Vanguard’s McNabb: DOL Got It Right; Get Used to Shrinking Fees

Vanguard was on board early with robo advisor technology. "We got an inside look early and were very impressed with where these firms were taking the technology and [how they were] really thinking about automation of advice in different ways."  He said that's how Vanguard's digital advice platform Personal Advisor was born, which he describes as "a hybrid."

Today the firm uses robo-tech for smaller accounts, those in the $50,000 to $200,000 range. It launched Personal Advisor in May 2015, and to date it has $40 billion in AUM. McNabb admitted $10 billion of that was from clients who moved money over from other Vanguard services. However, $30 billion is new money from mostly existing clients, he said. Personal Advisor charges 30 basis points, which can go down depending upon the amount of many managed.  Again, he strongly advised the audience to adopt new technology. "Rather than push back on technology, find ways to benefit yourself," he said. "The hybrid model will be the winning model."

Technology also led to a discussion on fees. McNabb sees a "big secular change going on" as the industry moves from transactional to a fee-based advisory. "And part of that is a continuing reduction of fees," he said.

Admitting the fee reduction forecast could be the "least popular thing someone will say on stage" at the Morningstar conference, he suggested "one of two things will happen and probably both: a high probability fees go lower, or you'll do a lot more for what you charge. It's inevitable," he said.  One area that hasn't yet seen much pricing pressure "is distribution, and advice [is] next. It will get competed away to a degree."

When asked how he envisioned Vanguard in 10 years, he said, "We will be far more global, not only in client reach but how we run things. We're already moving pretty aggressively down that path where we run our investments on global basis. Our CIO has established teams in the Pacific and Europe. And we now run money 24/7 for our clients. Our global footprint is $300 billion in non-US investment. We see tremendous appetite for what we do. There's [an international] need for lower cost, broader products, and thoughtful research, which we think we can provide."

He said that on the product side Vanguard would offer more tools for advisors to "create holistic portfolios to deal with a drawdown phase," which he believes will be the norm in the next decade. He also believes advisors should prepare clients for a lower return environment. Finally, he said that in going global, Vanguard would rely more on telephone and simplification to communicate since our "PC-centric tech world doesn't exist elsewhere."

One thing he promised advisors won't see in Vanguard's future: branch offices or named rights stadiums.

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