A look at how advice services works at Vanguard

Investors are often hesitant to sign up for advice services because they aren’t sure what it involves. Kevin E. Miller, CFP®, of Vanguard Personal Advisor Services®, and Don Bennyhoff, CFA, of Vanguard Investment Strategy Group explain how our advice service works and the value it can offer you as an investor.

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Gary Gamma: Pollyann from Pennsylvania said, “What services do Vanguard advisors offer to Vanguard clients?” Kevin, can you talk a little bit about that?

Kevin Miller: Sure. So, if for someone that is engaging in an ongoing relationship with Vanguard, we would help them from the beginning figuring out, you know, what their goals are. Really what we do is goals-based investing; they’re trying to figure out what it is that you’re trying to accomplish with this money, and then, coming up with a plan to help them get there. Helping them implement the plan, which can be a big challenge for people and actually making changes, especially if these are things that you’ve held onto for a really long time. And then, doing the monitoring, you know, rebalancing on a periodic basis when necessary. And then, you know, really being a resource for them on any number of different topics whether it’s, you know, withdrawal strategies or something that’s even ancillary to the investments themselves. Like, “When do I take Social Security; how can you help me with estate planning?” All those types of things.

Gary Gamma: Ariel from New York had written in and said, “Can I just get advice without handing over the entire portfolio?” So, I know you answered that, but maybe just hit that again. Yes, that’s part of the service if that’s what you’re looking for.

Kevin Miller: Absolutely. Yes, so, for primarily Voyager Select and Flagship clients at Vanguard, you have access to an advisor generally on sort of an as-needed basis. You can schedule an appointment, and again, you know, it can be for, let’s review the overall portfolio or, you know, I have a question about a particular piece of it and, you know, even things that seem relatively simple. And I’ll give you an example, I had a conversation with a client recently that he had a fund in the portfolio and he wanted to exchange out of it. He already knew what fund he wanted to go into and he more or less just wanted a check on that. And we talked about it and the fund that he wanted to go into was in a taxable account, and the fund was actively managed so, there are some potential future tax implications of that.

This gentleman also owned an IRA, and so, we talked about well, why don’t you put the new fund in the IRA where it’s more tax-efficient? And then, we’ll put something that’s more tax-efficient in the taxable account so the net result was the same. He sold what he wanted to sell, he bought what he wanted to buy, but, we didn’t do it in the same account, and so, that 30-minute conversation could have a big impact for him long-term because the amount that he moved wasn’t insignificant so, if we’re able to save him from some tax liability going forward, you know, that’s something where even when people are pretty sure about what they’re doing, you know, having a conversation with an advisor can pay a big dividend later on.

Gary Gamma: Yes, that’s a great story. So, I think we’ve established the value of the service here, the benefits to the individual’s cost. We had a lot of questions on fees. The first one we have here is from Maryann in Michigan: “What are the associated fees for financial advising?”

Kevin Miller: Sure. So, at Vanguard it’s really straightforward. The cost for the service is 0.3% per year on any assets under management.

Gary Gamma: Kevin, we talked a lot about helping get the investments set up, asking the important questions. Peter from California says, “Does the service include rebalancing the portfolio?”

Kevin Miller: Absolutely. It’s a real important part of what we do. So, generally, for a client that Vanguard is managing the accounts for them, we look at the portfolio on a quarterly basis. It’s based on the anniversary when someone would enroll in the service and not everyone gets—With the potential of rebalancing at the same times; sort of spread evenly across the quarter and really, what we’re looking at is not only the blend between stocks and bonds, but we’re looking at other parts of the portfolio as well. So, what’s the ratio between, say, U.S. stocks and international stocks even down to we were talking before, they have some individual positions, making sure that if one of these stocks is taken off, that it doesn’t grow too large for the overall portfolio.

But at the same time, we don’t necessarily rebalance every quarter. We’ll do it when necessary when things fall outside the guardrails. So, it’s more market-driven than just saying, “Okay, we have to make changes every single quarter.”

Don Bennyhoff: I think it’s important with rebalancing that rebalancing’s often associated with portfolio management, but it’s a very difficult thing to do in the moment. I know from experience with my peers in the past that a lot of times, when it’s time to rebalance our portfolio, we’re tempted if it’s a good day to kind of say, “Well maybe I’ll put it off for tomorrow because maybe it’ll keep going for a little while. I’ll wait for a down day.” Or, if it’s a down day, you put it off and don’t do it right when you should because maybe it’ll recover tomorrow. It’s an emotional hurdle. We talked about behavioral coaching a few times, and certainly rebalancing is one of those really important portfolio management techniques to manage the risk and return in the portfolio.

But it’s a behavioral aspect too that sometimes individuals on their own have a hard time doing without some coaching. So, having that person that can help kind of say, “Well, we don’t know what’s going to happen tomorrow, but we know what we said when we set up our rebalancing schedule. Let’s just follow it because we said we weren’t going to be— It’s not going to be an emotional decision for us. It’s going to be our time for the rebalancing.” We can take the emotions or the uncertainty of the market returns out of the picture.

Gary Gamma: And a related question from Michelle in Pennsylvania: “Things change. Do I need to get professional advice each time there’s a significant market change?”

Don Bennyhoff: Probably not. I mean, we’ve talked about this in terms of we do believe in strategic portfolio management, which means basically, we’re not changing things all the time like maybe someone who’s more tactical. That’s where the kind of the buy and hold idea comes into play.

What we do believe is that if someone—Their situation changes over time, we use the example of having a child or preparing for college or retirement or things like that. There are points in time in your life that you are—You should be reassessing the circumstances and deciding whether we should be changing things because of the change to the headlines of your life rather than the headlines in the news.

We don’t make changes due to market changes, with the exception of rebalancing. But there’s a rule for that. It’s not a reaction to just a change in the market because it dropped 5% this week.

Important information

All investing is subject to risk, including possible loss of money you invest.

Diversification does not ensure a profit or protect against a loss.

Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.

This webcast is for educational purposes only. We recommend that you consult a tax or financial advisor about your individual situation.

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