Vanguard Expands its Robo Offering
Vanguard is piloting and is expected to soon release a new digital planning and automated-investing product called Vanguard Digital Advisor, according to a document filed with the SEC. Vanguard Digital Advisor will have a $3,000 minimum and an all-in fee—management and underlying fund fees—of 0.20%, placing it in direct competition with providers targeting less affluent investors. In doing so, Vanguard will undercut incumbents Fidelity and JP Morgan, who both have all-in costs of 0.35% and independents Wealthfront and Betterment, who have all-in costs of around 0.33% and 0.36%, respectively, depending on the portfolio chosen.
Vanguard is increasing the pressure on a market already characterized by high levels of competition and slim margins. Betterment, founded in 2008 and currently at $17.6 billion in AUM, only became profitable in August. Other robos that have not reached scale—Swell, Qplum, Hedgeable, She Capital, and WorthFM—have had to shut their doors. Competition has exploded and smaller players are getting squeezed out.
Expanded Product Offerings
September was filled with new product offerings. Ally Financial introduced a line up of “freemium” products, experimenting with a try-before-you-buy model in an effort to attract people less comfortable with investing. The first two offerings—90 days of commission-free trading and 500 commission-free ETFs accompanied by research tools—are aimed at self-directed investors. Ally is also expanding its Managed Portfolio offering to include a new portfolio that holds 30% cash, which will earn 1.90% annually in interest. The focus is on consumers who are new to investing, who can eventually upgrade to higher-level service tiers.
SoFi launched free cryptocurrency trading on its SoFi Invest Platform through a partnership with Coinbase, a major crypto exchange. Users can trade Bitcoin, Ether, and Litecoin alongside stocks. The Royal Bank of Canada (RBC) lowered its minimum to $0 for its Investease digital advisor.
Wealthfront made headlines when they announced that they reached $20 billion in assets on their platform. This a doubling of assets since the beginning of 2019. However, we estimate that between the end of the year and late April when they first announced they had attracted $1 billion in cash, nearly two months after launching their savings account, a vast majority of their overall AUM growth was due to a combination of rising markets and attracting cash assets. We also believe that their additional $6.5 billion in AUM growth since their late April announcement is largely driven by their cash account. Betterment also reached the $20 billion mark. Their new cash offering certainly helped propel them to this point. However, cash inflow might slow down. In September, the Federal Reserve lowered rates for the second straight quarter. The rates on high-yield savings followed. You can learn more about cash accounts here.
In other news, the new football stadium in Los Angeles that will be home to the NFL’s Los Angeles Rams and Los Angeles Chargers will be called SoFi Stadium. SoFi has been aggressive in its marketing and expansion following its $500 million investment earlier this year.