Thanks so much for the extensive work on Vanguard. It is interesting that they really do not lower their fees the more money you have ( the first $5 million pays the same 0.03% as $5000 ) but I wonder what that gets you. It certainly would make using MFO superfluous, as it looks like they take complete control over all your assets, at least for larger accounts.
The CFA, tax planning and income projections might be very helpful, but is there a way to get the planning without committing to their assuming control of all the investments?
Anybody know why down at the bottom of the list there are felony and misdemeanor convictions on Vanguard's track record ( but none at Fidelity, which has a higher star rating)?
https://investor.com/rias/vanguard-advisers-106715
Comments
Charles Lynn Bolin writes here as "Lynn," and as "Charles" elsewhere.
Taxes are complex and the tax preparer knows the taxes best. With companies like Fidelity and Vanguard, I suspect that an investor will be dealing mostly with an external tax accountant. My experiences are that the tax accountant will not be familiar with the implications of Medicare on taxes. This is an area where I find an investor will benefit from financial literacy and double check on advice given. I have not dealt with independent financial planners that may be a one stop shop?
Regarding financial convictions and disclosures, an employee was convicted in 2019 of theft:
"The total amount of the funds that the defendant stole exceeded $2.1 million. To Vanguard’s credit, all individual accounts were made whole after the defendant’s crimes were detected."
https://www.justice.gov/usao-edpa/pr/former-vanguard-employee-sentenced-four-years-fraud-scheme
The disclosures from the SEC are mostly minor:
https://files.adviserinfo.sec.gov/IAPD/content/viewform/adv/Sections/iapd_AdvDrpSection.aspx?ORG_PK=105958&FLNG_PK=005984D6000801D203A190C104921F01056C8CC0#Regulatory
Lynn
That's the idea of a discretionary account - you specify the parameters and the manager, well, manages the account.
But there's nothing precluding you from having both PAS and self-managed accounts at Vanguard. Though I suspect Vanguard would frown on you putting 10% of your assets into PAS and mirroring the PAS account for free with your remaining 90%.
I have Vanguard manage long-term funds, and I manage one for shorter term goals. One of the advantages of PAS is that they rebalance for you.
I didn't see any mention of the word fiduciary in the parts of the article about PAS. But it's not something I would need to worry about anyway.
So, a RIA handling PAS (or other financial stuff) will be a fiduciary. The RIAs need Series 65, or Series 7 + 66, exam(s).
A call center employee (needing only minimal training) or broker or insurance agent handling PAS won't be. Brokers only need Series 7 exam. Insurance agents need relevant insurance exam(s).
The financial industry is trying to fuzzy things up by also creating Regulation Best-Interest (Reg BI) for the non-RIAs, something in between the requirements/standards for brokers and RIAs. It isn't just practical or possible for everybody to qualify for RIAs overnight.
However, one doesn't need to see the word "fiduciary" in an article about PAS. All discretionary accounts, not just those at Vanguard, carry with them a fiduciary duty: https://www.sec.gov/comments/4-606/4606-2899.pdf SEC v. Zandford, 53 U.S. 813 at 823. Emphasis added. https://supreme.justia.com/cases/federal/us/535/813/
FWIW, one wouldn't be able to infer this universal duty of discretionary account managers from mass media writings that equivocate, e.g.: https://smartasset.com/investing/discretionary-vs-non-discretionary-investment-accounts
Try finding "ethical" in a brokerage agreement.
I looked into Fidelity's service. I am sure Lynn knows more about it than I found in an hour or so of searching around, and I would be interested in his experience.
Using what appears to be their fee schedule, Fido is much more expensive than Vanguard. They charge 1.25 % on the first $500,000. on a $6,000,000 account even with the declining fees, the total works out to 0.46% vs Vanguards flat 0.3%. To get pricing similar to Vanguard's it looks like you need to have $10 million in total investable assets or net worth.
There is little discussion of how they pick investments, as it is all managed in house by their advisors. A quick look down the line of folks offered up to help does not indicate they are anything special. Without a personal recommendation from someone you trust with experience at Fidelity, you are probably just as well off with a robot!
It does not appear that either place offers financial planning or asset allocation advice without committing to investment management.
The cost of Fidelity GO is 35 basis points/year. But the account uses Fidelity Flex funds, which have ERs of 0.00%. Vanguard's PAS uses Vanguard funds. So the all-in costs of these two services should be similar.
Fidelity's older PAS service uses proprietary and third party funds. It is model based but not robo-based. The last time I looked at it many years ago, it tended to throw a gazillion funds into a portfolio, perhaps because it could, perhaps because that gave the impression that it was doing something. In any case, this is not the same type of service as Fidelity GO or Vanguard PAS.
https://www.fidelity.com/managed-accounts/overview
https://www.fidelity.com/wealth-management/investment-management-services
FIdelity has so many fee schedules that it's hard to find the one you're looking at. Their fees are different for Fidelity-preferred portfolios, "blended" (no preference) portfolios, and index fund portfolios. Regardless, PAS services do cost much more than hybrid robo services, whether at Fidelity or elsewhere.
schemes,plans, advisors under various market conditions and time spans? With funds I can check 1, 3, 5 & 10 year performance. I can see how well they held up in bear markets or how correlated / non-correlated they’ve been to the S&P. But how to get that kind of distanced perspective for these approaches is a mystery.Perhaps it’s unfair of me to ask since every situation is tailored by an advisor to the specific needs of the individual. That makes comparison difficult. Let’s hope they serve investors better than many target date funds do. At a glance, it appears they lean towards low cost funds - perhaps index funds or ETFs. So, there is a cost advantage. But you still need to target the right assets / market sectors at any given time.
It is true that over time one may evaluate the approach they employ - be it self-directed, robo-generated, humanly devised or divinely inspired. Record yearly performance and than over time back-test those results against whatever criteria you care to. But the same is not true for one who is just starting out with a given advisor. Must take a leap of faith.
I have been a DIY investor until about two years ago. I did try the Charles Schwab robo-advisor. I have been using both Fidelity and Vanguard for decades and like them both for different reasons. I now use the Fidelity Wealth Services and Vanguard Personal Advisor Service Select.
For clarification, Vanguard Advisor Services are:
1) Robo Advisor Services with a minimum of $3,000:
https://investor.vanguard.com/advice/robo-advisor
2) Personal Advisor Services which is a hybrid robo advisor with a minimum of $50,000 and team of advisors. Cost is 0.35%:
https://investor.vanguard.com/advice/personal-hybrid-robo-advisor
3) Personal Advisor Services with a minimum of $500,000 and a personal certified financial planner/fiduciary in addition to the team. Cost is 0.3%:
https://investor.vanguard.com/advice/personal-financial-advisor
Fidelity Wealth Management fees are listed as 0.50%–1.50% with a minimum of $250,000. The more you have them manage the more your fees fall.
I invested the minimums to get a personal advisor and to lower my fees.
With regards to objectively evaluating the funds and services:
Whether you work with Fidelity or Vanguard, they will evaluate your goals and needs and propose an allocation (or range) and the funds. Both base their recommendations on the long term, but Fidelity also adjusts based on the business cycle. You can make changes within their criteria and policies. I entered the funds and allocation into the MFO Portfolio Tool to evaluate them. With Vanguard Advisor funds being only 1.7 years old there is not much history to go on. Vanguard has the option to select the percent of active and passive funds.
With a dual income household, we have multiple accounts with different tax characteristics. Our advisory service ranges from 50% stocks to 70% based on my input.
With regards to performance:
It does take a leap of faith to use an advisory service. There is evidence that individual investors tend to underperform the markets because they tend to panic, trade too much, or be too conservative. I did take the leap of faith based on my experiences with both Fidelity and Vanguard.
My primary objective is to set my wife up with a financial advisor in case I pass away before her. Mission accomplished. The surprising thing is that I feel a burden is lifted and more relaxed. I still have accounts that I manage myself.