Back in late December 2015 and early January this year I wrote about enrolling in Vanguard’s Personal Advisor Services (VPAS) as a 3 part series. It’s been about 10 months since then and I felt like it was time to give an update since I’ve run across some cons that weren’t readily apparent to me when I first decided to use Vanguard’s advisor services. For more info and details about my experience with VPAS go here.
If you haven’t picked up by reading through my blog, I’m a pretty ardent fan of Vanguard. Both my husband and I have almost all our investments there, including our rollover IRA, Roth IRA’s, taxable accounts and 529’s. Whenever people ask me about where to open an investment account, I almost invariably recommend Vanguard. So when Vanguard rolled out a revamped financial advisor service a few years ago, at a great price of 0.3% of assets under management (AUM) and lowered minimum investment of $50,000, it was natural that I was very interested. Ultimately, I did end up enrolling my taxable account and Roth IRA with them earlier this year.
It’s now been about 10 months and for the most part I’m satisfied with the service for it’s price point. Considering there’s been some economic upheavals recently with Brexit, the presidential election and just regular ole market swings, it’s been nice to know that a professional is keeping an eye on my portfolio for me, even if the real benefit is purely psychological and not really financial. Also they rebalance my portfolio for me, something I prefer not to do myself at this point in time. But on the other hand, I’m also starting to think that there are some major limitations with VPAS that I didn’t think would affect me and is something I would consider now if I was recommending their services to someone or had to do it all over again. I’d like to share them with you below.
- VPAS only uses Vanguard funds. Will not construct portfolio of individual stocks and bonds even when necessary. The fact that Vanguard only uses Vanguard funds to invest makes sense as it is in line with their overall investment philosophy. However, if I was self-managing my own portfolio or using a human advisor (Note: for a lack of a better way to describe them, from here on “human advisor” means a financial advisor or portfolio manager you would be meeting face-to-face) we could also make adjustments if necessary and deviate from purely Vanguard funds. I recently opened a Coverdell ESA for my daughter and unfortunately was not careful enough in considering the impact the low contribution limit of an ESA ($2000 maximum contribution for 2016 per beneficiary) would have on my standard investing practices, which is to use low cost index funds (most of Vanguard’s index funds require a $3000 minimum). So, then I looked at some of the mutual funds offered through USAA and I found they have expense ratios well over 1%! This made me decide that it would probably be best to construct a portfolio of individual stocks and bonds or ETFs so I contacted VPAS asking if they could do that for me. But it turns out they will not. If I had been using ?Personal Capital (not a 100% sure about them) or a human advisor, I think they would’ve been able to figure out a way to invest the small funds in the ESA for me as part of my overall portfolio, granted at a higher price.
- No Tax-Loss Harvesting. I guess I can’t really fault Vanguard for this since they are telling me the way they invest is so tax-efficient that they don’t need to perform tax-loss harvesting. But one of the perks of having a taxable account is that you can tax-loss harvest if some of your investments go down and reduce your tax bill for that year. Again I feel this is something a human advisor would be able to do for me.
- No Comprehensive Financial Planning. For individuals, couples and families just starting their financial journey or rather finally starting it, I really think it’s nice to get a comprehensive financial plan made by an advisor. After all, most people aren’t saving and investing for saving and investing sakes, but for specific goals and purposes. You may also have special financial circumstances that warrant a look at other financial products such as life insurance, disability insurance, long-term care insurance. When we met with human advisors, we always got one. It wasn’t just about how your money was going to be invested, but it was also talking about other things, like with a new baby, do you have a will and living trust in place? What other financial goals do you have besides retirement? For my parents who receive very little social security and want another source of fixed income, talking about annuities and REIT’s. Unfortunately, VPAS does not seem to offer much in comprehensive financial planning. They say you can ask questions about it, but it’s not included in their initial financial plan. VPAS is mostly portfolio construction and rebalancing. That’s it.
- Team of advisors, not a dedicated one leading to a sense of no relationship with anyone. For some this could be a pro, but it turned out to be a con for me which actually surprised me a bit. I am after all mostly a millennial in that I don’t mind very little face-to-face human interaction and prefer doing most of everything online and over chat (my preferred method of contacting customer service). In fact, I often prefer no human contact when it comes to shopping, which is why I haven’t set foot in a mall to shop (for myself) in over 3 years now. But it turns out that not having a dedicated advisor leads me to feeling no sense of a relationship with anyone at Vanguard. Even though Vanguard tries to spin this like “oh its good not to have to rely on one person” and “having a team means there’s a collective group watching over your investments” but as it turns out humans are relational even when it comes to business relationships and though I didn’t think I’d care for it, I’m more old-school than I thought because I’m not really digging the whole VPAS robo-human hybrid advisor as much as I thought.
- Not very good for people who have language barriers or aren’t as tech savvy. Also, very little teaching or learning opportunities. I recently tried to enroll some of my parents money into VPAS and it’s been a difficult experience for the most part because 1. my parents have a language barrier in that English is not their first or primary language and 2. neither of my parents are really tech savvy. Even with me physically there translating, a lot of meaning and information is lost over the phone. In regards to tech skills, sure they have gmail and a facebook account they never login to, and smart phones newer than my own, but that doesn’t mean they know how to efficiently use Vanguard online tools, nor is it easy for them to reset their password when they accidentally get locked out or access their secure message inbox within the Vanguard site. At least if you meet with someone in person, there’s other ways to communicate that can help complete the picture of what you’re trying to get across (i.e. hand gestures or drawing a diagram) and when it comes to complex subjects like finance, you want to be able to fully understand and communicate on both sides.
As is sometimes the case in life, I guess you get what you pay for. I used to think the 0.3% of AUM that Vanguard charges was an amazing deal to have access to a financial advisor, one they often tout as being a certified financial planner (CFP), but now I see it’s really the appropriate price for what you’re getting and dare I say, maybe even a little high. I’m not sure if 1% of AUM (the industry average) is worth some of the extra perks you get from using a dedicated human advisor, but I have to say that I find VPAS lacking in many ways, especially for those who might have more complex financial needs or psychological ones.
Personally, I do want some comprehensive financial planning thrown in here and there and as it turns out I want some sense of a relationship and input from a real person too, not just a robo-human hybrid advisor, which is what I feel like I’m getting every time I call or email an advisor at Vanguard with always a reminder that “you’re on a recorded line.” When I meet with a human advisor face-to-face, I’m able to get a sense of who they are and feel like we’re developing at least a professional relationship. Even if the advisor is just the front man and behind the scenes there is a team of people managing my portfolio, at least I have a dedicated person to turn to should I have questions or problems. For all his faults and fees, it’s nice for my parents to have a “real-life” advisor to turn to. My parents’ advisor schedules meetings with them regularly and helps with comprehensive retirement planning and he spends some time teaching them about what he’s doing and sometimes takes them out to discount lunches. The experience when meeting with my parents’ advisor feels more authentic and calming, whereas after emailing my VPAS advisor about my Coverdell ESA situation and tax loss harvesting, I feel lost and unsatisfied with their mechanical response like it was some script taken out of the Vanguard handbook. So what I’ve learned for me and my family is that some of what you pay for in a financial advisor is for someone to hold your hand and help you through the financial rough patches and market ups and down. I used to think that wasn’t worth paying for, but I have to say I’m re-evaluating that now. I guess in some ways VPAS is like a meal service where they’ve done some of the work in terms of picking the food and ingredients, but you still have to cook it. But sometime a girl just wants to go to a full service restaurant and not have to cook or clean.