Client Service September 4, 2024

Vanguard to Lower Asset Minimum for Digital Adviser Access

The minimum holding to receive financial advice from "robo-advisory" services will drop to $100 from $3,000.

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Vanguard announced Wednesday it will lower the asset minimum for its automatic advisory services to expand access to a broader swath of clients.

The asset management giant has lowered the minimum asset requirement to $100 from $3,000 to use Digital Advisor, its  automated advisory offering, which provides a broader range of investing glide paths than its target-date funds, along with advice and planning tools.

The digital service, launched in 2020, is designed for clients to “identify their retirement and non-retirement goals, and [it] then crafts and manages customized, diversified and tax-efficient investment portfolios to achieve them,” according to Vanguard, which had more than $19 billion in assets under management, as of June 30.

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Vanguard framed the move as broadening access to low-cost advice when personalization has become an industry buzzword for retirement saving and planning. It also comes a few months after Vanguard tapped Salim Ramji, formerly of BlackRock Inc., as its first external CEO hire. Ramji led BlackRock’s exchange-traded-fund investment offering, iShares.

“Lowering the investment minimum for Vanguard Digital Advisor is an important step in our endeavor to broaden investors’ access to advice, and to empower them earlier in their financial journey,” Brian Concannon, head of Vanguard Digital Advisor and mass affluent advice, said in a statement. “We believe that advice strengthens investors’ ability to navigate their personal finance and investment needs, and can drive better investment outcomes.”

David Goldstone, manager of investment research at Condor Capital Wealth Management, noted that the move comes after Vanguard added fractional share trading capabilities to Digital Advisor. That, he says, helps allow Vanguard to offer “much lower minimums.”

“If investors can buy partial shares of ETFs, they can invest in a diversified portfolio of funds with just a few dollars,” he says. “Another benefit of fractional share investing is it can help improve the efficiency of tax loss harvesting. When cash comes into an account either through dividends or deposits, that cash can be immediately invested into fractional shares even if the dollar amount is low. This means that more tax lots are created and thus increases the opportunity to sell lots at a loss.”

Goldstone, who leads Condor Capital’s “Robo Report” analysis and ranking of advisers, says Vanguard is joining competitors who have had fractional share capabilities and are offering lower minimum investments; overall, it will help make them more competitive in the marketplace, he says. 

Vanguard ranked fourth in the most recent robo ranking score from Condor Capital Wealth Management, considering areas such as access to advisers, costs and performance. The top performers were Fidelity Investments, Bank of America’s Merrill and Sofi.

“One of the biggest impacts Robo Advisors have had on the investing landscape is increasing accessibility to professionally managed accounts,” Goldstone says. “Low Minimums like this one have opened the doors to new investors and democratized professional money management.”

Other areas of Digital Advisor that Vangaurd has been investing in, according to the firm, include:

  • Personalized coaching for users;
  • More portfolio investment options, including adding actively managed funds to Vanguard’s more well-known passive index funds; and
  • Tax-efficiency services that include an automated tax-loss harvesting service, including asset location, tax-efficient rebalancing and tax-efficient fund selection (e.g., municipal bond funds).
Products September 4, 2024

Vestwell Adds TIAA Lifetime Income Offering

TIAA also makes a strategic investment in Vestwell, as the partnership brings TIAA’s lifetime income option to the middle and small segments of the retirement plan market.

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TIAA is offering its target-date series with an in-plan annuity investment to midsize and small retirement plans through a new partnership with Vestwell, the firms announced Wednesday. They also noted an investment TIAA Ventures had made in a Series D fundraising round for Vestwell at the end of 2023.

Vestwell will offer plan sponsors, starting in 2025, access to the TIAA Secure Income Account, a guaranteed lifetime income product for defined contribution plans.

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Vestwell had been seeing increasing interest in a “lifetime income paycheck” in its regular surveying of plan sponsors, savers and advisers, which fed into ongoing discussions it had been having with TIAA, says Vestwell Founder and CEO Aaron Schumm.

“[Lifetime income] was a topic that kept coming up in our conversations and surveys,” Schumm says. “It just became more and more convincing that there was something to be done there.”

TIAA’s goal with the partnership is to bring its in-plan income product to middle- and smaller-market plan sponsors, says Phil Maffei, its senior managing director of corporate retirement income products, via email. 

“We see Vestwell as a key player in helping TIAA to bring in-plan lifetime income to the middle and small end of the market that most lifetime income providers have not historically focused on in the past,” Maffei says. 

Empower, the country’s second-larger recordkeeper, had announced it was offering TIAA’s in-plan annuity product in March.

Vestwell, meanwhile, has been encouraged by plan advisers to offer its platform to larger plan sponsors than it has traditionally, according to Schumm.

Investment, Too

In the same announcement Wednesday, Vestwell announced TIAA’s venture capital arm, TIAA Ventures, invested in Vestwell as part of a Series D fundraising round. The investment is an equity, not controlling, stake in the firm and is separate from the TIAA guaranteed income product being on Vestwell’s platform, says Schumm.

“It doesn’t sway anything that we do on the product or the delivery side,” he says. “But what we have found is that when we have strategic players that are investors in Vestwell, it keeps ships more tightly aligned with where we’re pointed in terms of resources and focus.”

Vestwell has numerous options to choose from for an in-plan retirement income option, with new products coming to the market frequently in recent years. JP MorganChase is the latest to market, announcing a product in August partnering initially with insurers Equitable and Prudential.

Schumm says he was originally apprehensive about adding an in-plan annuity option to the platform. But the more he and the firm “dug into it,” he says, it started to make sense. And while Vestwell was approached “by a number of players,” he believes TIAA is the best partner due in part to the firm’s long history of providing in-plan annuity as a pension-option in 403(b) plans.

He also notes that Vestwell’s participant pool skews slightly younger than most competitors, with an average age of about 40, making this what he and his team felt was a good time to start incorporating and educating on the in-plan products.

“We were looking at the age group and were thinking, ‘This is actually a good time to start introducing them [to the offering], having these conversations and carrying it on the platform,’” Schumm says.

TIAA Secure Income Account will be available through target-date structures available to 401(k) and 403(b) plans on the Vestwell platform and to Vestwell partner firms. TIAA SIA offers guaranteed interest while participants save for retirement and a “pension-like retirement income” via an annuity in retirement.

Underserved Markets

Vestwell’s “technology and scale” will be important in helping TIAA penetrate new markets, says product director Maffei.

He declined to share details of other recordkeeper partners for TIAA’s offering, but said: “It’s safe to say that TIAA is in active discussions with numerous players to build a coalition of retirement champions so that we can offer lifetime income to more Americans. We know that women retire with 30% less. We know that 64% of Hispanics do not have access to a workplace plan. We are working to change that.”

In late August, TIAA announced a multi-year partnership with technology and consulting firm Accenture to assist in modernizing its recordkeeper platform and participant services. That move will see some 1,500 TIAA employees in the U.S. and India be offered jobs at Accenture, with the alternative of leaving the company.

Vestwell, meanwhile, now has an in-plan annuity option to add to its offering. The provider offers 401(k), 403(b), individual retirement accounts, state retirement plans, 529s, and ABLE accounts, among other services.

In May, the recordkeeper announced an expanded partnership with JPMorganChase’s asset management arm to distribute the bank’s workplace savings platform, Everyday 401(k), via Vestwell.

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