Vanguard Digital Advisor is the new robo advisor offered by the industry-heavyweight, Vanguard. This service is the new digital-only alternative to Vanguard’s popular hybrid-advisor offering, Vanguard Personal Advisor Services. Although some of the features are not fully available yet like “emergency funds” and “prepare for you debt”, we were excited to take a close look at this new offering. Vanguard for some time now has been the pioneer of low-cost investing, and now it has its own fully-automated robo advisor.
Fees and Minimums
Whereas Vanguard Personal Advisor Services requires a $50,000 minimum, Vanguard Digital Advisor requires only a $3,000 minimum. Also, the new robo has a lower fee of 0.20% annually instead of the higher 0.30% annually. This 0.20% stated fee includes the underlying-fund fees, and represents 0.20% “all-in” fee (explained here). This digital-only offering is Vanguard’s way of targeting clients who do not reach the $50,000 minimum, or who are comfortable forgoing the ability to work with a live advisor in exchange for a lower cost.
We recently created our Vanguard Digital Advisor portfolio and we are seeing many of the same core planning features as we see from other robos, but with some aspects a bit more unique to Vanguard. The on-boarding process includes a planning questionnaire that defines a retirement age range, annual expenses, Social Security, contributions, and the other nuts and bolts of creating a financial plan for retirement.
Where Vanguard stands out is in its series of questions to understand the risk-tolerance of the user. Their questionnaire includes a variety of trade-offs of “risking X to earn Y” and a sliding-scale of comfortability with each trade-off. This had a unique feel to it and was a bit different than other questionnaires which can be more qualitative. All in all, although these current features are not necessarily ground-breaking, Vanguard has implemented these insights in a clean and easy to understand way that clarifies the moving pieces of our plan.
The investment portfolio consists of four ETFs, covering domestic stocks, foreign stocks, domestic bonds, and foreign bonds. This simple approach to asset allocation is in-line with Vanguard’s strategy of low-cost, passive, broad-based indexing approach. Other robo-advice providers often have more complex asset allocations and a wider diversity of types of fixed income. Those seeking a manager to express a more specific investment view or who is looking for a unique approach to asset allocation may be left underwhelmed with the simplicity of the Vanguard portfolio. With that said, Vanguard’s market-weight indexed approach has served the company well in the past and adding more complexity to a portfolio does not necessarily mean increased performance.
Inside the Portal
Inside the Vanguard portal, available options are limited at this point. One area where Vanguard does a great job is showing our glidepath, how our asset class mix changes as we get closer to retirement. With a click it allows us to compare different asset-class mixes that correspond with different risk tolerances, which can help re-assess risk capacity. Something noticeably missing is that it does not show the actual underlying funds themselves, only a broad equity-bond-cash allocation that is not on the home screen. This might be a deliberate attempt by Vanguard to get the investor to focus on the contributions, risk tolerance, and the plan, and truly leave the investing part to Vanguard. Even the activity section, including rebalancing for example, does not show the underlying fund transactions within a click. This may make sense for investors that do not want that level of detail, but can be limiting for those who do.
All in all, from our closer look at our Vanguard Digital Advice account, we see a very clean and no-frills approach towards robo-investing. Vanguard has incorporated modern approaches to both the risk tolerance questionnaire by using scenario analysis and goals-based investing by incorporating glide paths. In this current iteration, Vanguard is focusing on just the essentials: a clarified retirement goal, assessing risk-tolerance through hypothetical trade-offs, and a simple diversified portfolio. Vanguard offers this at a compelling low rate, a low minimum to invest, and the power of the trusted brand behind Vanguard. We look forward to updating this Robo Guide when Vanguard expands their financial planning suite.
- Low fee of 0.20%, including fund fees
- Core retirement planning tools for a low fee
- Vanguard’s trusted brand
- Limited visibility inside the portfolio and activity
- Limited financial planning tools at this point in time
- Limited creativity and uniqueness in the investment portfolio
|Average Weighted Expense Ratio||0.05% (rebated if it exceeds this amount – more info)|
|Accounts Supported||Taxable, Traditional IRA, Roth IRA|