The Vanguard Group, founded in the 1970s, manages one of the world’s largest and most popular line-ups of mutual funds and exchange-traded funds (ETFs). Vanguard launched an investment management service, Vanguard Personal Advisor Services (PAS), in 2015 that combines digital and personal attention to clients with relatively large portfolios (minimum $50,000). Vanguard started testing Vanguard Digital Advisor (DA), a fully-automated investing service with fewer barriers to entry in 2019, and has rolled it out to the public in 2020. Having seen some previews of new features coming in the next year, we expect Vanguard Digital Advisor to be a major player in the entry-level robo-advisor space in 2021.
- Vanguard Digital Advisor is a new, all-digital advisory service aimed at new investors.
- Minimum portfolio size is $3,000 for brokerage clients, $5 for eligible defined contribution plan participant accounts.
- Though anyone can sign up for this new product, Vanguard still considers it in “pilot mode,” and is making frequent updates.
Lower minimum balance requirements make it accessible to new investors.
Built on Vanguard’s new development stack, the platform is very easy to use.
Step-by-step instructions ease the way when opening an account.
Low advisory fee that nets 0.20% annually for assets under management.
The Debt Payoff Calculator is a unique and extremely useful tool that helps clients focus on investing.
The product is still being developed, so features change frequently.
The Terms and Conditions document warns that Digital Advisor may be “substantially modified or withdrawn at any time during the pilot period.”
Not available to customers outside the United States.
Whole shares are held in portfolios, so asset allocation for smaller accounts will be off-target.
When a user navigates to the product page for Digital Advisor, they see images and infographics intended to show what to expect before clicking the “Ready to sign up?” button. Brand new Vanguard clients are asked to create a user name and password and enter their address and age. Existing clients open a Digital Advisor account after logging in. Then you’re asked whether you’re working / not yet retired, or retired/semi-retired to discern whether you’re in earning or spending mode.
Next, you’ll see a step-by-step description of what to expect of the experience. The first step is to build a financial profile, then create a goal. The final step gets your account ready and formally enrolls you in the service, which unlocks additional features. There is a clear explanation on every page why these questions are being asked. You can connect external financial accounts at this point or skip it; there are other opportunities to enter this information when you are more comfortable with the platform. DA will work with other Vanguard accounts such as 401(k) and help manage those. Non-Vanguard accounts get built into spending projections but aren’t managed.
Next up are your household spending estimates. Following that, you’re walked through a risk tolerance quiz, which results in a measure from 1-100 that defines the type of portfolio that will be recommended. The quiz assesses a client’s risk tolerance from their responses to six scenarios, taking a “plain talk” approach to helping clients understand their investing risk tolerance. The goal is to make a complex and confusing topic simple and understandable. Clients may also choose to deviate from risk attitude results of the risk quiz, which results in a range from very conservative to very aggressive.
You must set at least one goal to use DA. The primary goal that a customer can define at this point in the pilot is retirement. Additional goals are being designed for inclusion in DA. You’re given another opportunity at this point to connect external accounts if you have not yet done so. If you have a 401(k) held at Vanguard, that information is automatically connected to your retirement goal.
You’ll use a slider bar to enter your desired retirement age, and can play around with it to see how a different age affects your progress. An estimate of your social security benefit will be displayed; and you can go through a process of defining a more precise estimate if you’d like. The retirement goal planning process tells you the optimum age for starting to collect social security.
Data entry is accomplished using slider bars in most instances, including additional income during retirement and an estimate of spending. Your DA dashboard displays your current situation and your progress towards your goal. The dashboard feature of DA is the piece most likely to change as Vanguard builds out the product.
Initial and one-time deposits, recurring deposits, and withdrawals can be accomplished with a few clicks in the account management interface. No margin is available to advisory clients, nor can you borrow against your assets. Digital Advisor will also provide guidance to clients saving for emergencies as well as where to direct extra or idle cash. Digital Advisor also provides guidance and tools to model how to optimize debt repayment options.
The dashboard includes a debt payoff calculator for any loans that you have aggregated into your account. Here’s another chance to add accounts such as student loans, car loans, and mortgages. There are several strategies for paying off debt: minimum payment or avalanche payment strategy. The latter encourages users to pay off the highest cost debt first, and as an incentive, the date one could be debt-free is displayed.
Up next on Vanguard’s product road map is handling a windfall, such as a bonus or an inheritance. Clients will be guided towards paying off debt and/or continuing to save and invest for a goal. Eventually, as new functionality is added to DA, your financial goals dashboard can include multiple investing goals that meet your particular financial situation, such as assessing your debt, planning for college, saving for a home, or establishing a rainy-day fund in addition to saving for retirement.
Very little cash is maintained in a DA account. At present, there are no explicit cash management features. Cash is swept into an interest-bearing money market fund, the Vanguard Federal Money Market Fund, which is not FDIC-insured but is covered by SIPC insurance. Cash in accounts is excluded from the calculation that generates the management fee.
A proprietary algorithm, very similar to the one used in PAS, digests client profile data and recommends a portfolio and corresponding glide path that considers the risk tolerance, asset allocation, and time horizon suitable for the stated goals and time horizon.
Portfolios contain Vanguard ETFs, chosen from this list:
- Vanguard Total Stock Market ETF
- Vanguard Total International Stock Market ETF
- Vanguard Total Bond Market ETF
- Vanguard Total International Bond ETF (collectively referred to as the “Four Totals”)
If a client enrolls both Vanguard Brokerage Accounts and Participant Accounts then other Vanguard index ETFs may be used, such as:
- Vanguard FTSE Developed Markets ETF
- Vanguard FTSE Emerging Markets ETF
Allocations are fluid, changing to match the glide path trajectory, risk exposure, and time remaining for each goal. Should a client’s investing goals get more complex, she may want to consider switching to the more personalized Vanguard Personal Advisor Services, which can include individual stocks and fixed income.
Digital Advisor will not include recommendations to purchase individual securities (with the exception of reasonable accommodations for company stock) or bonds, CDs, options, derivatives, annuities, closed-end funds, unit investment trusts, or partnerships.
Vanguard DA maintains a broadly diversified portfolio that includes investments from a variety of market sectors and asset classes. The methodology follows traditional Modern Portfolio Theory (MPT) principles, emphasizing the benefits of low-cost securities, diversification, and indexing, driven by long-term financial goals. As with other robo-advisors, the system won’t base decisions on market timing or short-term performance.
In its current pilot stage, there is no tax-loss harvesting possible, nor can clients choose a socially responsible portfolio. Portfolios are monitored daily, and a rebalance is triggered if the portfolio is found to deviate from the target asset allocation by more than 5% in any asset class (stocks or bonds). Monitoring is also in place to assess the potential for rebalancing if holdings of cash equivalents are more than $300.
Digital Advisor has native iOS and Android apps, as well as a mobile-responsive website. The layout of the dashboard is different on mobile versus a desktop computer, but most of the functionality is the same across platforms. The debt payoff calculator is not yet available on mobile.
The desktop layout is much cleaner and easier to navigate than the self-directed brokerage. The workflow moves easily from step to step. The dashboard is made up of cards that are specific to each user’s financial situation.
Digital Advisor is an entirely online experience, so there are no financial advisors available to consult. Should you find yourself in need of attention from a human, you’re encouraged to switch to Personal Advisor Services. There’s no live chat for prospective or current clients on the platform, but customer service representatives are available via direct message on various social media platforms.
There’s a customer service phone line open 8:00 a.m. to 8:00 p.m., Monday through Friday to assist with technical issues.
Education and Security
Though there aren't specific education offerings built into DA, there are massive amounts available on the general Vanguard site. These include articles, videos, research papers, blog posts, and social media output, as well as marketing pitches for Vanguard products. There is a well-organized FAQ that uses the card layout, similar to DA’s dashboard. Specific to Digital Advisor, clients can receive emails and access to literature about investment topics and current events.
The site uses 256-bit SSL encryption and provides two-factor authentication. The wholly-owned Vanguard Marketing Group holds client funds, providing access to Securities Investor Protection Corporation (SIPC) and excess insurance. Cash is swept into money market funds that are not FDIC-insured.
Commissions and Fees
Vanguard Digital Advisor targets an annual net advisory fee of 0.15% across your enrolled accounts, although your actual fee will vary depending on the specific holdings in each enrolled account. To reach this target, Vanguard Digital Advisor starts with a 0.20% annual gross advisory fee to manage Vanguard Brokerage Accounts, but will credit you for the revenues that The Vanguard Group, Inc. or its affiliates receive from the expense ratios of the Vanguard funds held in your portfolio. Vanguard’s disclosures mention that your net advisory fee can also vary by enrolled account type but provide no specifics.
The combined annual cost of Vanguard Digital Advisor's annual net advisory fee plus the expense ratios charged by the Vanguard funds in your managed portfolio will be 0.20% for Vanguard Brokerage Accounts. This is lower than most robo-advisories.
- Monthly cost to manage a $5,000 portfolio: $0.83
- Monthly cost to manage a $25,000 portfolio: $4.17
- Monthly cost to manage a $100,000 portfolio: $16.67
Is Vanguard Digital Advisor a Good Fit for You?
Vanguard introduced Digital Advisor based on requests for managed accounts smaller than those that fit in their Personal Advisor Services product. If you’re comfortable with an all-digital platform without access to human advice, DA offers a reasonably-priced robo to consider. This is still a very young platform, but new features are being added every few months.
Investopedia Robo-Advisor Rating Methodology
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Overall Star Rating Explained
With the individual investor in mind, we took a critical look at the services and technology provided by robo-advisors. We organized our methodology into the nine categories mentioned above, scoring each advisor across multiple variables to rate performance in every applicable category. The score for the overall award is a weighted average of the categories.
|Education & Security||5%||6|
The Review Process
To evaluate these platforms, we sent questionnaires with over 100 queries to the participating robo-advisories. Most of the companies we reviewed gave us socially-distanced video demonstrations of their platforms and services during August 2020.
From the questionnaires, the hands-on testing of the platforms, and the platform demonstrations, we scored each category and then combined the category scores into an overall rating for each robo-advisor. Each category covers the critical elements users need to thoroughly evaluate a robo-advisor.