My pet peeve with Vanguard Personal Advisory Service

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dave1054
Posts: 108
Joined: Wed Apr 01, 2009 7:50 am

My pet peeve with Vanguard Personal Advisory Service

Post by dave1054 » Sun Apr 14, 2019 3:14 pm

Really good article in WSJ on April 7 by Jason Zweig.
YOU PAY FOR NETFLIX AND SPOTIFY MONTHLY. WHAT ABOUT FINANCIAL PLANNING?
Sorry, I think the link is restricted to subscribers.

Anyway, the gist of article is we pay fees for entertainment, doctor fees, and most other things in life except the finance industry that charges a percentage of assets. Schwab is moving away from this model but most others including Vanguard are kicking and screaming.

I wish Vanguard would be in the forefront of these changes. For small accounts it does not matter much but for large accounts, it is highway robbery. For example, an account of 10 million with blended fee structure is charged $25000 per year. Not much more work than 100k account.

I know what the DIYers will say, but what about others on this forum?

Silk McCue
Posts: 2160
Joined: Thu Feb 25, 2016 7:11 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by Silk McCue » Sun Apr 14, 2019 3:22 pm

Go hire a fee only advisor that you trust that only charges by the hour and move on. PAS is a good deal if you aren’t a DIYer like most folks are here. You have other options - choose one.

Cheers

Rob1
Posts: 115
Joined: Thu May 04, 2017 2:57 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by Rob1 » Sun Apr 14, 2019 4:16 pm

I agree. I’m happy that Vanguard is trying to bring fees down with their PAS product. Also, I was very happy to hear Vanguard’s CEO, Tim Buckley, state a top company priority is to continue to disrupt the advice space, and to reduce advice fees further (on a recent Vanguard podcast). However, I wish they would change their current fee model.

Trader Joe
Posts: 595
Joined: Fri Apr 25, 2014 6:38 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by Trader Joe » Sun Apr 14, 2019 4:25 pm

dave1054 wrote:
Sun Apr 14, 2019 3:14 pm
Really good article in WSJ on April 7 by Jason Zweig.
YOU PAY FOR NETFLIX AND SPOTIFY MONTHLY. WHAT ABOUT FINANCIAL PLANNING?
Sorry, I think the link is restricted to subscribers.

Anyway, the gist of article is we pay fees for entertainment, doctor fees, and most other things in life except the finance industry that charges a percentage of assets. Schwab is moving away from this model but most others including Vanguard are kicking and screaming.

I wish Vanguard would be in the forefront of these changes. For small accounts it does not matter much but for large accounts, it is highway robbery. For example, an account of 10 million with blended fee structure is charged $25000 per year. Not much more work than 100k account.

I know what the DIYers will say, but what about others on this forum?
Seems silly to me. I do not pay for any financial planning. I am the financial planner. Do it yourself is the way to go. That is why this website exists.

Corgitodd
Posts: 39
Joined: Thu Mar 09, 2017 2:45 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by Corgitodd » Sun Apr 14, 2019 4:40 pm

I saw recently Schwab has started offering cheaper advisory services. Perhaps Vanguard will follow suit?

tibbitts
Posts: 8566
Joined: Tue Feb 27, 2007 6:50 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by tibbitts » Sun Apr 14, 2019 5:19 pm

dave1054 wrote:
Sun Apr 14, 2019 3:14 pm
Really good article in WSJ on April 7 by Jason Zweig.
YOU PAY FOR NETFLIX AND SPOTIFY MONTHLY. WHAT ABOUT FINANCIAL PLANNING?
Sorry, I think the link is restricted to subscribers.

Anyway, the gist of article is we pay fees for entertainment, doctor fees, and most other things in life except the finance industry that charges a percentage of assets. Schwab is moving away from this model but most others including Vanguard are kicking and screaming.

I wish Vanguard would be in the forefront of these changes. For small accounts it does not matter much but for large accounts, it is highway robbery. For example, an account of 10 million with blended fee structure is charged $25000 per year. Not much more work than 100k account.

I know what the DIYers will say, but what about others on this forum?
Sorry I lost you when you suggested using any medical expenses as a payment model. Talk about not knowing ahead of time what something will actually cost you...

dbr
Posts: 28542
Joined: Sun Mar 04, 2007 9:50 am

Re: My pet peeve with Vanguard Personal Advisory Service

Post by dbr » Sun Apr 14, 2019 5:30 pm

Be careful. One might not necessarily appreciate having their account dinged for $50 every time they call Vanguard about something and $50 again for the next 15 minutes of conversation -- and that is at cheap hourly rates. But, I agree if someone has $10M on account and is paying $25k every year for that, the model is not a good one.

randomguy
Posts: 7411
Joined: Wed Sep 17, 2014 9:00 am

Re: My pet peeve with Vanguard Personal Advisory Service

Post by randomguy » Sun Apr 14, 2019 6:01 pm

Rob1 wrote:
Sun Apr 14, 2019 4:16 pm
I agree. I’m happy that Vanguard is trying to bring fees down with their PAS product. Also, I was very happy to hear Vanguard’s CEO, Tim Buckley, state a top company priority is to continue to disrupt the advice space, and to reduce advice fees further (on a recent Vanguard podcast). However, I wish they would change their current fee model.
To what? Would paying a flat 3k/year be better? The people with 100k, would pay 10x as much and the people with 10 million would pay almost 1/10th as much. You would be picking out a different set of winners and losers. There are pluses and minuses to both approaches. I am guessing Vanguard is losing money on the 100k accounts and hoping to make it up over time as those accounts grow+. They make it up by charging the higher end accounts more.

It is easy to say the best way would be something like 5k up front (i.e. some spends 10+ hours talking with you and setting up a plan) + 1k/year for updates (2-3 hours/year when things come up) while account maintenance (rebalancing, adding funds, TLH, selling tax efficiently,...) basically costs nothing (i.e. the amount of computing power and trading costs is pretty low). But I bet you will find a lot of people would would object to writing that initial check and would rather pay 3k/year.

In the end professional services always turn out to be really expensive. Unless you can automate a lot, it is hard to get the cost down to "reasonable" levels. The schawab approach looks reasonable (300 upfront + 30/month) looks great but they are also investing in products that make them money.

Jags4186
Posts: 3145
Joined: Wed Jun 18, 2014 7:12 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by Jags4186 » Sun Apr 14, 2019 6:10 pm

It’s a tough business model to price. In order for financial advisors to be able to service people with small amounts of money they must make a lot of money from people who have a lot of money. While most on this forum have no need or use for a financial advisor, there are lots of people who need hand holding.

Let’s say a good financial advisor is going to spend 10 hours working on a holistic plan for a new client and spends 3 hours each of the next 4 years with the client and managing the clients assets. Let’s say this client comes to him with $10,000 and can save $10,000/yr. And let’s say the advisor has an hourly rate of $200/hr. The client could never make any headway in the early years because the fees would eat up any and all gains in the early years.

On the flip side, let’s say the same client is charged 1.5% in AUM fees. That advisor in year one makes $150 year one or $15/hr. That doesn’t cover the administrative costs of setting up the account let alone all of the time spent working with the client.

Glad I’m not in the business.

Rob1
Posts: 115
Joined: Thu May 04, 2017 2:57 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by Rob1 » Sun Apr 14, 2019 6:28 pm

randomguy wrote:
Sun Apr 14, 2019 6:01 pm
Rob1 wrote:
Sun Apr 14, 2019 4:16 pm
I agree. I’m happy that Vanguard is trying to bring fees down with their PAS product. Also, I was very happy to hear Vanguard’s CEO, Tim Buckley, state a top company priority is to continue to disrupt the advice space, and to reduce advice fees further (on a recent Vanguard podcast). However, I wish they would change their current fee model.
To what? Would paying a flat 3k/year be better? The people with 100k, would pay 10x as much and the people with 10 million would pay almost 1/10th as much. You would be picking out a different set of winners and losers. There are pluses and minuses to both approaches. I am guessing Vanguard is losing money on the 100k accounts and hoping to make it up over time as those accounts grow+. They make it up by charging the higher end accounts more.

It is easy to say the best way would be something like 5k up front (i.e. some spends 10+ hours talking with you and setting up a plan) + 1k/year for updates (2-3 hours/year when things come up) while account maintenance (rebalancing, adding funds, TLH, selling tax efficiently,...) basically costs nothing (i.e. the amount of computing power and trading costs is pretty low). But I bet you will find a lot of people would would object to writing that initial check and would rather pay 3k/year.

In the end professional services always turn out to be really expensive. Unless you can automate a lot, it is hard to get the cost down to "reasonable" levels. The schawab approach looks reasonable (300 upfront + 30/month) looks great but they are also investing in products that make them money.
I think something closer to a flat fee (doesn't need to be a pure / one fee for all model) would be more equitable. The amount of cross subsidization in the current model is too great, in my opinion.

BTW, on the podcast I reference, Tim Buckley stated that Vanguard plans to do exactly what you point out - further leverage technology to automate much of their advice services.

venkman
Posts: 898
Joined: Tue Mar 14, 2017 10:33 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by venkman » Sun Apr 14, 2019 10:38 pm

Doesn't Vanguard offee free access to a financial planner to clients with accounts more than $1 million?

I don't know how much free advice you're able to get, but it seems like they should at least be able to set up your portfolio the same way PAS does, and provide the occasional check-in.

Rob1
Posts: 115
Joined: Thu May 04, 2017 2:57 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by Rob1 » Mon Apr 15, 2019 1:00 am

venkman wrote:
Sun Apr 14, 2019 10:38 pm
Doesn't Vanguard offee free access to a financial planner to clients with accounts more than $1 million?

I don't know how much free advice you're able to get, but it seems like they should at least be able to set up your portfolio the same way PAS does, and provide the occasional check-in.
Yes, they do. In fact my understanding is that Vanguard rolled the portfolio planning service under the same department as PAS. So you get the same portfolio set up process as PAS, with a very respectful soft sales pitch for PAS when the plan is presented.

michaelingp
Posts: 106
Joined: Tue Jan 17, 2017 8:46 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by michaelingp » Mon Apr 15, 2019 9:56 am

Silk McCue wrote:
Sun Apr 14, 2019 3:22 pm
Go hire a fee only advisor that you trust that only charges by the hour and move on.
I'm not sure this is as easy as it sounds. Suppose I have a simple (for an expert) question about Civil Service retirement. If I find a fee only advisor, can I pay her for one hour of her time, like I can pay a lawyer? In my experience, no. The fee-only advisors I've researched all want $2,000 or $3,000 up front to interview you and provide a "financial plan". Then they want to meet with me for a few hours every year to make sure my financial plan is still sound. I understand how a financial plan might cost that much (and be worth it), but I don't want that, I just want the answer to my Civil Service questions. In other words, the fee-only advisors I've researched all want an expensive relationship with you before they answer questions by the hour (if they even do that). I can see that $2,000 or $3,000 is a lot less than, say, 1% of my assets per year, but it's still more than I want to pay to answer what should be a simple question for an expert.

Silk McCue
Posts: 2160
Joined: Thu Feb 25, 2016 7:11 pm

Re: My pet peeve with Vanguard Personal Advisory Service

Post by Silk McCue » Mon Apr 15, 2019 3:12 pm

michaelingp wrote:
Mon Apr 15, 2019 9:56 am
Suppose I have a simple (for an expert) question about Civil Service retirement.
Bogleheads is the perfect place to ask those type of questions. No use in trying to construct a scenario where hiring the right fee only advisor (Garrett Planning Network, Alan Roth, Rick Ferri etc) won’t meet your needs in order to dismiss an excellent alternative to AUM based pricing.

Cheers.

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beyou
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Location: Northeastern US

Re: My pet peeve with Vanguard Personal Advisory Service

Post by beyou » Mon Apr 15, 2019 3:39 pm

If you have questions, you can get answers online yes.
If you don't know what questions to ask, and don't want to learn, you need an advisor.
It can be expensive deciding not to learn.
Those that decide not to learn, probably dont know about the Schwab announcement nor maybe even PAS.
They just know a guy.....

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