Vanguard Chops Robo-Advisor Minimum to $100

Vanguard is slashing the minimum investment for its robo-advisor, Digital Advisor, to expand the service's availability to investors.

The giant asset manager announced Wednesday it will lower the minimum asset requirement to $100 from $3,000 for Digital Advisor, a service for managing short- and long-term financial goals.

Launched in 2020, the all-digital financial planning and investment advisory service offers personalized, low-cost advice, the company says. The platform had more than $19 billion in assets under management as of June 30.

"Lowering the investment minimum for Vanguard Digital Advisor is an important step in our endeavor to broaden investors' access to advice, and to empower them earlier in their financial journey," Brian Concannon, who heads the platform, said.

"We believe that advice strengthens investors' ability to navigate their personal finance and investment needs, and can drive better investment outcomes."

Digital Advisors offers personalized coaching; access to both active and index funds; an automated tax-loss harvesting option and other tax-efficiency features; planning for couples; and trading in fractional shares to allow timely cash investment. These features represent recent additions or enhancements to the service, Vanguard noted.

Jeff DeMaso, The Independent Vanguard Adviser founder and editor, said Vanguard's new move to allow fractional share trading in its advice programs allowed the fund company to lower the Digital Advisor minimum.

"The bottom line is that this is a win for small investors as they can be more fully invested in a diversified portfolio," DeMaso told ThinkAdvisor by email Wednesday.

"For investors with larger balances, it doesn't really move the needle as they could already achieve this using Vanguard's index mutual funds. To that point, Vanguard could have gone to a $100 minimum long ago by waiving the minimums on its index mutual funds, but ETFs are the go-to vehicle for robo- advisors," he said.

DeMaso also addressed the issue in his newsletter.

"A hundred bucks is very low, particularly considering that one share of Total Stock Market ETF (VTI) costs around $270. In the past, you could only trade Vanguard ETFs in whole shares. So, if you only had $100 to invest, well, you couldn't buy Total Stock Market ETF — full stop," he wrote.

"Even if you had $3,000, your ability to reach your desired asset allocation while being fully invested was hindered. For example, with your $3,000, you could purchase ten shares of Total Stock Market ETF. But you'd be left with roughly $300 in cash," DeMaso added.

Trading in fractional shares is standard operating procedure for old-school mutual funds while trading ETFs has always been more complicated, but that's starting to change, he explained.

Fractional share trading "has allowed Vanguard to beta-test automatic, recurring ETF investments. In other words, Vanguard is working to make ETFs function, or at least trade, more like mutual funds, DeMaso wrote.

David Goldstone, Condor Capital Wealth Management manager of investment research, said via email that adding fractional share capabilities, in addition to allowing lower minimum investments, also can help improve tax-loss harvesting efficiency.

"One of the biggest impacts robo-advisors have had on the investing landscape is increasing accessibility to professionally managed accounts. Low minimums like this one have opened the doors to new investors and democratized professional money management," Goldstone wrote.

Daniel Sotiroff, Morningstar senior manager research analyst, said the reduction in minimum investment "was a move by Vanguard to be more competitive by going after smaller investors."

Morningstar's Robo-Advisor Landscape report last year showed that Vanguard's $3,000 minimum was one of the higher thresholds among the 20 robo-advisors evaluated; only four others had higher minimums, he told ThinkAdvisor by email Wednesday.

"Why now? Some of that might be enabled by the success of the platform — more clients and assets means Vanguard can handle smaller accounts while keeping the overall service viable," Sotiroff said.

Vanguard Digital Advisor is one of the largest robo-advisors available and also one of the cheapest, at 0.15% per year, he said.

Image: Bloomberg