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Charles's Vanguard article

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

  • Or "Lynn's Vanguard article," just to separate him from The Other Charles (Boccadoro).

    Charles Lynn Bolin writes here as "Lynn," and as "Charles" elsewhere.
  • Hi @SMA3,

    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
  • It certainly would make using MFO superfluous, as it looks like they take complete control over all your assets, at least for larger accounts.

    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%.
  • A client in Vanguard's PAS does have some discretion in specifying preferred funds. There are also different methods such as using a percent of funds that are actively managed. Vanguard has three actively managed funds only available to PAS.

    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 know that discretionary accounts may provide a fair amount of flexibility in parameters you provide, such as excluding particular stocks (for accounts that buy individual stocks). It sounds like PAS is offering you the flexibility to express preferences but still not the ability to say that the account must invest in a particular fund.
  • I didn't read anything in the article, or the links, that would tempt me to consider going back to Vanguard. YMMV.

    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.
  • edited August 2023
    A program isn't a fiduciary. The RIAs (Registered Investment Advisors) are fiduciaries.

    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.
  • I didn't see any mention of the word fiduciary in the parts of the article about PAS.
    Our advisors offer:
    Relationships built on a fiduciary duty to always act in your best interests.
    https://investor.vanguard.com/advice/personal-hybrid-robo-advisor

    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:
    It has always been the case in discretionary account relationships that a broker owes the customer a fiduciary duty. [fn 57: "See SEC v. Zandford, 535 U.S. 813 (2002)."]
    https://www.sec.gov/comments/4-606/4606-2899.pdf
    The benefit of a discretionary account is that it enables individuals ... who lack the time, capacity, or know-how to supervise investment decisions, to delegate authority to a broker who will make decisions in their best interests without prior approval. If such individuals cannot rely on a broker to exercise that discretion for their benefit, then the account loses its added value.
    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.:
    A discretionary investment account is not a blank check. In most cases, your advisor will still have either an ethical or fiduciary duty to make decisions in your best interest, and they will also be bound by whatever investment strategy you agreed on.
    https://smartasset.com/investing/discretionary-vs-non-discretionary-investment-accounts

    Try finding "ethical" in a brokerage agreement.
  • edited August 2023
    Thanks for the education about fiduciary duties gentlemen. Always appreciated.



  • FWIW
    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.

  • Don't let names of services confuse you. PAS at Vanguard and PAS at Fidelity are two different animals. PAS at Vanguard is a hybrid robo advisor, similar to Fidelity's GO (assuming AUM of at least $25K). Fidelity defines the service this way:
    A hybrid robo advisor typically refers to a robo advisor that includes access to investment adviser representatives, whether via telephone or in person. In the case of Fidelity Go®, we combine our digital offering with access to 1-on-1 financial planning and coaching via telephone for clients that invest at least $25,000 in a Fidelity Go account.
    https://www.fidelity.com/managed-accounts/fidelity-go/overview

    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.
  • edited August 2023
    I’m somewhat in awe of these sophisticated services, being a humble do it yourself type. But I have to wonder how one might objectively evaluate the effectiveness of various 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.
  • In response to several comments above:

    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.
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