According to United Capital's Joe Duran, Vanguard has quickly become the Amazon and Netflix of the financial advice industry.
"In every industry, whether it's the movie business where Netflix completely took out Blockbuster and every other video chain, to Amazon that's doing the same for retail, [to financial services where] our big bad monster is Vanguard," Duran said.
During a presentation at the Schwab Impact conference in Chicago, Duran gave the audience concrete ideas to help advisors successfully deliver financial advice in a world of disruption. Duran founded United Capital in 2005 and today the financial life management firm has more than 80 offices nationwide and more than $20.4 billion in assets under management.
Duran said that most people don't realize how big Vanguard is.
In the last four years, $1 trillion has gone to ETFs – of which $900 billion of it went to Vanguard.
"They were late entrants into the business and in the last four years they've taken 90% of the money that has gone into ETFs," Duran said. Vanguard's Personal Advisor Services offering began providing investment advice and financial planning for a 0.30% annual fee in 2014.
In the past three years, $823 billion went to Vanguard funds, which Duran said is 8.5 times as much as all of its competitors (4,000 firms took in $97 billion). In addition, according to Duran, nine out of every 10 net dollars invested in mutual funds or ETFs was absorbed by Vanguard.
According to Duran, Vanguard has fundamentally, by themselves, completely changed the value of what the industry can charge for investing.
"[Vanguard Personal Advisor Services is] already the largest wealth management firm in the country and they started three years ago," Duran said. "They have already surpassed $100 billion in wealth management assets and they charge 30 basis points. Thirty basis points to give you a dedicated planner who will run a plan whenever you want, invest your assets and give you a very nice mobile experience."
This is why Duran calls Vanguard "our Amazon."
"It's digital and it's really comfortable and it's really cheap," he added. "What it's going to do is open the eyes of the world to the future, and how we're going to have to compete with something that is incredibly compelling; really, really cheap; and really, really good for consumers.
In order to compete, advisors are going to have to change the way they work. To help them do so, Duran shared what he called his "playbook" with the six rules that advisors need to be confident they're going to win against Vanguard or any other direct-to-consumer player.
Duran said that United Capital itself is investing $35 million a year to build this playbook out because it believes this is what it takes to win.
1. You have to be where your clients are.
And clients are on their phone. Duran pointed out that the average human being spends about 3.36 hours per day on their cell phone.
"We pay more attention to our phone than we do our wives, our children, and anyone we work with," Duran said. "We spend more time glued to our phone, and why? … The phone is not a communication medium. A phone is your portal to the rest of the world. It's how the rest of the world interacts with you and it's how you interact with the rest of the world."
Advisors must get digital, Duran stressed.
"There is nothing more important for your future survivability than being on that phone as a point of contact," he said. Adding later, "Because here's what's happening: every consumer, every single consumer is interacting with the world through their phone. It has made office hours obsolete, and it has made geography obsolete."
2. You must live where your clients' lives and money intersect.
According to Duran, the industry can be obsessed with helping make sure people always have lots and lots of money so that they are never in a position to run out of money.
"Our industry still believes that's its primary responsibility – but it's not," he said. "A machine could do that for people."
Rather, an advisor's job is to help people live richly. This means understanding what clients want their life to be like and what purpose money has in their lives. Most importantly, Duran said it means measuring and tracking if the clients are doing with their money the things they say they want to do.
"Our job is to help people live richly – not die rich," he said.
According to Duran, every single human has a once-in-a-lifetime experience, which means that no client cannot envision or imagine what that one human is going to want, what mistakes they're going to make, what things are going to happen in their life.
"The reality is, we cannot predict the human's life or the market's life," Duran explained. "Given that, the obvious question is, 'Why do we plan?' What are [advisors] in fact getting paid for?"
As a response to this, Duran urged the audience to tell their clients, "You're not paying me to build a plan, you're paying me to change the plan. You're in fact paying me to correct this plan over time … Because your life will be a once-in-a-lifetime experience filled with things that neither of us can imagine and you're going to need me to make the changes right for you.
