Vanguard was in town last week for a confab at the Langham Hotel. The discussion covered many topics but by far the most compelling subject was The Future of Advice. What did Vanguard say?
Three Things Going Your Way
Let’s get right to it from the client point of view. Don Bennyhoff, Senior Investment Strategist of the Vanguard Investment Strategy Group, spoke eloquently about three trends Vanguard sees right now in the investment advisory business.
- Fees Are Going Down: This is an easy one. Expect to pay less for investment management and keep more for yourself. I couldn’t agree more and celebrate every step down the expense staircase. Vanguard has led the way in expense control and I am proud to say we have built Osbon Capital to do the same. For your reference the average industry fee for the $750k to $1.5m size account is 1.09%, for $1.5 to $5m it is .92% and for $10m it is .7%. Firms that will thrive according to Don are those who reduce costs for clients and increase their own margins at the same time. That describes our experience since our founding in 2005.
- Ethical Standards Are Going Up: Investors are realizing more and more that the fiduciary standard (the legal obligation for the advisor to always act in the client’s best interest) is the better way for them and their money. The old product-push, we-make-it-you-buy-it broker-dealer model of the JPMorgan, Morgan Stanley world is expensive and conflict-ridden. The recent Department of Labor rule on fiduciary standards for 401ks (A Win For The Good Guys) is only the latest example of rising standards here. Don mentioned that Australia is already 100% there for individuals, and the UK and Canada are close.
- More People Are Moving To Fee Based Money Management: It is estimated that 60% of investment assets are now fee based, from the bottom up ($10k robo-advisor accounts) to the ultra-wealthy ($25M+). Transparent, fully disclosed fees seem to be a better model than the 20thCentury toll-taker commission practice.
What does it mean for me?
All three trends are good for you, in my view. Lower cost helps increase your returns and allows you to see more easily the value you get for your cost. Secondly, it’s great to see the regulatory sphere aligning with investor interests. The fiduciary standard protects you. Lastly, fee choice expands your control. If you want your money managed by a robot, you can get that. If you want to talk to a human being, you can get that, too. Getting past commissions is a big step forward.
Change is good, I believe, but it is not costless or beneficial to everyone. When I look at high cost models like those 50 story Goldman Sachs, Bank America, and Merrill Lynch buildings in New York with their large floors of traders, salespeople and analysts, I wonder how long before they have to change. For example, even the uber-profitable Goldman just announced 10% cuts in its trading staff. Ouch for them, more money for you.
PS – if you want to see the future of money management execution I recommend a visit to the Vanguard campus in Valley Forge, PA. While there, Max and I visited their trading floor. It moves $1trillion(!) per day globally in passive style, has 12 people in it, and is as quiet as a library. Very Vanguard.
John Osbon – firstname.lastname@example.org
This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”
“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.
Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.
Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.
This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.
While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.
Adviser does not endorse the statements, services or performance of any third-party vendor.
Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.
Any IPO alerts are purely informational and should not be construed as recommendations to invest.
Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.
Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.