Deals & People December 9, 2024

Vanguard Plans $900B Advice and Wealth Management Division

The new division will be headed by a former Fidelity executive and be separate from Vanguard’s Personal Investor segment.

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The Vanguard Group Inc. is preparing to launch a new advice and wealth management business unit, carving out the firm’s retail investor business from its personal investor division as a stand-alone entity, the asset manager and recordkeeper announced Monday.

The new division will manage more than $900 billion in assets and integrate Vanguard’s institutional business, which includes its retirement plan business and third-party intermediary operations.

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Leading the division will be Joanna Rotenberg, who will join Vanguard in January 2025 as a managing director and a member of the senior leadership team. As the former president of personal investing at Fidelity, Rotenberg led retirement, brokerage and wealth management businesses, overseeing services for more than 20 million U.S. investors.

Matt Benchener, managing director of Vanguard’s Personal Investor business, will continue overseeing the digital client experience, brokerage and savings solutions. Rotenberg and Benchener will both report to Vanguard CEO Salim Ramji.

Vanguard’s Vision

The move is a signal that Ramji, who joined the firm from BlackRock Inc. in July, is “making more of a concentrated effort to focus on the advice side of the business and signal that it will be a more important part of the strategy in the U.S. market,” says Dan Sotiroff, a senior manager research analyst for Morningstar Research Services LLC.

Sotiroff notes that Vanguard has been making incremental steps toward personal advice and wealth management. He notes the firm’s 2021 acquisition of Just Invest, which focuses on personalized index investing, and Vanguard’s work to offer robo-advisory services, including lowering asset minimums in September.

“You can start out with the robo-adviser for individuals who don’t have as much money, and then work up in the tiers as people need more personalized advice,” he says of the strategy.

Leadership Changes

Vanguard also announced several additional leadership changes. John James, the current managing director of the Institutional Investor group, will lead the Workplace and Advisor Solutions group, focusing on enterprise client relationships. Meanwhile, Lauren Valente, currently managing director and chief human resources officer, will head the Institutional Investor group. Jon Couture, an HR executive most recently at Principal Financial Group, will join Vanguard as a managing director and senior leadership team member, succeeding Valente.

“For nearly five decades, Vanguard has been a positive force in democratizing investing, helping to give tens of millions of investors the best chance for investment success,” Ramji said in a statement. “With the addition of Joanna to our leadership team, our goal is to further democratize our advice and wealth management offerings for our clients through enhanced technologies and offers.”

Morningstar’s Sotiroff notes that Ramji, while known for his work at BlackRock leading iShares and index investments divisions, had also spent time as head of the firm’s U.S. wealth advisory business and in many ways is the “right person” to build out this advice and wealth strategy while continuing with Vanguard’s strength in low-cost index investing.

He says it remains to be seen how the new division might connect to the recordkeeper side of Vanguard’s business. But he does see the general push toward wealth management as a way to “keep revenue coming in” for the long term while it continues in the low-cost-indexing space.

“They are thinking about what they can charge for while keeping with the Vanguard ethos of keeping the investor first,” he says.

Prior to Fidelity, Rotenberg served as group head of BMO Wealth Management at BMO Financial Group and was a partner at McKinsey & Co.

Prior to Principal, Couture was executive vice president of human resources for consumer lending, payments, virtual channels, operations and innovation at Wells Fargo.

Correction: Fixes error in CEO Ramji’s background.

Data & Research December 9, 2024

DC Advisers Interested in Retirement Income Solutions, but Still Hesitant

Systematic withdrawals are still more commonly recommended than in-plan annuities, but that may shift in coming years, according to researchers from Escalent’s Cogent Syndicated. 

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Retirement plan advisers are increasingly recommending retirement income solutions, but they tend to support varied types of solutions and are still evaluating newer product offerings, according to a new Cogent Syndicated report from Escalent Inc.

As of September, about 30% of defined contribution plan advisers in a survey of 411 said they are currently recommending retirement income solutions that range from systematic withdrawals to in-plan annuities. That is more than the 26% recommending income solutions to clients in 2023 and the 21% who did so in 2022. That percent is likely to keep rising, as 40% reported planning to recommend them in the future, according to Cogent Syndicated’s “Retirement Plan Advisor Trends.”

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While in-plan annuities via a target-date investment vehicle have been a hot topic in the retirement industry, systematic withdrawals are the most popular option among advisers, with 40% recommending this approach to a regular paycheck in retirement. By comparison, about 33% reported recommending income-producing bond funds and target-date funds that put a portion of the contribution into guaranteed income. Another 24% are recommending TDFs converted to a managed account in retirement (which can then add an annuity), 22% are offering an out-of-plan annuity, and 20% are putting up an in-plan immediate annuity.

Sonia Davis, the report’s lead report and a senior product director in Escalent’s Cogent Syndicated division, says advisers are still in the early stages of figuring out which retirement income options are best for plan sponsors and their participants, but TDFs with annuities are gaining traction as advisers figure out how to benchmark and evaluate them. No matter what offering advisers go with, Davis says prior Cogent participant surveying showed that people do want some kind of guaranteed paycheck in retirement.

“It’s great to see that [plan advisers] are acknowledging some of the market demand,” Davis says. “The question is: Which among the variety of product and service solutions will start to take hold?”

More Options

Davis notes that retirement income options leveraging annuities have been proliferating in recent years, with Empower announcing just last week plans to add such DC investment options from both Allianz and Franklin Templeton, the latter in partnership with TIAA.

She also says the “flurry” of products, along with interest from advisers and plan sponsors, has come in part after the Setting Every Community Up for Retirement Act of 2019 and the SECURE 2.0 Act of 2022 included provisions that allow for plan fiduciaries to include insurance-backed income options into DC plans.

“From our perspective, there is a mix of more simplistic and more innovative options that are trying to meet the needs of participants,” Davis says.

In order to vet these options, plan advisers are turning to a variety of metrics, according to Davis. These include: the asset preservation needs of participants, their risk of running out of income earlier than planned, and their liquidity needs for more immediate spending.

“There are a lot of metrics being used to evaluate the so-called success of these different product and service solutions,” Davis says. “Meanwhile, the advisers are looking at some of the hurdles in reaching those goals.”

Challenges

The most common obstacle to providing solutions, cited by 55% of those surveyed, was concern for high fees and expenses related to the products. That was followed by: concerns about the portability of the investments to different accounts (33%); weak participant demand (32%); fiduciary concerns (30%); lack of liquidity (29%); and limited growth potential as compared with other options (25%).

Davis says she was surprised by the number of advisers who do not think participants want retirement income options. She thinks more “education” is needed, as her participant research has shown people want solutions, but they may not know or understand what is possible.

“They need help breaking everything down and understanding the different concepts and the fact that we have a plethora of different options,” she says.

Davis and her team also asked DC plan advisers if they see individual retirement accounts—usually driven by DC plan rollovers—as the best option for managing retirement income. The majority (58%) said yes. However, 40% said they were comfortable with the idea of managing it within a participant’s current retirement plan. in part to take advantage of institutional pricing power.

Davis expects the trend to continue as the in-plan market continues to evolve.

“We are hopeful that in a few years we might see greater adoption in one or two areas that make participants feel like they have a viable solution that is going to work,” she says.

Cogent Syndicated, a division of Escalent, conducted the survey with 411 plan advisers from September 9 to September 17; participants were required to have an active book of business of at least $5 million and be actively managing DC plans.  

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