No room for stock-pickers: Vanguard

More fee pressure is coming for investment advisers, Vanguard says, particularly those whose only value proposition is to outperform competitors’ investment returns.

Tuesday, March 20th 2018, 6:00AM

by Susan Edmunds

The investment management firm has been doing work on "adviser alpha", or the added edge investment advisers can offer their clients, for more than 15 years.

Aiden Geysen, head of investment strategy at Vanguard Australia, said the landscape was changing fast and growth of robo advice would put pressure on human advisers’ charges.

“If the adviser isn’t offering anything in addition to investment management and portfolio construction, if they’re not that broader wealth coach, that fee pressure will be well and truly on.”

But he said the response to fee compression should be cost compression. Advice firms could make use of that same disruptive technology to streamline tasks such as onboarding clients and portfolio rebalancing.

That would free them up to deliver more highly valued services.

Vanguard research showed that 65% of clients who moved to a new adviser did so due to factors relating to the adviser’s personality or service levels. Most common was that the adviser neglected the relationship. Fewer than 40% of moving clients were upset at the performance of the portfolio.

Increasing regulation was creating more transparency around fees, which drove a shift. In the US, commissions were 45% of advisers’ income in 2013, but that dropped to 32% in 2016 and was projected to be 23% this year.

Geysen said advisers could still have a sound, sustainable value proposition but it would need to hinge on being a client’s trusted behavioural coach, and offering value-added services such as retirement income planning, not just investment management and portfolio construction.

Those higher value-added services would need greater adviser engagement and would be less likely to be taken over by digital offerings, he said.

“’We will outperform the competition’ is a value proposition that’s very hard to deliver on and very hard to sustain.”

Tags: financial advisers investment Vanguard