Paid non-client promotion. WalletHacks.com receives compensation when a reader provides personal information to Vanguard after clicking the “Vanguard Digital Advisor Services” links on this page.
Did you hear the news?
The world of robo-advisors might have a new entrant and it’s a huge one – Vanguard.
Table of Contents
What is Vanguard Digital Advisor?
Vanguard Digital Advisor will ask you a series of questions to establish risk tolerance and then recommend a portfolio based on your risk attitude assessment. These data points include “information relating to your family, age, risk tolerance, specific financial goals, investment time horizon, current investments, tax filing status, other assets and sources of income, investment preferences, planned spending, and existing financial/investment accounts.”
You currently can set one financial goal, saving for retirement, and they will ask how you’d respond to hypothetical scenarios to further assess your risk tolerance. It then appears you will be put in one of five risk attitude categorizations to build an asset allocation. You can review the different categorizations and pick a different one if you choose to (or if Vanguard is unable to assess your risk tolerance).
This all sounds like pretty standard robo-advisor stuff. Ask a few questions, establish some goals, assess risk, and build a portfolio to meet those.
There are accounts that Vanguard Digital Advisor can access and transact on (“Eligible account types include: individual, traditional IRA, Roth IRA, 401(k), and Roth 401(k) accounts authorized by plan sponsors”) but Digital Advisor can also include accounts it can’t transact on. With those, they can include those accounts in goal forecasting. This is also very familiar because it’s similar to what Personal Capital does with it’s tracking and goal success forecasting.
Also, as a retail investor, Vanguard Digital Advisor requires a minimum of $3,000 to start.
What does it invest in?
As you’d expect, Vanguard Digital Advisor will rely on exchange-traded funds. ETFs are useful for this because they have no minimums and low fees.
Specifically, it will recommend a mix of:
- Vanguard Total Stock Market ETF
- Vanguard Total International Stock ETF
- Vanguard Total Bond Market ETF
- Vanguard Total International Bond ETF
(sounds a lot like a simple three/four fund portfolio)
Vanguard Digital Advisor will not recommend “individual securities, bonds, CDs, options, derivatives, annuities, third-party mutual funds, closed-end funds, unit investment trusts, partnerships, or other non-Vanguard securities.”
Some may point to this and say – “hey, why is Vanguard only offering their own funds?”
Just look at the expense ratio of their funds:
- Vanguard Total Stock Market ETF – 0.03%
- Vanguard Total International Stock ETF – 0.08%
- Vanguard Total Bond Market ETF – 0.035%
- Vanguard Total International Bond ETF – 0.08%
Those expense ratios are ridiculously good.
Digital Advisor Fees
Vanguard is aiming for an annual net advisory fee of 0.15%, “although actual expenses will vary based on the specific holdings in your Portfolio and the net advisory fee you pay may also vary by enrolled account. The combined annual costs of enrolling in Digital Advisor and investing in Vanguard Funds in the Portfolio will be 0.20% for RIG Clients.”
So, Vanguard Digital Advisor will charge 0.15%, the underlying fees (for the funds) will be around 0.05% (blended average), so they expect the fee to be 0.20% after you include everything. This is lower than the 0.25% charged by the most popular robo-advisors (which doesn’t include the fees you pay for the underlying funds they choose).
What about Personal Advisor Services?
If this all sounds somewhat familiar, it’s because Vanguard currently offers a service called Personal Advisor Services.
Personal Advisor Services connects you with a financial advisor. It starts with you working with a human Vanguard advisor to understand your financial situation. The advisor works with you to create a custom plan. Once you agree to the plan, the advisor helps to build your portfolio with a mix of stock and bond funds according to that plan, all tracked through Vanguard. The service will review and rebalance your portfolio on a quarterly basis as needed.
It’s very much like today’s robo-advisors except you get a person (I recognize how silly that statement sounds, but a lot of folks are more familiar with robo-advisors than human ones!). I suspect some of the optimization (like rebalancing) is done by algorithms. It’s never explicitly stated but there’s no reason human intervention is required.
The minimum is $50,000 and the fees start at 0.30% on assets up to $5 million. Vanguard Personal Advisor is competitive with Betterment (0.25% – 0.40%) and Wealthfront (0.25%) but you work with a person, rather than an algorithm.
Vanguard Digital Advisor is cheaper but does not include a person.
Robo-advisors are very popular these days and it’s no surprise that Vanguard is offering a new service.
A few things that jump out – the fees are lower because Vanguard structures their fees differently. 0.20% vs. 0.25% may not seem like a big deal but the other roboadvisors charge a fee on top of the underlying funds.
For example, Betterment charges their advisory fee and you still pay the expense ratios of the underlying funds. If you’re paying 0.25% to Betterment, you’re also paying 0.04% to Vanguard if they put you into VTSAX. On the other hand, Vanguard owns the underlying funds and will “reduce your gross advisory fee by the amount of revenue that Vanguard (or a Vanguard affiliate) collects on your Portfolio to calculate the net advisory fee.” In other words, they will give you credit for the fees you pay for the underlying funds and your “all-in” cost will be no more than 0.20% (as it currently works for retail clients, it’s exactly 0.20%).
One of the big reasons why I haven’t used a Robo-advisor is because of the added complexity. If you look at these robo-advisor portfolios, they’re waaaaay too complex. That first Betterment account has a dozen funds. That’s going to create some tax filing headaches (not unbearable but it’ll be annoying) down the road. I like that Vanguard is sticking with four of their most diversified funds though that will make tax-loss harvesting a little trickier.
Lastly, I already use Vanguard so having it all remain under one roof is appealing.
Disclosures: All investing is subject to risk, including the possible loss of the money you invest.
For more information about Vanguard funds and ETFs, visit vanguard.com to obtain a prospectus or, if available, a summary prospectus. Investment objectives, risks, charges, expenses, and other important information about a fund are contained in the prospectus; read and consider it carefully before investing.
Vanguard Digital Advisor’s services are provided by Vanguard Advisers, Inc. (“VAI”), a federally registered investment advisor. VAI is a subsidiary of VGI and an affiliate of VMC. Neither VAI nor its affiliates guarantee profits or protection from losses.
Vanguard Digital Advisor is an all-digital service that targets an annual net advisory fee of 0.15% across your enrolled accounts, although your actual fee will vary depending on the specific holdings in each enrolled account. To reach this target, Vanguard Digital Advisor starts with a 0.20% annual gross advisory fee to manage Vanguard Brokerage Accounts. However, we’ll credit you for the revenues that The Vanguard Group, Inc. (“VGI”), or its affiliates receive from the securities in your managed portfolio by Digital Advisor (i.e., at least that portion of the expense ratios of the Vanguard funds held in your portfolio that VGI or its affiliates receive). Your net advisory fee can also vary by enrolled account type. The combined annual cost of Vanguard Digital Advisor’s annual net advisory fee plus the expense ratios charged by the Vanguard funds in your managed portfolio will be 0.20% for Vanguard Brokerage Accounts. For more information, please review Form CRS and the Vanguard Digital Advisor brochure.
Vanguard Marketing Corporation, Distributor of the Vanguard Funds.
About the comments on this site:
These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
I recently dropped Vanguard Personal Advisor since all the human does is rebalance the portfolio and creates a quarterly statement, that they use over and over again. This was for an IRA and followed the set it and forget it approach. I saw little value in the human for the cost especially being 10 years from retirement.
I currently have robo-advisor accounts with WealthFront (.25%), Betterment (.25%) and Usaa (.5%). All aggressive tracks. WealthFront and Betterment are performing similarly, but Usaa is performing way ahead of the other two (ie: 3.5x better last month) using iShare funds (ITOT, IXUS, AGG) . It is tough because I like the idea of cheaper fees (.15%), but I hate to pull out of a winning brokerage to pay less fees but end up with a smaller portfolio anyways. This is the true embodiment of first world problems!
A Journey to FI says
I recently transferred my portfolio from Betterment to Vanguard. My justification was similar, 1) too complex of a portfolio, 2) the extra fee and 3) lower performance compared to a simple S&P 500 fund. I do like the TLH piece but if I weight performance, simplicity over TLH, then I favor performance and simplicity.
Neal Chowdhury says
Recently signed up for digital advisor with Vanguard – switched from Wealthfront. Is anybody else having technical issues with this site or is it just me? I am something of a financial novice, so maybe these are just my problems – and I know this is a pilot so it will improve. I have had issues with just moving money into the fund (won’t let me transact online) and I made a basic user error by not transferring my sold assets into the money market settlement fund – I put them in the money market fund instead. Also – just from an end user/consumer standpoint, the interface/website of Wealthfront was just far superior. Thanks
The biggest problem with Vanguard Digital Advisor is it competes with Vanguard Target Date Funds. The target date fund is cheaper and doesn’t have as much idle cash. I don’t buy into TLH or tax location. TLH is tax deferral and tax location makes it very difficult to know your true (after tax) asset allocation.
Just one clarification if I may – the fees are a LOT lower than other robos. As the article correctly states, the 0.20% for Digital Advisory Service is an “all in” fee. By comparison, Betterment is 0.25% advisory PLUS the fees for the ETFs that they buy, so I don’t know this exactly, but it’s probably another 0.10% or close to that.
Jim Wang says
I re-read the brochure and I think you’re correct, they call it a “net advisory fee,” and I’ll update the article.
You don’t have to keep $3k in the money market fund–I’m in the VDAS pilot, and $3k is the minimum to start investing (as is the minimum to invest in any of the individual ETFs). For example, I started VDAS in early Feb–then the markets…well…you know…ANYWHO I had less than $3k in my IRA (spread across the ETFs), with about $!00 in the money market fund.
Beluga Jones says
Is Vanguard going to deploy a new mobile app?! I love my Vanguard account, but the mobile app experience is miserable. The page for the Vanguard Digital Advisory is clean and sharp – perhaps a mobile app to accompany is in the making as well!?
Jim Wang says
When was the last time you used it? I find it to be on par with a lot of other mobile apps and offers all the functionality I need, it just doesn’t look as slick as some other though.
I currently have a Roth IRA with Vanguard. Do I have to open a new account, or can I use the same Roth for this service?
Jim Wang says
I’m not 100% sure – you may have to call to find out.
I am currently using Vanguard Personal Advisor Services. I am interested in transitioning to the Digital Advisor for the lower fee of .20%. Plus I don’t really feel that I need the “human experience” right now, and for the lower cost I think it would be a good move. Do you happen to know if you can transfer to the Digital Advisor for the Personal Advisor Services?
Jim Wang says
I don’t know how a conversion like that would work but it might be worth calling to find out, I can’t imagine it’s too difficult?
Note that joint accounts are currently restricted from using Vanguard Digital Advisor. The language in VG’s DA brochure on this is a bit confusing. Joint accounts are eligible to be managed only by VG’s Personal Advisor Service currently.