8 ms·

The Vanguard Cyborg Takeover

94 points by carlosgg 11y ago

chollida1 11y ago
I think the article makes a good point. What is the value proposition of companies like Betterment and Wealthfront when a person can go to Vanguard or Charles Swab? I'd be pretty worried if I was one of the new "robo advisor" startups, quoted only because I can't think of a better name for them. 1) By definition you're a passive investor so you don't provide any service that can't be replicated by the big players in a very quick manner. 2) you don't have any where near the economies of scale as the big players so when this becomes a fight to the bottom to lower management fees you'll be the first to lose. 3) Your going to put your clients money into funds run by the big players so even if you pull money from the big players you are helping your biggest competitors by investing back into them. I can't see anyway this isn't head Wealthfront loses tails vanguard wins. Couple that with the possibility of VC money starting to dry up and you've got to ask, if Wealthfront and Betterment receive no more VC money from today onward are they ready to fight head on with companies 2-3 orders of magnitude larger than themselves who can afford to keep lowering fees for years to come. Can someone here make the case why anyone would chose to invest with these new companies rather that Vanguard or Charles Schwab?
- Eclyps 11y ago
  While I agree with you on all of those points, I think that there's still something to be said about usability and quicker innovation for managing/reviewing your finances. I personally use Vanguard and love them, but their site was really really difficult for me to use when I joined, and it's still not great after a big refresh. For those who are serious about getting the lowest possible fees and the maximum return, usability might not be a big deal. A lot of people are really drawn by shiny things, though, and shiny is not something that larger financial institutions have ever been good at. I don't think that this really counters any of your points, only justifies why I think some people might want to use services like Wealthfront and Betterment.
- roymurdock 11y ago
  Executives at both Betterment and Wealthfront say there’s room for established companies and pioneers. Adam Nash, chief executive officer of $3 billion Wealthfront, which launched in 2011, says his company focuses on younger investors with different ideas about technology and investing while incumbents are battling for boomers’ assets. “Those older investors aren’t looking for the same things,” he says. “We want to be the Amazon, the Netflix in this category.” Nash says 90 percent of Wealthfront customers are younger than 50, and 60 percent are under 35. Marketing and UI/UX would be my guess. Just as Robinhood was aimed at a younger cohort (smartphone only, slick interface, social media hype through a waitlist, etc.) some of these Robo services will be tailored to the differing needs of a younger crowd...even if ultimately, the fees on these new services are a few tenths of a percent higher than the Vanguard/Charles Schwab funds. They'll also probably play up the anti-big bank, overthrow the established financial order, "we are new fintech" factor to build hype around their funds and services.
  - 15thandwhatever 11y ago
    $3B valuation? $3B in revenue? $3B in assets under management?
    - Shebanator 11y ago
      Its $3B assets under management.
  - jdavis703 11y ago
    Also the firms with better algorithms and cheaper management fees will make their customers more money. If the upstarts can do that, then they will win.
    - phyalow 11y ago
      Algorithms for what exactly? I am curious.
- scurvy 11y ago
  Why would Wealthfront or Betterment need massive amounts of VC funding? I'd imagine that their overhead is pretty low. The biggest item is probably marketing expense which they can adjust depending on the environment. Totally unsolicited, but I have an account with Wise Banyan and I'm really pleased so far.
  - ffumarola 11y ago
    Betterment * AUM $3B as of 11/2015 * Average account size is ~$30,000 from what I can gather * That means 100,000 users * At Betterment pricing, they make $6/mo per user * That's $7.2m/year Betterment has 149 employees on LinkedIn. I would assume the true number is closer to 180. Assuming an average fully loaded (salary, taxes, benefits and perks, etc) cost of $100,000 per employee, that is $18m in headcount costs alone. I also wouldn't be surprised if the CAC is over $100, which means at least $10m to acquire those 100,000 customers. Lastly, $7.2m in revenue is likely over stated for 2 reasons: 1) There are tons of free accounts that drag the average down and don't pay anything, 2) Which means some of the larger accounts that have substantially more fall into lower price tiers and result in lower revenue (per dollar invested)
    - vonmoltke 11y ago
      Why the hell does Betterment need 180 people?
      - ffumarola 11y ago
        Product Management, Product Design, Product Marketing, Engineers, Ops & Legal, Finance, Marketing (Growth) & Analytics, Sales, Business Development, Privacy & Security, Talent/Recruiting, etc... They're dealing with people's money and they're growing. Doesn't seem too absurd. They're not just building a rinky dinky dumb interface between a user and a Vanguard fund. Also, they have an institutional product outside of the scope of the consumer product.
        vonmoltke 11y ago
- runako 11y ago
  I) You're correct: in every industry, the deck is skewed heavily in favor of incumbents. II) Nonetheless, incumbents sometimes lose new markets, or allow new entrants to achieve success. Ironically, Vanguard and Schwab are great examples of companies that more recently found openings in the personal finance space and prospered as a result. It's not a stretch to say that Vanguard was the Betterment of its day, or that Schwab was the Wealthfront of its day. III) Some other thoughts as to why anyone would choose to invest with a pure-play robo-advisor: - "The Schwab Intelligent Portfolios service is free—it earns revenue in part by investing clients’ money in Schwab-managed ETFs." That would turn me off, as it feels like a built-in conflict of interest. I'd be worried that there is incentive for this conflict to grow, and not in my favor. - "Customers need at least $50,000 invested at Vanguard to participate, but only those with at least $500,000 to invest get a dedicated adviser." Most Americans have less than $50k saved for retirement, IIRC. Vanguard is saying they don't want most people in this offering. Betterment and Wealthfront do not have account minimums, so they are positioned to start with people in their 20s and stick with them over the decades. I'm sure there are a bunch of other reasons around technology, etc., but these are the most obvious reasons presented in the article.
  - cowsandmilk 11y ago
    > Betterment and Wealthfront do not have account minimums Wealthfront has a minimum of $500, which is admittedly less than $50k, but it is still a minimum. Wealthfront also will not provide certain services until you have an account balance of $100k.
  - superuser2 11y ago
    The $50,000 figure is for a human advisor. Vanguard's whole value proposition is that you don't need unique advice, and they can offer you better returns by having fewer humans in the loop.
- hiphipjorge 11y ago
  Just signed up for betterment after looking into Vanguard, other options. Putting your money into Vanguard requires more investing knowledge (picking which ETF, how to spread investment) and is not nearly as easy, nice to use as betterment. Betterment is a tech company and they seem to be good at building tech around ETFs in order to make it a better experience. iOS enough to fork over a couple of hundred dollars a year in fees. I don't Hinkie Vanguard will ever provide an experience as nice as betterment. Also, their tax-loss harvesting feature could actually save you money in the long run if you don't have a retirement account.
  - vr3690 11y ago
    Their fees will probably cost you more money than the money saved from tax loss harvesting. Betterment is just investing in Vanguard funds (not all of it, but definitely a few). You could spend a few days and research investing using Vanguard, but if you'd rather not do that and are willing to absorb their fees, than Betterment is a brilliant choice. If you want to understand the basics of passive investing, The Bogleheads Guide To Investing is a brilliant book.
  - brown9-2 11y ago
    Putting your money into Vanguard requires more investing knowledge (picking which ETF, how to spread investment) and is not nearly as easy, nice to use as betterment You could also just pick a couple of already-well-diversified index funds. In the end, the additional knowledge that Betterment offers you is only a benefit if they have higher returns than a simple portfolio of index funds after fees.
- cushychicken 11y ago
  Betterment's tax harvesting software got me about $3500 in realized losses which I was able to claim for my FY2015 taxes. That ended up getting me about $1500 in deductions on my tax return, while holding nominally the same securities (albeit from a different financial service supplier). Well worth the ~$250 in fees I paid them this year. I'll probably switch over to a strictly Vanguard portfolio when that harvesting isn't saving me money any longer, but until then, I think I'll stick with Betterment.
  - chollida1 11y ago
    I think that tax loss harvesting illustrates my point. I don't know if Vanguard's service currently supports tax loss harvesting but its a feature that takes about 1 man week of work to implement. Tax loss harvesting isn't a feature that you can differentiate yourself with. I've implemented it several times over for the hedge funds I've worked at. Its a well understood tool that's been in use by funds for as far back as I remember.
    - gohrt 11y ago
      Why doesn't Vanguard do tax-loss harvesting yet?
      - edc117 11y ago
        Excellent question, does anyone know? I'd like to know the answer as well.
      - cushychicken 11y ago
        I'd imagine it would be illegal for Vanguard to implement in the way that Betterment does. Betterment buys exchange traded securities to allow their customers to participate in the underlying mutual fund. They can basically jump from a Vanguard ETF to a Schwab or iShares ETF of a similar market. I'm reasonably certain it would be illegal for Vanguard to purchase a competing fund's ETF as it would be directly affecting the business of a competitor. In fact, I'm not even sure how Vanguard could do this in any manner that would be customer facing.
- jhspaybar 11y ago
  I choose to invest with Betterment instead of Vanguard or Schwab, much of it comes down to the ease with which I can interact with their services in comparison. Betterment has a nice iPhone app, and even in the app, everything I could possibly want to do is no more than 1 or maybe 2 touches away. For comparison, I rolled over quite a bit of money from a Vanguard fund into Betterment in part because the interaction with my money was more difficult in Vanguard, and I pretty much had to use the website. I also have a work plan with Fidelity invested in a target retirement fund with very low fees, but again the app and how I interact with my money is terrible in comparison. I understand Betterment is doing less, which is probably why everything is so easy to find, but for someone like me who wants to have their money 100% in equity assets and diversified with an easy dashboard, Betterment is far and away the simplest. A nice bonus is that I can crank my allocation up to 100% stocks 0% bonds which it seems none of the target date retirement funds will allow (I have stable assets invested elsewhere and don't need the exposure in my Betterment accounts).
  - hockeybias 11y ago
    Expect Vanguard to improve in the directions your reference.
  - saryant 11y ago
    If you want 100% stocks, you just buy an equity fund. Of course target-date funds don't have that, that's the point.
  - bradleyjg 11y ago
    Of course it's your money to do with what you like, but how exactly are you interacting with your money and how often? Also if you want 100% stocks and 0% bonds you can buy VTSAX or VTI (that's US equities, if you want international ex-US there's VTIAX / VXUS).
    - jhspaybar 11y ago
      I have monthly deposits, and mostly just check balances once a week or so. As for buying funds, yes I could do that, but I'd like a nice mix of large and small cap, domestic and foreign, and the tax loss harvesting is quite handy! This would be far more work than I want to undertake elsewhere.
- deegles 11y ago
  For a large enough account (>=100k), Wealthfront can buy the individual stocks instead of holding them in an ETF. Right now they only do this for US stocks. Presumably, they'll eventually do this for other asset classes and you'll have the benefit of their tax-loss harvesting and rebalancing and pay only the robo-advisor's management fee.
ffumarola 11y ago
I think that there are 2 things that will likely continue to help robo advisors: 1) Vanguard or Charles Schwab products that do automated investing likely take an opinionated approach towards only owning their own assets. This means that the amount of the investable market I can actually buy into at any point is much smaller, and possibly less optimal. I imagine this also has an impact on how effective the robo advisor can tax loss harvest. 2) Betterment has shown their cards (in my opinion) once they started allowing users to link external accounts. Initially it has been exposed as a way to track networth and investment progress towards your goals. However, I'm not convinced it will stop there. The obvious next step is that Betterment will manage your asset allocation, monitor wash sales, etc across all of your investment accounts, regardless of whether they actually have the money invested through them directly. In this way, they are an ambivalent service that you pay for.
- saryant 11y ago
  #1 doesn't make sense because Vanguard and Schwab products own the entire market, unless you're talking asset classes beyond typical equities and bonds.
  - ffumarola 11y ago
    There are many funds that own the entire market (or subsets of the market like small cap, mid cap, etc). And if I want to TLH, I need a similar asset to buy when I sell the asset that is losing money. Unless Vanguard has a lot of funds that serve similar purposes but are slightly different, you won't be able to do that using only Vanguard funds AFAIK.
    - chollida1 11y ago
      Well whether or not Vanguard has a similar ETF is irrelevant as the IRS is very clear that if you sell an asset to do tax loss harvesting you can't buy it or any similar product back over the next 30 days if you want to collect the tax loss. I mean you can buy a similar product to the one you sold within the 30 days, you just don't qualify for the tax loss in that instance:) The below link discusses this pretty well and I've got way more experience wit this than I really care for. http://www.investopedia.com/articles/taxes/08/tax-loss-harvesting.asp http://www.investopedia.com/articles/taxes/08/tax-loss-harve...
ASinclair 11y ago
I look at Vanguard's Target Retirement Date funds as the predecessors to these automated/partially-automated advising services. I'm not convinced the robo-advising can do any better than one of these funds since the fees for the Target Retirement funds are half of Vanguard's advising fee. The vast majority of retirement investors don't need unique advice. They really just need to be saved from themselves. If putting all the decision making in the hands of some software achieves that then I suppose they do provide some value.
- jcomis 11y ago
  Have to agree. I'm guessing most of the "roboadvice" will essential be to use target date funds, or a mix that replicates them closely?
asymmetric 11y ago
For more info on index funds, and Vanguard in particular, there's a great podcast by planet money (with transcript) at http://www.npr.org/2016/03/10/469897691/armed-with-an-index-fund-warren-buffett-is-on-track-to-win-hedge-fund-bet http://www.npr.org/2016/03/10/469897691/armed-with-an-index-...
tryitnow 11y ago
Betterment and Wealthfront are just showing Vanguard and Schwab how to do business in the future. Their UI/UX is easily copied. The startups are betting on that the big guys will continue to be incompetent in UI/UX. Maybe that bet will pay off, but it's not a bet I would make.
louprado 11y ago
I recognize my question has little to do with the OP. But I can't get past this investment dilemma. Let's say I have $100k in two different accounts. Assume both accounts only hold one stock, an index tracker, that grows annually at 6%. Example 1) A retail E-Trade account Example 2) A Roth-IRA account. With the first account, I paid commission upfront when I purchased and again when I sold. In scenario 2, I probably paid commissions AND I pay 1% fees on assets annually. 30 years later account 1 will have ~$575K and account 2 will have ~$432K. So even if you consider tax advantages you are better off with the retail E-Trade account. If I don't need an advisor AND I do want the tax advantages of a ROTH IRA, what do I do ? Right now I am paying 1% annual fees to a guy who I met once 10 years ago who was just lucky enough to fax in my paperwork. Thanks in advance.
- zymhan 11y ago
  You can open an IRA at Vanguard that would certainly be much cheaper than whatever you're paying that guy: https://investor.vanguard.com/ira/iras https://investor.vanguard.com/ira/iras
- kbuck 11y ago
  You get a Roth IRA without ridiculous fees. For example, Vanguard (as mentioned in the article) has some.
- saryant 11y ago
  The market has exploded with no-load mutual funds and ETFs with minimal fees. Vanguard now competes in that space with Schwab, Fidelity, iShares and others.
- harryh 11y ago
  You need to move your Roth-IRA to a different custodian. You are getting ripped off. Vanguard will charge you zero to be custodian.
- mcguire 11y ago
  One of us is confused. A Roth is a tax-advantaged container; you should be able to get such an account at E-trade. Most places do have a fee for retirement accounts, but it is often waived for small investors and for Vanguard I think it is a relatively nominal fixed annual fee. It's possible to have a 1% annual fee on an asset in either account, such as a mutual fund. That's ridiculously high, though. The point of index funds is to reduce those. If I am interpreting you right, your two examples boil down to: 1. An E-trade IRA, containing something like SPDRs: $10 commission to buy and sell, plus 0.18% (last time I looked) annual fee to the folks who issue the SPDRs. 2. A Vanguard IRA containing a Vanguard index fund: no commission to buy or sell, possible fixed annual custodial fee, and 0.2% annual fee from the index fund. Or, you can have either in a non-retirement account, in which case you pay income tax on dividends and capital gains. Or you can put a Vanguard index fund in an E-trade account; I'm not sure about commissions then. In any case, TL;DR: if someone tries to sell you something with a 1% annual fee, scream loudly in their ears and use the distraction to run away.
ansible 11y ago
I saw the mention of 0.30% annual fee for the robo-advisor... Isn't that still quite high? I know that Vanguard is happy with making that money, I just don't think their costs are anywhere near that.
- mcguire 11y ago
  That's roughly the fees for most index funds, IIRC.
  - brightsize 11y ago
    The last time I talked to my rep at VG, he told me the .3% robo-fee was in addition to any of the usual fund fees. The fee seems high to me too, I don't see the logic (apart from VG profits) for the fee being tied to AUM given that the "work" the robot has to do is essentially the same for a $1K or $10M portfolio. If you have a sizable portfolio with VG you'll get a meatware advisor as part of the deal but it's hard for me to believe this person will be doing any substantial amount of custom and ongoing portfolio tweaking -- actual management -- for the money. I'd expect she'd be configuring and occasionally monitoring her robot alter-ego, something they could probably get an intern to do. That said, if you hate to think about money management and tend to neglect your portfolio then it might be worth it to pay the fee and, maybe, just maybe, avoid some potentially very expensive mistakes. I'm tempted, but have yet to take the VG robo-bait mainly because of the magnitude of the fee.
    - mcguire 11y ago
      I have a Vanguard account with several of the index funds. Since the point is to put money in and forget about it, I don't figure I need an advisor.

94 points by carlosgg 11y ago

I think the article makes a good point. What is the value proposition of companies like Betterment and Wealthfront when a person can go to Vanguard or Charles Swab? I'd be pretty worried if I was one of the new "robo advisor" startups, quoted only because I can't think of a better name for them. 1) By definition you're a passive investor so you don't provide any service that can't be replicated by the big players in a very quick manner. 2) you don't have any where near the economies of scale as the big players so when this becomes a fight to the bottom to lower management fees you'll be the first to lose. 3) Your going to put your clients money into funds run by the big players so even if you pull money from the big players you are helping your biggest competitors by investing back into them. I can't see anyway this isn't head Wealthfront loses tails vanguard wins. Couple that with the possibility of VC money starting to dry up and you've got to ask, if Wealthfront and Betterment receive no more VC money from today onward are they ready to fight head on with companies 2-3 orders of magnitude larger than themselves who can afford to keep lowering fees for years to come. Can someone here make the case why anyone would chose to invest with these new companies rather that Vanguard or Charles Schwab?

Eclyps 11y ago
While I agree with you on all of those points, I think that there's still something to be said about usability and quicker innovation for managing/reviewing your finances. I personally use Vanguard and love them, but their site was really really difficult for me to use when I joined, and it's still not great after a big refresh. For those who are serious about getting the lowest possible fees and the maximum return, usability might not be a big deal. A lot of people are really drawn by shiny things, though, and shiny is not something that larger financial institutions have ever been good at. I don't think that this really counters any of your points, only justifies why I think some people might want to use services like Wealthfront and Betterment.
roymurdock 11y ago
Executives at both Betterment and Wealthfront say there’s room for established companies and pioneers. Adam Nash, chief executive officer of $3 billion Wealthfront, which launched in 2011, says his company focuses on younger investors with different ideas about technology and investing while incumbents are battling for boomers’ assets. “Those older investors aren’t looking for the same things,” he says. “We want to be the Amazon, the Netflix in this category.” Nash says 90 percent of Wealthfront customers are younger than 50, and 60 percent are under 35. Marketing and UI/UX would be my guess. Just as Robinhood was aimed at a younger cohort (smartphone only, slick interface, social media hype through a waitlist, etc.) some of these Robo services will be tailored to the differing needs of a younger crowd...even if ultimately, the fees on these new services are a few tenths of a percent higher than the Vanguard/Charles Schwab funds. They'll also probably play up the anti-big bank, overthrow the established financial order, "we are new fintech" factor to build hype around their funds and services.
- 15thandwhatever 11y ago
  $3B valuation? $3B in revenue? $3B in assets under management?
  - Shebanator 11y ago
    Its $3B assets under management.
- jdavis703 11y ago
  Also the firms with better algorithms and cheaper management fees will make their customers more money. If the upstarts can do that, then they will win.
  - phyalow 11y ago
    Algorithms for what exactly? I am curious.
scurvy 11y ago
Why would Wealthfront or Betterment need massive amounts of VC funding? I'd imagine that their overhead is pretty low. The biggest item is probably marketing expense which they can adjust depending on the environment. Totally unsolicited, but I have an account with Wise Banyan and I'm really pleased so far.
- ffumarola 11y ago
  Betterment * AUM $3B as of 11/2015 * Average account size is ~$30,000 from what I can gather * That means 100,000 users * At Betterment pricing, they make $6/mo per user * That's $7.2m/year Betterment has 149 employees on LinkedIn. I would assume the true number is closer to 180. Assuming an average fully loaded (salary, taxes, benefits and perks, etc) cost of $100,000 per employee, that is $18m in headcount costs alone. I also wouldn't be surprised if the CAC is over $100, which means at least $10m to acquire those 100,000 customers. Lastly, $7.2m in revenue is likely over stated for 2 reasons: 1) There are tons of free accounts that drag the average down and don't pay anything, 2) Which means some of the larger accounts that have substantially more fall into lower price tiers and result in lower revenue (per dollar invested)
  - vonmoltke 11y ago
    Why the hell does Betterment need 180 people?
    - ffumarola 11y ago
      Product Management, Product Design, Product Marketing, Engineers, Ops & Legal, Finance, Marketing (Growth) & Analytics, Sales, Business Development, Privacy & Security, Talent/Recruiting, etc... They're dealing with people's money and they're growing. Doesn't seem too absurd. They're not just building a rinky dinky dumb interface between a user and a Vanguard fund. Also, they have an institutional product outside of the scope of the consumer product.
      - vonmoltke 11y ago
runako 11y ago
I) You're correct: in every industry, the deck is skewed heavily in favor of incumbents. II) Nonetheless, incumbents sometimes lose new markets, or allow new entrants to achieve success. Ironically, Vanguard and Schwab are great examples of companies that more recently found openings in the personal finance space and prospered as a result. It's not a stretch to say that Vanguard was the Betterment of its day, or that Schwab was the Wealthfront of its day. III) Some other thoughts as to why anyone would choose to invest with a pure-play robo-advisor: - "The Schwab Intelligent Portfolios service is free—it earns revenue in part by investing clients’ money in Schwab-managed ETFs." That would turn me off, as it feels like a built-in conflict of interest. I'd be worried that there is incentive for this conflict to grow, and not in my favor. - "Customers need at least $50,000 invested at Vanguard to participate, but only those with at least $500,000 to invest get a dedicated adviser." Most Americans have less than $50k saved for retirement, IIRC. Vanguard is saying they don't want most people in this offering. Betterment and Wealthfront do not have account minimums, so they are positioned to start with people in their 20s and stick with them over the decades. I'm sure there are a bunch of other reasons around technology, etc., but these are the most obvious reasons presented in the article.
- cowsandmilk 11y ago
  > Betterment and Wealthfront do not have account minimums Wealthfront has a minimum of $500, which is admittedly less than $50k, but it is still a minimum. Wealthfront also will not provide certain services until you have an account balance of $100k.
- superuser2 11y ago
  The $50,000 figure is for a human advisor. Vanguard's whole value proposition is that you don't need unique advice, and they can offer you better returns by having fewer humans in the loop.
hiphipjorge 11y ago
Just signed up for betterment after looking into Vanguard, other options. Putting your money into Vanguard requires more investing knowledge (picking which ETF, how to spread investment) and is not nearly as easy, nice to use as betterment. Betterment is a tech company and they seem to be good at building tech around ETFs in order to make it a better experience. iOS enough to fork over a couple of hundred dollars a year in fees. I don't Hinkie Vanguard will ever provide an experience as nice as betterment. Also, their tax-loss harvesting feature could actually save you money in the long run if you don't have a retirement account.
- vr3690 11y ago
  Their fees will probably cost you more money than the money saved from tax loss harvesting. Betterment is just investing in Vanguard funds (not all of it, but definitely a few). You could spend a few days and research investing using Vanguard, but if you'd rather not do that and are willing to absorb their fees, than Betterment is a brilliant choice. If you want to understand the basics of passive investing, The Bogleheads Guide To Investing is a brilliant book.
- brown9-2 11y ago
  Putting your money into Vanguard requires more investing knowledge (picking which ETF, how to spread investment) and is not nearly as easy, nice to use as betterment You could also just pick a couple of already-well-diversified index funds. In the end, the additional knowledge that Betterment offers you is only a benefit if they have higher returns than a simple portfolio of index funds after fees.
cushychicken 11y ago
Betterment's tax harvesting software got me about $3500 in realized losses which I was able to claim for my FY2015 taxes. That ended up getting me about $1500 in deductions on my tax return, while holding nominally the same securities (albeit from a different financial service supplier). Well worth the ~$250 in fees I paid them this year. I'll probably switch over to a strictly Vanguard portfolio when that harvesting isn't saving me money any longer, but until then, I think I'll stick with Betterment.
- chollida1 11y ago
  I think that tax loss harvesting illustrates my point. I don't know if Vanguard's service currently supports tax loss harvesting but its a feature that takes about 1 man week of work to implement. Tax loss harvesting isn't a feature that you can differentiate yourself with. I've implemented it several times over for the hedge funds I've worked at. Its a well understood tool that's been in use by funds for as far back as I remember.
  - gohrt 11y ago
    Why doesn't Vanguard do tax-loss harvesting yet?
    - edc117 11y ago
      Excellent question, does anyone know? I'd like to know the answer as well.
    - cushychicken 11y ago
      I'd imagine it would be illegal for Vanguard to implement in the way that Betterment does. Betterment buys exchange traded securities to allow their customers to participate in the underlying mutual fund. They can basically jump from a Vanguard ETF to a Schwab or iShares ETF of a similar market. I'm reasonably certain it would be illegal for Vanguard to purchase a competing fund's ETF as it would be directly affecting the business of a competitor. In fact, I'm not even sure how Vanguard could do this in any manner that would be customer facing.
jhspaybar 11y ago
I choose to invest with Betterment instead of Vanguard or Schwab, much of it comes down to the ease with which I can interact with their services in comparison. Betterment has a nice iPhone app, and even in the app, everything I could possibly want to do is no more than 1 or maybe 2 touches away. For comparison, I rolled over quite a bit of money from a Vanguard fund into Betterment in part because the interaction with my money was more difficult in Vanguard, and I pretty much had to use the website. I also have a work plan with Fidelity invested in a target retirement fund with very low fees, but again the app and how I interact with my money is terrible in comparison. I understand Betterment is doing less, which is probably why everything is so easy to find, but for someone like me who wants to have their money 100% in equity assets and diversified with an easy dashboard, Betterment is far and away the simplest. A nice bonus is that I can crank my allocation up to 100% stocks 0% bonds which it seems none of the target date retirement funds will allow (I have stable assets invested elsewhere and don't need the exposure in my Betterment accounts).
- hockeybias 11y ago
  Expect Vanguard to improve in the directions your reference.
- saryant 11y ago
  If you want 100% stocks, you just buy an equity fund. Of course target-date funds don't have that, that's the point.
- bradleyjg 11y ago
  Of course it's your money to do with what you like, but how exactly are you interacting with your money and how often? Also if you want 100% stocks and 0% bonds you can buy VTSAX or VTI (that's US equities, if you want international ex-US there's VTIAX / VXUS).
  - jhspaybar 11y ago
    I have monthly deposits, and mostly just check balances once a week or so. As for buying funds, yes I could do that, but I'd like a nice mix of large and small cap, domestic and foreign, and the tax loss harvesting is quite handy! This would be far more work than I want to undertake elsewhere.
deegles 11y ago
For a large enough account (>=100k), Wealthfront can buy the individual stocks instead of holding them in an ETF. Right now they only do this for US stocks. Presumably, they'll eventually do this for other asset classes and you'll have the benefit of their tax-loss harvesting and rebalancing and pay only the robo-advisor's management fee.

ffumarola 11y ago

I think that there are 2 things that will likely continue to help robo advisors: 1) Vanguard or Charles Schwab products that do automated investing likely take an opinionated approach towards only owning their own assets. This means that the amount of the investable market I can actually buy into at any point is much smaller, and possibly less optimal. I imagine this also has an impact on how effective the robo advisor can tax loss harvest. 2) Betterment has shown their cards (in my opinion) once they started allowing users to link external accounts. Initially it has been exposed as a way to track networth and investment progress towards your goals. However, I'm not convinced it will stop there. The obvious next step is that Betterment will manage your asset allocation, monitor wash sales, etc across all of your investment accounts, regardless of whether they actually have the money invested through them directly. In this way, they are an ambivalent service that you pay for.

saryant 11y ago
#1 doesn't make sense because Vanguard and Schwab products own the entire market, unless you're talking asset classes beyond typical equities and bonds.
- ffumarola 11y ago
  There are many funds that own the entire market (or subsets of the market like small cap, mid cap, etc). And if I want to TLH, I need a similar asset to buy when I sell the asset that is losing money. Unless Vanguard has a lot of funds that serve similar purposes but are slightly different, you won't be able to do that using only Vanguard funds AFAIK.
  - chollida1 11y ago
    Well whether or not Vanguard has a similar ETF is irrelevant as the IRS is very clear that if you sell an asset to do tax loss harvesting you can't buy it or any similar product back over the next 30 days if you want to collect the tax loss. I mean you can buy a similar product to the one you sold within the 30 days, you just don't qualify for the tax loss in that instance:) The below link discusses this pretty well and I've got way more experience wit this than I really care for. http://www.investopedia.com/articles/taxes/08/tax-loss-harvesting.asp http://www.investopedia.com/articles/taxes/08/tax-loss-harve...

ASinclair 11y ago

I look at Vanguard's Target Retirement Date funds as the predecessors to these automated/partially-automated advising services. I'm not convinced the robo-advising can do any better than one of these funds since the fees for the Target Retirement funds are half of Vanguard's advising fee. The vast majority of retirement investors don't need unique advice. They really just need to be saved from themselves. If putting all the decision making in the hands of some software achieves that then I suppose they do provide some value.

jcomis 11y ago
Have to agree. I'm guessing most of the "roboadvice" will essential be to use target date funds, or a mix that replicates them closely?

asymmetric 11y ago

For more info on index funds, and Vanguard in particular, there's a great podcast by planet money (with transcript) at http://www.npr.org/2016/03/10/469897691/armed-with-an-index-fund-warren-buffett-is-on-track-to-win-hedge-fund-bet http://www.npr.org/2016/03/10/469897691/armed-with-an-index-...

tryitnow 11y ago

Betterment and Wealthfront are just showing Vanguard and Schwab how to do business in the future. Their UI/UX is easily copied. The startups are betting on that the big guys will continue to be incompetent in UI/UX. Maybe that bet will pay off, but it's not a bet I would make.

louprado 11y ago

I recognize my question has little to do with the OP. But I can't get past this investment dilemma. Let's say I have $100k in two different accounts. Assume both accounts only hold one stock, an index tracker, that grows annually at 6%. Example 1) A retail E-Trade account Example 2) A Roth-IRA account. With the first account, I paid commission upfront when I purchased and again when I sold. In scenario 2, I probably paid commissions AND I pay 1% fees on assets annually. 30 years later account 1 will have ~$575K and account 2 will have ~$432K. So even if you consider tax advantages you are better off with the retail E-Trade account. If I don't need an advisor AND I do want the tax advantages of a ROTH IRA, what do I do ? Right now I am paying 1% annual fees to a guy who I met once 10 years ago who was just lucky enough to fax in my paperwork. Thanks in advance.

zymhan 11y ago
You can open an IRA at Vanguard that would certainly be much cheaper than whatever you're paying that guy: https://investor.vanguard.com/ira/iras https://investor.vanguard.com/ira/iras
kbuck 11y ago
You get a Roth IRA without ridiculous fees. For example, Vanguard (as mentioned in the article) has some.
saryant 11y ago
The market has exploded with no-load mutual funds and ETFs with minimal fees. Vanguard now competes in that space with Schwab, Fidelity, iShares and others.
harryh 11y ago
You need to move your Roth-IRA to a different custodian. You are getting ripped off. Vanguard will charge you zero to be custodian.
mcguire 11y ago
One of us is confused. A Roth is a tax-advantaged container; you should be able to get such an account at E-trade. Most places do have a fee for retirement accounts, but it is often waived for small investors and for Vanguard I think it is a relatively nominal fixed annual fee. It's possible to have a 1% annual fee on an asset in either account, such as a mutual fund. That's ridiculously high, though. The point of index funds is to reduce those. If I am interpreting you right, your two examples boil down to: 1. An E-trade IRA, containing something like SPDRs: $10 commission to buy and sell, plus 0.18% (last time I looked) annual fee to the folks who issue the SPDRs. 2. A Vanguard IRA containing a Vanguard index fund: no commission to buy or sell, possible fixed annual custodial fee, and 0.2% annual fee from the index fund. Or, you can have either in a non-retirement account, in which case you pay income tax on dividends and capital gains. Or you can put a Vanguard index fund in an E-trade account; I'm not sure about commissions then. In any case, TL;DR: if someone tries to sell you something with a 1% annual fee, scream loudly in their ears and use the distraction to run away.

ansible 11y ago

I saw the mention of 0.30% annual fee for the robo-advisor... Isn't that still quite high? I know that Vanguard is happy with making that money, I just don't think their costs are anywhere near that.

mcguire 11y ago
That's roughly the fees for most index funds, IIRC.
- brightsize 11y ago
  The last time I talked to my rep at VG, he told me the .3% robo-fee was in addition to any of the usual fund fees. The fee seems high to me too, I don't see the logic (apart from VG profits) for the fee being tied to AUM given that the "work" the robot has to do is essentially the same for a $1K or $10M portfolio. If you have a sizable portfolio with VG you'll get a meatware advisor as part of the deal but it's hard for me to believe this person will be doing any substantial amount of custom and ongoing portfolio tweaking -- actual management -- for the money. I'd expect she'd be configuring and occasionally monitoring her robot alter-ego, something they could probably get an intern to do. That said, if you hate to think about money management and tend to neglect your portfolio then it might be worth it to pay the fee and, maybe, just maybe, avoid some potentially very expensive mistakes. I'm tempted, but have yet to take the VG robo-bait mainly because of the magnitude of the fee.
  - mcguire 11y ago
    I have a Vanguard account with several of the index funds. Since the point is to put money in and forget about it, I don't figure I need an advisor.