Note: This video is the sixth of a six-part interview between Morningstar director of personal finance Christine Benz and Vanguard president and CEO Tim Buckley.
Christine Benz: I'd like to talk about the personal advisory services, as you call them PAS here at Vanguard. These are the advisors who are available for 30 basis points to investors. Let's talk about the growth in that area, what Vanguard has needed to do to staff up to meet that demand. I'd also like to talk about whether Vanguard, at what scale would that service need to be to actually reduce that 30-basis-points fee.
Tim Buckley: PAS has been growing at about 70% a year, phenomenal growth rate. And it's this value of--Vanguard has been in the advice business for 23 years. We've been in it where it was just, call us, talk to us on the phone, and here's your portfolio and this is what you should do with it, you've got a 50-page report.
Benz: Figure it out.
Buckley: Figure it out. We've been online only. We've been, just talk to a CFP. We've leveraged technology, we've leveraged people. This is 23 years of when to use a person, how should you use technology, and how can you do it at a price point that is just really reasonable for people. It's got the ease, it's got the accessibility. That's what PAS is, and that's why it's doing so well at that 30-basis-point price point.
We fully expect that to come down. As you scale a business, that's what our history is, as we scale a business, eventually you have more clients and clients that you are onboarding. Most of the cost is onboarding clients, not in giving them ongoing advice. We expect that price to come down. Also, we continue to invest in technology. Things that can take a while, like risk profiling, figuring out what someone needs for retirement income. These are areas we're leveraging technologies around AI, Big Data, studying your actual behavior to get a risk profile of you that will make it far more efficient for us to give advice. We'll share that, as you know, with our clients as we go forward.
Benz: One question I get a lot--and I've not used this service, so I don't have a good answer to it, maybe you can answer it--is, if I sign on for this service, how much touch will I get from that human, how much contact will we get, will it just be on the phone, will it be in person? Also, to what extent will that portfolio be what everybody else is getting? I'm sure you get those questions a lot. Can you address that and talk about how it works for people who sign on?
Buckley: Most clients, if you live locally, you certainly could come see us. But 99.7% of the clients are going to have a collaboration experience. It's not going to be old school, let's talk on the phone. We are going to collaborate, whether over your iPad, or your desktop, we're going to collaborate with you. We'll have a nice interview, try to understand you and your goals. What are you trying to accomplish, what are your worries? What do you want to do, if you have kids, for your kids? Try to understand you. Then we'll set the portfolio up, then we'll have another consultation. Does this make sense for you, these goals? We can go back and forth and say, how much are you comfortable with the risk that we have here in the portfolio and the investments. We'll have a conversation. Anything you want to change?
Then, it's really, we will have regular check-ups with you, but if you need to talk to us, you're always welcome. You're always welcome to actually interact with us. Then a lot of the interaction also will be, whether it's through email or otherwise, here's what's going on with your portfolio. There's volatility in the market. Do you need to be worried, do you not? We'll reach out to you on a regular basis. It's a full advisory relationship, really customized to what fits you best rather than what fits our model best.
Benz: In terms of extra services, whether I need some tax planning or estate planning, how much do the advisors venture into that area, if at all?
Buckley: We will help people with their estate planning. We will talk to them about tax issues. We will talk to them about healthcare, expected healthcare expenditures. If someone is a retiree, we are going to talk to them about their healthcare expenditures. If someone has got significant wealth, we are going to address the estate planning issue. It will really depend on the client. But it's a very robust service.
Benz: Tim, thank you so much for taking time out of your day to be here. We really appreciate it.
Buckley: My pleasure. Thank you.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.