAS...

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by gw » Sat Sep 21, 2019 8:27 pm

What is auto-TLH worth for some tlh-optimized version of the three fund portfolio?

I saw that VPAS offered some kind of TLH, and I see the comment saying it wasn't very good, and I see that it's mentioned in the filing for the new thing. Also see that fees can get as low as 10 bps for larger accounts.

Is 10 bps for Auto-TLH on 3-fund a good trade?

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by ksJoe » Sat Sep 21, 2019 8:46 pm

gw wrote:
Sat Sep 21, 2019 8:27 pm
What is auto-TLH worth for some tlh-optimized version of the three fund portfolio?
Its worth a lot. I've seen harvesting as little as $6

Wealthfront slices and dices to an asset allocation, based on how you answer their questions. Its more than 3 categories of funds, but similar idea.

This is what Wealthfront has accomplished for me:
I opened the account July 3, 2018 with $5000 deposit
July 20th 2018 I started a weekly $1000 deposit

Total invested: $66,000
Current balance: $69,500

Total harvested loses to date: $2197
Total fee paid to Wealthfront: $80

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Re: Vanguard said to offer Digital Advisory Service

Post by nedsaid » Sat Sep 21, 2019 10:33 pm

smectym wrote:
Fri Sep 20, 2019 10:33 pm
Silence Dogood wrote:
Fri Sep 20, 2019 10:10 pm
rolandtorres wrote:
Thu Sep 19, 2019 3:10 pm
Reading this thread, one thing Vanguard could do would be to hire a social community manager to come on this forum or other places and explain to Bogleheads who these future offerings are for and implicitly not for. Here's a hint- based on what's been published so far about this, it's probably not for DIY, well-read folks with more than a passing interest in personal finance in their decumulation phase who are in the +90th percentile for those that have the time/interest in optimizing and customizing their finances. Keep doing what you're doing and respect that Vanguard is trying to serve a different retail customer than you and that this offering may be a godsend for others compared to what else is out there.
If it's not for me then why send me postcards in the mail?

Why the weekly email? Or the pop-up when signing in? Or the prominent banner ad?

I don't mind that they offer the service, I just wish they'd leave me alone about it.

I'm 100% invested in one of their own Target Retirement funds, by the way.
Wait a sec, I never get postcards from Vanguard, and I’ve been invested with them for a period which spans two millenia
Wow! I have never interacted with a person who is 2,000 years old before. :wink: Taylor Larimore is just a kid.
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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by gw » Sun Sep 22, 2019 8:15 am

ksJoe wrote:
Sat Sep 21, 2019 8:46 pm
gw wrote:
Sat Sep 21, 2019 8:27 pm
What is auto-TLH worth for some tlh-optimized version of the three fund portfolio?
Its worth a lot. I've seen harvesting as little as $6

Wealthfront slices and dices to an asset allocation, based on how you answer their questions. Its more than 3 categories of funds, but similar idea.

This is what Wealthfront has accomplished for me:
I opened the account July 3, 2018 with $5000 deposit
July 20th 2018 I started a weekly $1000 deposit

Total invested: $66,000
Current balance: $69,500

Total harvested loses to date: $2197
Total fee paid to Wealthfront: $80
Thanks, that's pretty impressive.

Has anyone worked out like how many bps it's worth in expectation?

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by xb7 » Sun Sep 22, 2019 11:20 am

Just say "no" to AUM (Assets Under Management) schemes. Half of something bad is still something bad.

Is it really that much harder or time consuming to generate a plan for, say, a $5 million portfolio as it is for a $1 million portfolio or a $100,000 portfolio? Especially if, as some have suggested, they're just steering you to a handful of bogle-like ETFs or something similar. Maybe when a person signs up initially the annual cost doesn't seem bad, but as your asset base (hopefully) grows, they'll charge you more and more to presumably do roughly the same thing.

If Vanguard is really a "mutual mutual" fund company, i.e., out to keep costs low and operate in the best interests of their owner-clients --- then I suggest that they would offer financial planning in a fee-based manner, perhaps paid for on the basis of time/effort needed to generate the plan or of the complexity of the plan (so long as not needlessly complex ...). In a robo-advisor world I suppose that boils down to a high enough fee to get back their investment in the technology, but after that ...

In any event, barring senility I plan to avoid AUM schemes like the plague.

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by Silence Dogood » Sun Sep 22, 2019 11:54 am

xb7 wrote:
Sun Sep 22, 2019 11:20 am
Is it really that much harder or time consuming to generate a plan for, say, a $5 million portfolio as it is for a $1 million portfolio or a $100,000 portfolio? Especially if, as some have suggested, they're just steering you to a handful of bogle-like ETFs or something similar. Maybe when a person signs up initially the annual cost doesn't seem bad, but as your asset base (hopefully) grows, they'll charge you more and more to presumably do roughly the same thing.
they'll charge you more and more to hopefully* do roughly the same thing.

My primary concern is that they would feel the need to "do more" to justify the costs.

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by bluquark » Sun Sep 22, 2019 12:45 pm

gw wrote:
Sun Sep 22, 2019 8:15 am
ksJoe wrote:
Sat Sep 21, 2019 8:46 pm
gw wrote:
Sat Sep 21, 2019 8:27 pm
What is auto-TLH worth for some tlh-optimized version of the three fund portfolio?
Its worth a lot. I've seen harvesting as little as $6

Wealthfront slices and dices to an asset allocation, based on how you answer their questions. Its more than 3 categories of funds, but similar idea.

This is what Wealthfront has accomplished for me:
I opened the account July 3, 2018 with $5000 deposit
July 20th 2018 I started a weekly $1000 deposit

Total invested: $66,000
Current balance: $69,500

Total harvested loses to date: $2197
Total fee paid to Wealthfront: $80
Thanks, that's pretty impressive.

Has anyone worked out like how many bps it's worth in expectation?
ksJoe's example is the best case scenario for TLH. EOY 2018's dip (especially with a new, small portfolio) was a golden opportunity for TLH.

In the long run, auto-TLH has diminishing returns. The longer your holding period, the less likely it is that your stocks will end up below cost basis at the same amount of volatility. The larger your portfolio, the more you're likely to run into the $3000/year income deduction limit. Meanwhile, Wealthfront's 0.25% AUM fee keeps adding up.

I can't estimate the average, but I know the maximum possible benefit from TLH. Assuming ~50% ordinary tax rate (blue state+federal), you can save $1500 a year on taxes from TLH. That is breakeven with the 0.25% Wealthfront fee with a $600K portfolio.

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by usagi » Mon Sep 23, 2019 10:51 pm

I think the big shame in all of this is that many people who sign up for PAS or a Robo-advisor will never enlist the services of a comprehensive financial planner, as in someone who looks holistically at things beyond investments.

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by azanon » Tue Sep 24, 2019 7:35 am

xb7 wrote:
Sun Sep 22, 2019 11:20 am
Just say "no" to AUM (Assets Under Management) schemes. Half of something bad is still something bad.

Is it really that much harder or time consuming to generate a plan for, say, a $5 million portfolio as it is for a $1 million portfolio or a $100,000 portfolio? Especially if, as some have suggested, they're just steering you to a handful of bogle-like ETFs or something similar. Maybe when a person signs up initially the annual cost doesn't seem bad, but as your asset base (hopefully) grows, they'll charge you more and more to presumably do roughly the same thing.
This is all absolutely true if there is no increase gained by "behavioral coaching", be it by a human adviser or a digital one. Vanguard did a study from 08'-12' that found approximated that value at 150pb. (source if interested: https://advisors.vanguard.com/iwe/pdf/FASQAAAB.pdf )

Regarding the increasing costs for increasing sized portfolios, another way to think of it is that there's more at stake with larger portfolios, so that's why you pay more. So that 150bp "alpha" also goes up along with that rising AUM cost. So you're saying those with larger portfolios deserve a better deal, from a net value perspective?

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Re: Vanguard Bets on Robo-Only Adviser

Post by azanon » Tue Sep 24, 2019 7:51 am

usagi wrote:
Sat Sep 21, 2019 9:43 am
The total cost is expected to be about $20 on every $10,000 for individual investors once investment fees on the Vanguard funds the service will use are factored in.
So then it's about what I was thinking earlier - an extra 6bp (give or take ~ 1bp) vs. a VG Target Retirement mutual fund, because it'll be comprised of the cheaper individual funds.

My initial thought is I probably wouldn't pay 15bp more over Target Date. But 6bp is really tempting, depending on how nifty those tools are and any potential improvements in one's ability to stay the course.

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by xb7 » Tue Sep 24, 2019 11:12 am

azanon wrote:
Tue Sep 24, 2019 7:35 am
xb7 wrote:
Sun Sep 22, 2019 11:20 am
Just say "no" to AUM (Assets Under Management) schemes. Half of something bad is still something bad.

Is it really that much harder or time consuming to generate a plan for, say, a $5 million portfolio as it is for a $1 million portfolio or a $100,000 portfolio? Especially if, as some have suggested, they're just steering you to a handful of bogle-like ETFs or something similar. Maybe when a person signs up initially the annual cost doesn't seem bad, but as your asset base (hopefully) grows, they'll charge you more and more to presumably do roughly the same thing.
This is all absolutely true if there is no increase gained by "behavioral coaching", be it by a human adviser or a digital one. Vanguard did a study from 08'-12' that found approximated that value at 150pb. (source if interested: https://advisors.vanguard.com/iwe/pdf/FASQAAAB.pdf )

Regarding the increasing costs for increasing sized portfolios, another way to think of it is that there's more at stake with larger portfolios, so that's why you pay more. So that 150bp "alpha" also goes up along with that rising AUM cost. So you're saying those with larger portfolios deserve a better deal, from a net value perspective?
Let's say that for the $100,000 portfolio they're going to look at age and maybe a few "learn about the client" survey questions for risk appetite and then generate a portfolio similar to what one of the target date funds would produce. And for the $million portfolio they do exactly the same thing and give the same few-fund portfolio in the same proportions. Why should the latter person pay ten times as much for the same work, the same advice?

I'm not saying that I know this to be true --- the boglehead four-fund portfolio seems just fine to me and not difficult to manage, so I have no experience here. Just going on what I've been reading by various PAS clients online on this site.

I don't think that the "more at stake" argument holds any weight, however --- it doesn't suggest to me that any more thought or work would go into generating the portfolio. I'm just saying that it makes sense to pay for services rendered. As my asset base grows, *I* should be the beneficiary, and not an advisor who is doing no more work as a result.

FWIW, I DO think that there are some things that change as portfolio size changes, or at least can change. The relative sizes of overall portfolio vs. annual spending might reasonably change and with a good financial planner I could see that factoring in, depending on the client profile and situation. Other client life situations might certainly be factored in. If the planner is spending more time and effort on it, then it certainly makes sense that the fee goes up. It makes no sense, and for me it's completely unacceptable that the fee goes up just because the portfolio size has increased.

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by azanon » Tue Sep 24, 2019 11:54 am

xb7 wrote:
Tue Sep 24, 2019 11:12 am
azanon wrote:
Tue Sep 24, 2019 7:35 am
xb7 wrote:
Sun Sep 22, 2019 11:20 am
Just say "no" to AUM (Assets Under Management) schemes. Half of something bad is still something bad.

Is it really that much harder or time consuming to generate a plan for, say, a $5 million portfolio as it is for a $1 million portfolio or a $100,000 portfolio? Especially if, as some have suggested, they're just steering you to a handful of bogle-like ETFs or something similar. Maybe when a person signs up initially the annual cost doesn't seem bad, but as your asset base (hopefully) grows, they'll charge you more and more to presumably do roughly the same thing.
This is all absolutely true if there is no increase gained by "behavioral coaching", be it by a human adviser or a digital one. Vanguard did a study from 08'-12' that found approximated that value at 150pb. (source if interested: https://advisors.vanguard.com/iwe/pdf/FASQAAAB.pdf )

Regarding the increasing costs for increasing sized portfolios, another way to think of it is that there's more at stake with larger portfolios, so that's why you pay more. So that 150bp "alpha" also goes up along with that rising AUM cost. So you're saying those with larger portfolios deserve a better deal, from a net value perspective?
Let's say that for the $100,000 portfolio they're going to look at age and maybe a few "learn about the client" survey questions for risk appetite and then generate a portfolio similar to what one of the target date funds would produce. And for the $million portfolio they do exactly the same thing and give the same few-fund portfolio in the same proportions. Why should the latter person pay ten times as much for the same work, the same advice?
I don't want to repost the same thing, but for some reason, you're missing or not accepting that the behavioral finance aspect of having an adviser is going to be stronger (on average) than a DIYer with no adviser. Rephrased, regardless of whether the end portfolio is the same, as a DIY you have no advisor going forward vs. someone that does. That's the biggest part of the value of what you're paying for.

Maybe you personally will "Stay the course", but on average, it's not going to even be close - on average, the one with the adviser will outperform. There are more studies than you can shake a stick at that say most people actually don't stay the course on their own. Don't get me wrong, I'm not saying you personally don't fall in that minority that can stay the course.

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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by xb7 » Tue Sep 24, 2019 12:16 pm

azanon wrote:
Tue Sep 24, 2019 11:54 am
I don't want to repost the same thing, but for some reason, you're missing or not accepting that the behavioral finance aspect of having an adviser is going to be stronger (on average) than a DIYer with no adviser. Rephrased, regardless of whether the end portfolio is the same, as a DIY you have no advisor going forward vs. someone that does. That's the biggest part of the value of what you're paying for.

Maybe you personally will "Stay the course", but on average, it's not going to even be close - on average, the one with the adviser will outperform. There are more studies than you can shake a stick at that say most people actually don't stay the course on their own. Don't get me wrong, I'm not saying you personally don't fall in that minority that can stay the course.
I do accept this, especially in the way that you stated it. Guess I didn't address it because it doesn't interest me personally --- I'm not the type to panic-call an advisor when the market drops (which perhaps is part of the reason I'm happy without an advisor).
Indeed, there's more to that client-advisor relationship than making/fielding such panic-calls, I don't mean to make light of it.

What I do question is, again, how proportional is this to the size of assets under management? If anything, one might think that the person with the larger asset base might be more experienced and need less advisor interaction over time. It still comes down to me to paying for what you get in some fair manner. For this too, it's not at all clear that an AUM approach is any sort of fair way to go.

And we don't have to agree here (!). My intention here isn't to argue or win a debate or anything like that --- I think it's helpful to share differing ideas and we can all take what we want to out of the resulting discussion.

My mind is open here, though --- I'm happy to change it, and acknowledge that my response is certainly based at least in part on my own dynamics, beliefs, habits, etc, and I agree that what's true for me personally isn't necessarily right for the investing public at large.

All that said, I still really dislike the AUM approach! :-)

azanon
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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by azanon » Tue Sep 24, 2019 12:46 pm

xb7 wrote:
Tue Sep 24, 2019 12:16 pm
azanon wrote:
Tue Sep 24, 2019 11:54 am
I don't want to repost the same thing, but for some reason, you're missing or not accepting that the behavioral finance aspect of having an adviser is going to be stronger (on average) than a DIYer with no adviser. Rephrased, regardless of whether the end portfolio is the same, as a DIY you have no advisor going forward vs. someone that does. That's the biggest part of the value of what you're paying for.

Maybe you personally will "Stay the course", but on average, it's not going to even be close - on average, the one with the adviser will outperform. There are more studies than you can shake a stick at that say most people actually don't stay the course on their own. Don't get me wrong, I'm not saying you personally don't fall in that minority that can stay the course.
What I do question is, again, how proportional is this to the size of assets under management? If anything, one might think that the person with the larger asset base might be more experienced and need less advisor interaction over time. It still comes down to me to paying for what you get in some fair manner. For this too, it's not at all clear that an AUM approach is any sort of fair way to go.

..........

All that said, I still really dislike the AUM approach! :-)
I did forget one thing - I do agree with scaling the AUM as the portfolio hits certain thresholds. I want to say most of them do this (including Vanguard). So maybe we actually do agree to some extent. Now if you're not open to AUM with any hypothetical scaling (e.g. one that drops faster than those currently used) then I guess we do disagree. Now i didn't see in the brochure where they intended to this for the Digital advisory version, but maybe that's intentional. For example, if you have 5+ million and qualify for the 0.20% rate with the "personal" advisory services, then maybe just get that instead of the Digital variant at 0.15%.

I'm curious though - what kind of fee system would you propose in its place where the adviser is also the custodian? If the custodian "perpetually" manages/is in charge of the money, wouldn't that suggest a perpetual fee of some sort?

Did you see my other point though? For the digital vs. lifestrategy (its real competitor IMO), that extra delta is more like 6bp, not 15. That's getting to where it's not going to be any major hit to the portfolio. That's $600/million/year. Cable TV costs more than that.

xb7
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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by xb7 » Tue Sep 24, 2019 1:17 pm

azanon wrote:
Tue Sep 24, 2019 12:46 pm
I'm curious though - what kind of fee system would you propose in its place where the adviser is also the custodian? If the custodian "perpetually" manages/is in charge of the money, wouldn't that suggest a perpetual fee of some sort?
In general I prefer the NAPFA approach --- fee-only financial planners: https://www.napfa.org/about-us
Recognizing that I've never used their services and so have no personal experience. I should probably put that last sentance in bold capital letters ...

If I pay someone to mow my lawn, I would pay them a fee in proportion to the size of the lawn and maybe other difficulty factors or other services included ("make sure you sweep up grass off the sidewalk and trim the edges"). So like that; a fee based on the work done. In the case of the lawn, indeed the size of the lawn is a factor. I just dispute that the size of the portfolio is a very good analogy to the size of the lawn mowed.
Did you see my other point though? For the digital vs. lifestrategy (its real competitor IMO), that extra delta is more like 6bp, not 15. That's getting to where it's not going to be any major hit to the portfolio. That's $600/million/year. Cable TV costs more than that.
I'm not quite following you there. As I recall, VPAS charges 0.3% of AUM, whereas the new VDAS would charge half that, 0.15% of AUM.
So using your example of a million dollar portfolio, instead of $3,000 per year it comes to $1,500 per year. Still seems like a lot for me, especially when you no longer do get any sort of personal interaction, just a robo-template applied based, I presume, upon a limited amount of data about you and your portfolio size.

Now imagine if over time your one million dollar portfolio grows to be a five million dollar portfolio (we can all hope, right? :-)). Now under VPAS you're paying $15,000 per year, and with VDAS "merely" $7,500 per year. My point is that I seriously doubt if they're doing five times the work, or that you're getting anything like five times the value.

It will be interesting to get feedback as we go along from people who use this (VDAS) service, but keep in mind there will be a bias there. Someone who has committed to spending the money to use such a service will inherently have a bias to demonstrate that they're spending their money wisely. I'm not saying they'll necessarily be wrong, just that there's a human nature bias.

I don't know about the lifestrategy thing that you're talking about. Certainly if the cost per AUM gets low enough, I will despise the AUM approach less. But in your example of $600 per year --- "Cable TV costs more than that". Note that I don't subscribe to cable TV either! :-)
I think this is one of the characteristics of some successful investors, a bias to keep costs down. There certainly should be a strong correlation of penny pincher types inclining towards Vanguard.

azanon
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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by azanon » Tue Sep 24, 2019 1:46 pm

xb7 wrote:
Tue Sep 24, 2019 1:17 pm
azanon wrote:
Tue Sep 24, 2019 12:46 pm
I'm curious though - what kind of fee system would you propose in its place where the adviser is also the custodian? If the custodian "perpetually" manages/is in charge of the money, wouldn't that suggest a perpetual fee of some sort?
Did you see my other point though? For the digital vs. lifestrategy (its real competitor IMO), that extra delta is more like 6bp, not 15. That's getting to where it's not going to be any major hit to the portfolio. That's $600/million/year. Cable TV costs more than that.
I'm not quite following you there. As I recall, VPAS charges 0.3% of AUM, whereas the new VDAS would charge half that, 0.15% of AUM.
So using your example of a million dollar portfolio, instead of $3,000 per year it comes to $1,500 per year. Still seems like a lot for me, especially when you no longer do get any sort of personal interaction, just a robo-template applied based, I presume, upon a limited amount of data about you and your portfolio size.
I was comparing Vanguard Target Retirement Funds (~ 13bp) vs. Digital Advisory Services (15bp fee + 4bp for the funds/etfs that they'll use such at VG Total stock Market = 19bp). So +6bp vs. VG Target Retirement. Now sure, it's the full 15bp vs. a 100% DIY buying a 3 fund portfolio.
xb7 wrote:Now imagine if over time your one million dollar portfolio grows to be a five million dollar portfolio (we can all hope, right? :-)). Now under VPAS you're paying $15,000 per year, and with VDAS "merely" $7,500 per year. My point is that I seriously doubt if they're doing five times the work, or that you're getting anything like five times the value.

It will be interesting to get feedback as we go along from people who use this (VDAS) service, but keep in mind there will be a bias there. Someone who has committed to spending the money to use such a service will inherently have a bias to demonstrate that they're spending their money wisely. I'm not saying they'll necessarily be wrong, just that there's a human nature bias.
The only one I personally buy into is the behavioral coaching aspect. If someone reported they're staying the course now, and they didn't before when they tried to do it all themselves, then this is going to pay for itself by a long shot. If not, we have way too many threads where we try to talk people out of not panic selling if the damage is only going to be less than 15bp to their returns.
xb7 wrote:I don't know about the lifestrategy thing that you're talking about. Certainly if the cost per AUM gets low enough, I will despise the AUM approach less. But in your example of $600 per year --- "Cable TV costs more than that". Note that I don't subscribe to cable TV either! :-)
I think this is one of the characteristics of some successful investors, a bias to keep costs down. There certainly should be a strong correlation of penny pincher types inclining towards Vanguard.
I said lifestrategy, but VG Target Retirement is a better comparison since that's what these typically mirror. In any event, the bottom line is I wouldn't recommend either of the personal advisory services if someone felt like and has proven that they can stay the course. I'm only advocating either to those that can't do that, or haven't been able to do that by reflecting on their past behavior.

Silence Dogood
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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by Silence Dogood » Tue Sep 24, 2019 3:59 pm

azanon wrote:
Tue Sep 24, 2019 1:46 pm
Maybe you personally will "Stay the course", but on average, it's not going to even be close - on average, the one with the adviser will outperform. There are more studies than you can shake a stick at that say most people actually don't stay the course on their own. Don't get me wrong, I'm not saying you personally don't fall in that minority that can stay the course.
Did you see my other point though? For the digital vs. lifestrategy (its real competitor IMO), that extra delta is more like 6bp, not 15.
I said lifestrategy, but VG Target Retirement is a better comparison since that's what these typically mirror.
If we are making this comparison, shouldn't we take into account that Target Retirement fund investors perform better than average?

azanon
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Re: Vanguard said to offer Digital Advisory Service [Robo-Advisor]

Post by azanon » Tue Sep 24, 2019 7:20 pm

Silence Dogood wrote:
Tue Sep 24, 2019 3:59 pm
azanon wrote:
Tue Sep 24, 2019 1:46 pm
Maybe you personally will "Stay the course", but on average, it's not going to even be close - on average, the one with the adviser will outperform. There are more studies than you can shake a stick at that say most people actually don't stay the course on their own. Don't get me wrong, I'm not saying you personally don't fall in that minority that can stay the course.
Did you see my other point though? For the digital vs. lifestrategy (its real competitor IMO), that extra delta is more like 6bp, not 15.
I said lifestrategy, but VG Target Retirement is a better comparison since that's what these typically mirror.
If we are making this comparison, shouldn't we take into account that Target Retirement fund investors perform better than average?
Yeah I’m aware of that so the question is will a digital advisor allow for even more improvement?

tj
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Re: Vanguard Bets on Robo-Only Adviser

Post by tj » Wed Sep 25, 2019 10:44 am

azanon wrote:
Tue Sep 24, 2019 7:51 am
usagi wrote:
Sat Sep 21, 2019 9:43 am
The total cost is expected to be about $20 on every $10,000 for individual investors once investment fees on the Vanguard funds the service will use are factored in.
So then it's about what I was thinking earlier - an extra 6bp (give or take ~ 1bp) vs. a VG Target Retirement mutual fund, because it'll be comprised of the cheaper individual funds.

My initial thought is I probably wouldn't pay 15bp more over Target Date. But 6bp is really tempting, depending on how nifty those tools are and any potential improvements in one's ability to stay the course.
I'm super curious too. Especially if the digital advisor will allocate your IRA's and taxable accounts tax efficiently. That would seem to add at least 6bp value vs a target date.

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