Vanguard - New Active Funds for PAS

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tj
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Vanguard - New Active Funds for PAS

Post by tj »

I guess the 30 bps isn't generating enough revenue.

https://investornews.vanguard/vanguard- ... ity-funds/
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typical.investor
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Re: Vanguard - New Active Funds for PAS

Post by typical.investor »

tj wrote: Thu Aug 26, 2021 10:28 am I guess the 30 bps isn't generating enough revenue.

https://investornews.vanguard/vanguard- ... ity-funds/
Likely true but the other angle is to increase the number of PAS clients by offering exclusivity!!!

Per your link only for PAS.
The funds are expected to launch in the fourth quarter of 2021 and will be available exclusively to clients of Personal Advisor Services (PAS)
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Re: Vanguard - New Active Funds for PAS

Post by Da5id »

tj wrote: Thu Aug 26, 2021 10:28 am I guess the 30 bps isn't generating enough revenue.

https://investornews.vanguard/vanguard- ... ity-funds/
Wow. ERs over 0.4% too. Bogle is probably spinning in his grave :(. His vision has certainly been lost at Vanguard
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Re: Vanguard - New Active Funds for PAS

Post by barnaclebob »

I guess I might not be recommending PAS anymore to people who want truly hands off and are considering edward jones and the like..

What is fidelity's cheapest managed option?
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Re: Vanguard - New Active Funds for PAS

Post by tj »

barnaclebob wrote: Thu Aug 26, 2021 10:41 am I guess I might not be recommending PAS anymore to people who want truly hands off and are considering edward jones and the like..

What is fidelity's cheapest managed option?
Fidelity Go Hybrid, which seems to have been renamed Fidelity® Personalized Planning & Advice


0.50 bps AUM, but the funds are all Zero ER funds ( that cannot be invested in outside of Fidelity Go or the 50bps managed option) unless they have changed it.

https://www.fidelity.com/digital-invest ... ing-advice
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Re: Vanguard - New Active Funds for PAS

Post by retired@50 »

I'm reading it a bit differently.

It could be that PAS clients are tired of the all-index approach, so this creates options for clients who seek some exposure to actively managed stock funds.
Vanguard wrote: The active equity offer will primarily serve as a complementary allocation to PAS clients’ broadly diversified and low-cost index fund core portfolio holdings....PAS advisors will assess suitability and ensure the funds are prudently incorporated into their clients’ portfolios.
PAS portfolios currently utilize both active and passive fixed income and equity products to meet client preferences and needs.
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Re: Vanguard - New Active Funds for PAS

Post by tj »

retired@50 wrote: Thu Aug 26, 2021 10:58 am I'm reading it a bit differently.

It could be that PAS clients are tired of the all-index approach, so this creates options for clients who seek some exposure to actively managed stock funds.
Vanguard wrote: The active equity offer will primarily serve as a complementary allocation to PAS clients’ broadly diversified and low-cost index fund core portfolio holdings....PAS advisors will assess suitability and ensure the funds are prudently incorporated into their clients’ portfolios.
PAS portfolios currently utilize both active and passive fixed income and equity products to meet client preferences and needs.
Regards,
I mean... these funds will need assets under management to operate...and will only be available in PAS. I'd be shocked if they aren't generally included in default proposals to gather assets.
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Re: Vanguard - New Active Funds for PAS

Post by retired@50 »

tj wrote: Thu Aug 26, 2021 11:00 am
retired@50 wrote: Thu Aug 26, 2021 10:58 am I'm reading it a bit differently.

It could be that PAS clients are tired of the all-index approach, so this creates options for clients who seek some exposure to actively managed stock funds.
Vanguard wrote: The active equity offer will primarily serve as a complementary allocation to PAS clients’ broadly diversified and low-cost index fund core portfolio holdings....PAS advisors will assess suitability and ensure the funds are prudently incorporated into their clients’ portfolios.
PAS portfolios currently utilize both active and passive fixed income and equity products to meet client preferences and needs.
Regards,
I mean... these funds will need assets under management to operate...and will only be available in PAS. I'd be shocked if they aren't generally included in default proposals to gather assets.
Well, that wouldn't smell right, would it.

If VPAS is acting as a fiduciary, then forcing clients into actively managed funds could certainly be called into question. I would begin by taking them at their word when they say they will "assess suitability" etc.

We'll see if reports to the contrary surface from PAS clients who post on the board.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Vanguard - New Active Funds for PAS

Post by galawdawg »

retired@50 wrote: Thu Aug 26, 2021 11:09 am
tj wrote: Thu Aug 26, 2021 11:00 am
retired@50 wrote: Thu Aug 26, 2021 10:58 am I'm reading it a bit differently.

It could be that PAS clients are tired of the all-index approach, so this creates options for clients who seek some exposure to actively managed stock funds.
Vanguard wrote: The active equity offer will primarily serve as a complementary allocation to PAS clients’ broadly diversified and low-cost index fund core portfolio holdings....PAS advisors will assess suitability and ensure the funds are prudently incorporated into their clients’ portfolios.
PAS portfolios currently utilize both active and passive fixed income and equity products to meet client preferences and needs.
Regards,
I mean... these funds will need assets under management to operate...and will only be available in PAS. I'd be shocked if they aren't generally included in default proposals to gather assets.
Well, that wouldn't smell right, would it.

If VPAS is acting as a fiduciary, then forcing clients into actively managed funds could certainly be called into question. I would begin by taking them at their word when they say they will "assess suitability" etc.

We'll see if reports to the contrary surface from PAS clients who post on the board.

Regards,
Vanguard PAS is not a fiduciary. Otherwise, they wouldn't place clients exclusively into Vanguard funds.
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Re: Vanguard - New Active Funds for PAS

Post by retired@50 »

galawdawg wrote: Thu Aug 26, 2021 11:15 am Vanguard PAS is not a fiduciary. Otherwise, they wouldn't place clients exclusively into Vanguard funds.
Their website states they are...
Image

Source: https://investor.vanguard.com/advice/financial-advisor/

Regards,
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Re: Vanguard - New Active Funds for PAS

Post by barnaclebob »

Since the PAS system already attracts those that are cost conscious I'm wondering if a lot of people have vanguard PAS setup the portfolio then cancel the service once they realize nothing much happens after that. Having these "exclusive" funds will lock more people into the service.

Will they force you to sell them and take the gains hit if you leave PAS?
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Re: Vanguard - New Active Funds for PAS

Post by tj »

barnaclebob wrote: Thu Aug 26, 2021 11:46 am Since the PAS system already attracts those that are cost conscious I'm wondering if a lot of people have vanguard PAS setup the portfolio then cancel the service once they realize nothing much happens after that. Having these "exclusive" funds will lock more people into the service.

Will they force you to sell them and take the gains hit if you leave PAS?
That's a good question. It makes PAS a lot less appealing to me. I think the PAS advisors do have some flexibility though, because when I did the free plan, the advisor said we could dump international bonds if I wanted to, and I did not have an overly large account.
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Re: Vanguard - New Active Funds for PAS

Post by galawdawg »

retired@50 wrote: Thu Aug 26, 2021 11:23 am
galawdawg wrote: Thu Aug 26, 2021 11:15 am Vanguard PAS is not a fiduciary. Otherwise, they wouldn't place clients exclusively into Vanguard funds.
Their website states they are...
Image

Source: https://investor.vanguard.com/advice/financial-advisor/

Regards,
I do not equate "being held to fiduciary standards under applicable regulations" the same as being a true fiduciary.

For example, does Vanguard PAS evaluate the risks, rewards and costs of all reasonable investment vehicles for each investor to determine which is in the best interest of the investor? Has there been a single reported instance where Vanguard PAS has done so and, as a result of this analysis, has recommended anything other than a Vanguard fund? Does Vanguard PAS always put the interests of the client first?

No, because the Vanguard PAS service agreement expressly provides that investments will be exclusively in Vanguard funds, which benefits Vanguard, the broker-dealer. https://personal.vanguard.com/pdf/vpasag.pdf

This "conversation starter" sheet from Vanguard also describes the conflict of interests: https://www.vanguard.com/pdf/paswebFAQ.pdf

In fact, Rick Ferri has observed
Here is a major flaw in the Vanguard advice model. RIA's are fiduciaries. As a fiduciary, Vanguard PAS advisers should recommend the best funds in each category regardless of the fund sponsor. Currently, PAS advisers only recommend Vanguard funds. That's a conflict of interest.
While the legalistic language used by Vanguard when it states "being held to fiduciary standards under applicable regulations" and disclosure of the conflicts of interest sound as though Vanguard is acting in the investor's best interest, the true test is whether, in a circumstance where a non-Vanguard ETF or mutual fund would be a better investment vehicle for a particular investor, does Vanguard recommend that fund and/or use that fund in the investor's portfolio? The clear answer to that question is no.

I'm not suggesting that Vanguard PAS is doing anything wrong or malicious, just that there is no real practical difference between what they are doing now and the possibility that they may move investors into these new active PAS only funds if Vanguard's "research" suggests those yet unproven funds will be well-suited for the investor.

IMO, investors who want advice would be well-served to find a fee-only advisor who has no conflicts of interest and is not bound as a term of their employment to only sell their employer's funds.
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Re: Vanguard - New Active Funds for PAS

Post by rob »

Well there you go... RIP
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Re: Vanguard - New Active Funds for PAS

Post by sycamore »

From the press release:
Vanguard Advice Select Dividend Growth Fund will seek to outperform the broader U.S. market, focusing on financially sound, large-cap companies across a diverse range of sectors that have prospects for long-term total returns, as a result of their ability to grow earnings and their willingness to increase dividends over time. A more concentrated version of the strategy used in Vanguard Dividend Growth Fund, the fund will be managed by Wellington Management Company LLP and will have an estimated expense ratio of 0.45%, compared with the average expense ratio for large-cap core funds of 0.90%.3
Emphasis above is mine. The Vanguard Dividend Growth Fund VDIGX is currently at 0.26%. It's also managed by Wellington.

I know Vanguard mutual funds start with a higher-than-usual ER but will likely drop over time (as has usually been the case) as assets grow and they achieve economies of scale. But 0.45% versus 0.26% doesn't seem worth it for a "more concentrated version of the strategy" -- which is just more risk for potential more reward.

I don't use Vanguard PAS or other advisor. The new fund offerings aren't something that would induce me to use PAS. But I know many investors continue to be lured by the prospect of active investing, so this seems like Vanguard responding to a market need and/or responding to competitive pressure in the managed/advisory arena.
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Re: Vanguard - New Active Funds for PAS

Post by retired@50 »

galawdawg wrote: Thu Aug 26, 2021 12:05 pm I do not equate "being held to fiduciary standards under applicable regulations" the same as being a true fiduciary.
No offense (since I presume you're a lawyer), but is it any wonder people hate "legalese" in documents. :shock:

This seems like someone is trying to thread an awfully tiny hole in the smallest of needles.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Re: Vanguard - New Active Funds for PAS

Post by starboi »

barnaclebob wrote: Thu Aug 26, 2021 11:46 am Since the PAS system already attracts those that are cost conscious I'm wondering if a lot of people have vanguard PAS setup the portfolio then cancel the service once they realize nothing much happens after that. Having these "exclusive" funds will lock more people into the service.

Will they force you to sell them and take the gains hit if you leave PAS?
This is hilarious. The VG defenders accuse Fidelity Zero funds as being designed to trap people into Fido. At least those have 0% ER!
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Re: Vanguard - New Active Funds for PAS

Post by prd1982 »

starboi wrote: Thu Aug 26, 2021 12:47 pm
barnaclebob wrote: Thu Aug 26, 2021 11:46 am Since the PAS system already attracts those that are cost conscious I'm wondering if a lot of people have vanguard PAS setup the portfolio then cancel the service once they realize nothing much happens after that. Having these "exclusive" funds will lock more people into the service.

Will they force you to sell them and take the gains hit if you leave PAS?
This is hilarious. The VG defenders accuse Fidelity Zero funds as being designed to trap people into Fido. At least those have 0% ER!
Perhaps they will only sell them in tax advantaged accounts. This would be reasonable so the capital gains from active trading will not be taxed each year.

I thought PAS only used ETFs. These are mutual funds
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Re: Vanguard - New Active Funds for PAS

Post by tj »

prd1982 wrote: Thu Aug 26, 2021 12:53 pm
starboi wrote: Thu Aug 26, 2021 12:47 pm
barnaclebob wrote: Thu Aug 26, 2021 11:46 am Since the PAS system already attracts those that are cost conscious I'm wondering if a lot of people have vanguard PAS setup the portfolio then cancel the service once they realize nothing much happens after that. Having these "exclusive" funds will lock more people into the service.

Will they force you to sell them and take the gains hit if you leave PAS?
This is hilarious. The VG defenders accuse Fidelity Zero funds as being designed to trap people into Fido. At least those have 0% ER!
Perhaps they will only sell them in tax advantaged accounts. This would be reasonable so the capital gains from active trading will not be taxed each year.

I thought PAS only used ETFs. These are mutual funds
PAS has never only used ETF's. They shifted mutual funds to ETF's when there was a cheaper share class available.
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Re: Vanguard - New Active Funds for PAS

Post by goingup »

barnaclebob wrote: Thu Aug 26, 2021 11:46 am Since the PAS system already attracts those that are cost conscious I'm wondering if a lot of people have vanguard PAS setup the portfolio then cancel the service once they realize nothing much happens after that. Having these "exclusive" funds will lock more people into the service.

Will they force you to sell them and take the gains hit if you leave PAS?
The funds could lock you into PAS, and also prevent you from transferring them to another brokerage. Talk about sticky. :shock:
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Re: Vanguard - New Active Funds for PAS

Post by AlwaysLearningMore »

Da5id wrote: Thu Aug 26, 2021 10:36 am
tj wrote: Thu Aug 26, 2021 10:28 am I guess the 30 bps isn't generating enough revenue.

https://investornews.vanguard/vanguard- ... ity-funds/
Wow. ERs over 0.4% too. Bogle is probably spinning in his grave :(. His vision has certainly been lost at Vanguard
Very likely some Vanguard Crew would like to tell Mortimer "Tim" Buckley: 'I knew Jack Bogle, I worked with Jack Bogle. Mr. Buckely, you're no Jack Bogle.'
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Re: Vanguard - New Active Funds for PAS

Post by prd1982 »

tj wrote: Thu Aug 26, 2021 1:08 pm PAS has never only used ETF's. They shifted mutual funds to ETF's when there was a cheaper share class available.
Sorry. They require you to have a brokerage account.. my mistake.
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Re: Vanguard - New Active Funds for PAS

Post by secondopinion »

I prefer to do things myself; it is cheaper. Why should I ever get into potentially >0.7% ER for not much of anything?
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Re: Vanguard - New Active Funds for PAS

Post by nisiprius »

Image

Years ago, Vanguard had a list of nine "core funds" that included exactly four index funds, four active funds, and a money market mutual fund. The list included both Total Stock Market Index Fund and the actively-managed Vanguard Diversified Equity Fund, VDEQX, and forum posters reported that Vanguard advisors seemed to push for including the latter. It currently has an expense ratio of 0.35%.

Vanguard even seemed to be promoting the idea that a mixture of active and passive funds could create an advantage through diversification. Gus Sauter had a paper--which I can no longer find online--entitled "A framework for developing the appropriate mix of indexing and active management." It actually showed an efficient frontier chart and argued for percentage allocations between active and passive.

Image

For years Vanguard Diversified Equity, VDEQX, slightly underperformed Total Stock, but I see it has basically caught up and even edged past it. It has thus had a microscopically higher return; however it has done so at the cost of microscopically higher volatility; and thus microscopically lower risk-adjusted return as measured by the Sharpe and Sortino ratios. What can you say but "meh?"

Source

Image

I'm prepared to view the "active funds for PAS" with alarm. But for the record, this wouldn't be the first time Vanguard advisors have pushed eh-not-too-bad lackluster actively managed funds.
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Re: Vanguard - New Active Funds for PAS

Post by afan »

I wonder whether PAS customers will be able to refuse any and all active funds.

In the past, people have reported that Vanguard determined the investments and customers could ask for explanations but not give instructions.

Paying 0.3% to be put in 0.45% funds is an outrage.
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Re: Vanguard - New Active Funds for PAS

Post by retiringwhen »

Nisi,

Jack's first book, "Bogle on Mutual Funds" advocated I believe a 50/50 or may 60/40 (i am working from memory, I gave the book away years ago, sigh) split between active and passive funds. He made a strong case for most bond funds being active back then. What is old is ever new again.
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Re: Vanguard - New Active Funds for PAS

Post by nisiprius »

From the article:
Vanguard Advice Select Dividend Growth Fund, Vanguard Advice Select Global Value Fund, and Vanguard Advice Select International Growth Fund... The funds will be made available for PAS clients investing through their advised portfolios as part of a five-fund active equity offer, along with two existing products—Vanguard International Core Fund and Vanguard Capital Opportunity Fund.
Interesting that the once-touted "core" fund, Vanguard Diversified Equity, is not among those now being used by Personal Advisory Services.

Even more interesting, the successor to the "core fund" list is the list of 21 Vanguard Select Funds:
Build your portfolio with a few of our well-established, broadly diversified, low-cost funds selected by our Portfolio Review Department.
But neither the Vanguard International Core Fund nor the Vanguard Capital Opportunity Fund is among the "select funds."

I wonder what internal politicking takes place in the Vanguard passageways of power, as to which funds get chosen for the "Select Funds" list or the PAS fund choices?
retiringwhen wrote: Thu Aug 26, 2021 3:25 pm Nisi,

Jack's first book, "Bogle on Mutual Funds" advocated I believe a 50/50 or may 60/40 (i am working from memory, I gave the book away years ago, sigh) split between active and passive funds. He made a strong case for most bond funds being active back then. What is old is ever new again.
Interesting.
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Re: Vanguard - New Active Funds for PAS

Post by nisiprius »

In 2014 I made a feeble effort to get an answer to what seemed like a simple question: are Vanguard advisors bound to a fiduciary standard, and, more generally, How to tell who is bound to a fiduciary standard? Basically, after struggling for a while, I... just... gave up. Not important since I don't use an advisor.

What makes it particularly confusing if I understand correctly, it is possible for a firm to be a registered investment advisor and bound to a fiduciary standard of care, but that does not mean that the person you are dealing with in the firm is a fiduciary.

The thread more or less petered out with no answer, and also branched into a discussion of what it actually means as a practical matter for your advisor to be a fiduciary and... it's pretty vague.

I did, and do, get the impression that Vanguard uses a lot of blarney about "putting your interests first" as a way to sound as if they might be fiduciaries while not actually using the word "fiduciary."
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Re: Vanguard - New Active Funds for PAS

Post by McDougal »

"HOW IT WORKS
First, we talk
We get to know you, your goals, and your dreams. We know there’s no one-size fits-all approach to financial planning, so our small questions help us see your bigger financial picture and craft a plan that’s truly unique to you, not the market.

Did you know? Our advisors have no financial incentives to recommend certain products. They are fiduciaries, driven to help you make informed decisions for you and your family."

Copied and pasted from this link, if it matters (emphasis mine): https://investor.vanguard.com/advice/fi ... r-services
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Re: Vanguard - New Active Funds for PAS

Post by retired@50 »

McDougal wrote: Thu Aug 26, 2021 4:18 pm "HOW IT WORKS
First, we talk
We get to know you, your goals, and your dreams. We know there’s no one-size fits-all approach to financial planning, so our small questions help us see your bigger financial picture and craft a plan that’s truly unique to you, not the market.

Did you know? Our advisors have no financial incentives to recommend certain products. They are fiduciaries, driven to help you make informed decisions for you and your family."

Copied and pasted from this link, if it matters (emphasis mine): https://investor.vanguard.com/advice/fi ... r-services
I agree, but galawdawg doesn't. See our exchange above.

Even more emphatically, from my post above a Vanguard website quote "Meaning our advisors are required to act in your best interest at all times".
In my book, this doesn't leave much (or anything) to the imagination.

Regards,
Last edited by retired@50 on Thu Aug 26, 2021 4:28 pm, edited 1 time in total.
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Re: Vanguard - New Active Funds for PAS

Post by retiringwhen »

McDougal wrote: Thu Aug 26, 2021 4:18 pm "HOW IT WORKS
First, we talk
We get to know you, your goals, and your dreams. We know there’s no one-size fits-all approach to financial planning, so our small questions help us see your bigger financial picture and craft a plan that’s truly unique to you, not the market.

Did you know? Our advisors have no financial incentives to recommend certain products. They are fiduciaries, driven to help you make informed decisions for you and your family."

Copied and pasted from this link, if it matters (emphasis mine): https://investor.vanguard.com/advice/fi ... r-services
And when the customer is coming from EJ or Fidelity with 100% of their funds in Active investments and they have been trained to believe in Active, the PAS advisor and help wean them off that 1.5% AUM to only 0.4% without requiring a full mind-set change that may keep them away from a low-cost advisor! Sounds like a Fiduciary (read: in the investors best interests) action to me, and a potentially retirement changing improvement for the investor.

I believe this absolutely a brilliant move from a pure marketing perspective to put one more arrow in the quiver again EJ, Fidelity and the myriad of active-fund based advisors. Will it get them more AUM? Probably a small amount.

3-funders and pure indexers are still the minority, and definitely do not represent the knowledge base of the target investors here.
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Re: Vanguard - New Active Funds for PAS

Post by retired@50 »

galawdawg wrote: Thu Aug 26, 2021 12:05 pm IMO, investors who want advice would be well-served to find a fee-only advisor who has no conflicts of interest and is not bound as a term of their employment to only sell their employer's funds.
According to an article by Jason Zweig, there is no such thing as a "conflict free" adviser.

See link: https://jasonzweig.com/why-your-financi ... lict-free/
Jason Zweig wrote: All financial advisers — like all people who perform a service for anyone else, including journalists — have conflicts of interest. That’s true regardless of whether they work for someone else or for themselves, whether they earn fees or commissions, or whether they call themselves “fiduciaries” who put clients’ interests ahead of their own.
...
I read some of the “conflict-free” wording on advisers’ websites aloud to Brian Hamburger, president of MarketCounsel, a firm in Englewood, N.J., that helps advisers comply with investment regulations. “It pains me to hear you read these,” he said, “like nails on a chalkboard.”
Regards,
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Re: Vanguard - New Active Funds for PAS

Post by nisiprius »

McDougal wrote: Thu Aug 26, 2021 4:18 pm...Our advisors have no financial incentives to recommend certain products. They are fiduciaries, driven to help you make informed decisions for you and your family."

Copied and pasted from this link, if it matters (emphasis mine): https://investor.vanguard.com/advice/fi ... r-services
Good. I was not able to find anything like that in 2014.
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Re: Vanguard - New Active Funds for PAS

Post by marcopolo »

tj wrote: Thu Aug 26, 2021 10:28 am I guess the 30 bps isn't generating enough revenue.

https://investornews.vanguard/vanguard- ... ity-funds/
Wow.
And here I thought it was those greedy "for-profit" firms that were going to try to sell you expensive products so they could afford to provide better customer service.

Maybe, if they can make enough money from this, they will hire (and train) some more people to answer the phone outside of business hours?
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Re: Vanguard - New Active Funds for PAS

Post by marcopolo »

goingup wrote: Thu Aug 26, 2021 1:13 pm
barnaclebob wrote: Thu Aug 26, 2021 11:46 am Since the PAS system already attracts those that are cost conscious I'm wondering if a lot of people have vanguard PAS setup the portfolio then cancel the service once they realize nothing much happens after that. Having these "exclusive" funds will lock more people into the service.

Will they force you to sell them and take the gains hit if you leave PAS?
The funds could lock you into PAS, and also prevent you from transferring them to another brokerage. Talk about sticky. :shock:
This seems really bad if you have a taxable account?
Used to be, if after a while, you decided you didn't want to pay for PAS, you could just go it alone.
But, if you get put into these funds, and they are only supported at Vanguard, or even only within PAS, you could be facing big tax implications when exiting.

At least Fidelity's proprietary, non-portable funds, that lock you in (if in taxable accounts), have zero fees.
Last edited by marcopolo on Thu Aug 26, 2021 6:03 pm, edited 1 time in total.
Once in a while you get shown the light, in the strangest of places if you look at it right.
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Re: Vanguard - New Active Funds for PAS

Post by galawdawg »

McDougal wrote: Thu Aug 26, 2021 4:18 pm Our advisors have no financial incentives to recommend certain products. They are fiduciaries, driven to help you make informed decisions for you and your family.
Marketing fluff. They ONLY recommend and sell products offered by their employing brokerage, Vanguard.

Ask any Vanguard PAS advisor to utilize ONLY Blackrock or State Street or Schwab or Fidelity or T. Rowe Price funds in your PAS portfolio and see what they tell you. In fact, they have every financial incentive to recommend certain products....those being Vanguard products. The financial incentive? Their paycheck.
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Re: Vanguard - New Active Funds for PAS

Post by foosball »

The funds will be made available [exclusively] for PAS clients investing through their advised portfolios as part of a five-fund active equity offer
  • Vanguard International Core Fund
  • Vanguard Capital Opportunity Fund
  • Vanguard Advice Select Dividend Growth Fund
  • Vanguard Advice Select Global Value Fund
  • Vanguard Advice Select International Growth Fund
Fran Kinniry, the global head of private investments at Vanguard, was on the Masters in Business podcast last week https://www.bloomberg.com/news/audio/20 ... ts-podcast. He talked about launching their new Private Equity offerings and the progressive availability starting with institutional investors, to ultra high net worth investors, and down to high net worth investors. I'm paraphrasing, he said that PE funds would never be directly available to regular investors unless they were PAS, or possibly they would become available as a component of their target date funds.

Vanguard's strategy appears to be to create exclusive products to lock in investors and monetize them with ongoing fees, while outsourcing* their staff and infrastructure.

* https://www.inquirer.com/news/vanguard- ... 00729.html
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bertilak
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Re: Vanguard - New Active Funds for PAS

Post by bertilak »

One thing bothers me about how the plans are presented.

For example at https://investor.vanguard.com/advice/fi ... r-services they present a sample breakdown of a personalized stock allocation:
  • 30% US Large
    14% US Small/Mid
    ...
They say about that AA "Based on your timeline and comfort with risk, we suggest this asset mix" (my emphasis)

So how personally targeted is that? A few of years ago, when VG would give you a free analysis and plan, They presented something similar to me. It turned out that the mix they recommended was exactly the same as VTSAX (Vanguard's Total Stock Market). They presented it as if that was a carefully thought out mix, just for me, not an artefact of using VTSAX.

What if their personalized analysis resulted in 34/10 instead of 30/14? Would they then use something other than VTSAX? I felt they were over-selling how much the plan was made specifically for ME.

My guess is they are doing the same thing here.

I don't think they are coming up with BAD plans, just that they are implying their personalization is more "personal" than their plans actually are.
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Re: Vanguard - New Active Funds for PAS

Post by Whakamole »

Da5id wrote: Thu Aug 26, 2021 10:36 am
tj wrote: Thu Aug 26, 2021 10:28 am I guess the 30 bps isn't generating enough revenue.

https://investornews.vanguard/vanguard- ... ity-funds/
Wow. ERs over 0.4% too. Bogle is probably spinning in his grave :(. His vision has certainly been lost at Vanguard
I'm paying less for a DFA fund.
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anon_investor
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Re: Vanguard - New Active Funds for PAS

Post by anon_investor »

sycamore wrote: Thu Aug 26, 2021 12:15 pm From the press release:
Vanguard Advice Select Dividend Growth Fund will seek to outperform the broader U.S. market, focusing on financially sound, large-cap companies across a diverse range of sectors that have prospects for long-term total returns, as a result of their ability to grow earnings and their willingness to increase dividends over time. A more concentrated version of the strategy used in Vanguard Dividend Growth Fund, the fund will be managed by Wellington Management Company LLP and will have an estimated expense ratio of 0.45%, compared with the average expense ratio for large-cap core funds of 0.90%.3
Emphasis above is mine. The Vanguard Dividend Growth Fund VDIGX is currently at 0.26%. It's also managed by Wellington.

I know Vanguard mutual funds start with a higher-than-usual ER but will likely drop over time (as has usually been the case) as assets grow and they achieve economies of scale. But 0.45% versus 0.26% doesn't seem worth it for a "more concentrated version of the strategy" -- which is just more risk for potential more reward.

I don't use Vanguard PAS or other advisor. The new fund offerings aren't something that would induce me to use PAS. But I know many investors continue to be lured by the prospect of active investing, so this seems like Vanguard responding to a market need and/or responding to competitive pressure in the managed/advisory arena.
This is crazy, they actually say the Vanguard Advice Select Dividend Growth Fund is:
A more concentrated version of the strategy used in Vanguard Dividend Growth Fund
The Vanguard Dividend Growth Fund (VDIGX) is already pretty concentraited with only 41 stocks...
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Re: Vanguard - New Active Funds for PAS

Post by hornet96 »

galawdawg wrote: Thu Aug 26, 2021 6:02 pm
McDougal wrote: Thu Aug 26, 2021 4:18 pm Our advisors have no financial incentives to recommend certain products. They are fiduciaries, driven to help you make informed decisions for you and your family.
Marketing fluff. They ONLY recommend and sell products offered by their employing brokerage, Vanguard.

Ask any Vanguard PAS advisor to utilize ONLY Blackrock or State Street or Schwab or Fidelity or T. Rowe Price funds in your PAS portfolio and see what they tell you. In fact, they have every financial incentive to recommend certain products....those being Vanguard products. The financial incentive? Their paycheck.
I’m pretty sure that being a fiduciary doesn’t necessarily mean they have zero conflicts of interest, ever, for all time. I know at least that the CFA code of ethics describes the types of disclosures required for any conflicts of interests, which include the sources of compensation received by the advisor. Said differently, the existence of a conflict of interest doesn’t automatically disqualify you from being a fiduciary and “held to those standards.”

If their “paycheck” was truly linked to how much of their client’s assets they put into VG funds, they would have to disclose that, and it would be an obvious contradiction to their public facing disclosure on their website, linked above, and perhaps a violation of securities laws. Are you seriously suggesting they are outright lying to the public about that?

Tangentially, public accountants issuing audit opinions over company financial statements are required to be “independent” of their audit clients. And yet, who do you think pays their bills? :wink:
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Re: Vanguard - New Active Funds for PAS

Post by stan1 »

Those Bogleheads who expect high quality brokerage services from Vanguard while paying low expense ratios should welcome this development as a way for Vanguard to generate more revenue to cover customer service expenses. Just like Fidelity and Schwab do.

What really surprised me was to see Capital Opportunity in the list of active funds. Maybe its a marketing strategy to be able to say "this is the only way for you to get into our most treasured fund that has been closed to new investors for most of the last 20 years"
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Re: Vanguard - New Active Funds for PAS

Post by Dead Man Walking »

I opened a ChaseYouInvest account, which is now called J P Morgan Self-directed, when it was offered because it offered free trades and was easy to access via the Chase website. They offer a program similar to Vanguard’s PAS at a slightly higher ER - 0.35% as I recall. The description of the program states that J P Morgan ETFs will be used even if a cheaper ETF is available. I was impressed that they were so straightforward. I have retirement accounts at Vanguard and taxable at J P Morgan. I don’t use an advisor at either firm. I think that Vanguard Marketing Corporation is establishing a platform similar to those operated by their competitors. They are able to capitalize on the ownership structure of the mutual funds offered by the Vanguard Group to keep the expense ratios of the active mutual funds low.

DMW
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Re: Vanguard - New Active Funds for PAS

Post by lazydavid »

tj wrote: Thu Aug 26, 2021 10:50 am
barnaclebob wrote: Thu Aug 26, 2021 10:41 am I guess I might not be recommending PAS anymore to people who want truly hands off and are considering edward jones and the like..

What is fidelity's cheapest managed option?
Fidelity Go Hybrid, which seems to have been renamed Fidelity® Personalized Planning & Advice


0.50 bps AUM, but the funds are all Zero ER funds ( that cannot be invested in outside of Fidelity Go or the 50bps managed option) unless they have changed it.

https://www.fidelity.com/digital-invest ... ing-advice
I know not a lot of folks on here are fans of roboadvisors, but my Wealthfront account looks pretty good by comparison now. AUM is 0.25%, and the most expensive core fund they have me in is 0.10%. Most expensive overall is the TLH trading partner for the municipal bond fund, which is 0.23% and only makes up 1% of the portfolio (primary in that category is 0.06%).
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Re: Vanguard - New Active Funds for PAS

Post by Da5id »

stan1 wrote: Thu Aug 26, 2021 9:29 pm Those Bogleheads who expect high quality brokerage services from Vanguard while paying low expense ratios should welcome this development as a way for Vanguard to generate more revenue to cover customer service expenses. Just like Fidelity and Schwab do.
While that is fair, at least part of what keeps money flowing towards Vanguard is its reputation as an aggressive cost cutting leader. If it loses that, what does it actually have that is *better* than other brokerages? Vanguards recent trend has been towards less customer service, such as the loss of messaging for most customers. So where is this revenue going? Other places certainly now have roughly equivalent index funds/ETFs, and you can hold VTI and VXUS at any brokerage.

I used to think PAS was perfectly reasonable for those who feel the need to have an advisor, and would even suggest it in the forums for those not willing to go it alone. Now if PAS means PAS fees (0.3% AUM) + non-index fund ERs (0.4% AUM) it is starting to add up to meaningful amounts of drag. These fees are still not very high for the industry mind you, but they are a step in the wrong direction for Vanguard IMO. My most expensive funds personally are VXUS (0.08%) and VAIPX (0.1%). Hard to see a reason to go higher for some active funds, particularly brand new ones. Even if I were into active funds, hard to imagine picking ones without a long track record...
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Re: Vanguard - New Active Funds for PAS

Post by retiringwhen »

Da5id wrote: Fri Aug 27, 2021 6:54 am
stan1 wrote: Thu Aug 26, 2021 9:29 pm Those Bogleheads who expect high quality brokerage services from Vanguard while paying low expense ratios should welcome this development as a way for Vanguard to generate more revenue to cover customer service expenses. Just like Fidelity and Schwab do.
While that is fair, at least part of what keeps money flowing towards Vanguard is its reputation as an aggressive cost cutting leader. If it loses that, what does it actually have that is *better* than other brokerages? Vanguards recent trend has been towards less customer service, such as the loss of messaging for most customers. So where is this revenue going? Other places certainly now have roughly equivalent index funds/ETFs, and you can hold VTI and VXUS at any brokerage.

I used to think PAS was perfectly reasonable for those who feel the need to have an advisor, and would even suggest it in the forums for those not willing to go it alone. Now if PAS means PAS fees (0.3% AUM) + non-index fund ERs (0.4% AUM) it is starting to add up to meaningful amounts of drag. These fees are still not very high for the industry mind you, but they are a step in the wrong direction for Vanguard IMO. My most expensive funds personally are VXUS (0.08%) and VAIPX (0.1%). Hard to see a reason to go higher for some active funds, particularly brand new ones. Even if I were into active funds, hard to imagine picking ones without a long track record...
I am a broken record, but I am sure that these funds will not end up in 8M investors PAS portfolios, they are going to end up in the group of PAS customers that desire active funds. This fills a hole in Vanguard's offering for PAS customers that is happily provided by Fidelity, Schwab, DFA, etc. at usually an average ER well over 0.7%. This offering continues in the long-tradition of Vanguard under-cutting the competition. Heck, Fidelity has those active Target Date Funds with average ER of 0.75%, see FFFX - Fidelity Freedom 2040 Fund. Even under PAS, this is a better deal, I also expect that Vanguard will normally only hold a portion of the investor's accounts in active funds, so the realized ER will be much lower.

Vanguard is continuing to put real pressure on their competition for costs. The truth is that index funds are all essentially free these days, with no room to go lower. So, Vanguard is moving BACK to cost cutting on active funds. I am old enough to remember that the primary cost competition with the industry was with active funds, we are just back to that arena again.

Vanguard is doing what it always does, it finds weaknesses in its competition and tries to exploit it by finding a lower cost alternative.

Also, most people on BH conveniently forget that Vanguard has long had a very very large active fund offering, at times the largest AUM in the industry. This is nothing new under the sun.
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Re: Vanguard - New Active Funds for PAS

Post by retiringwhen »

One other thought, when one looks at the construction of these funds as a part of an entire portfolio offering, they look like asset allocation funds that allow for investors to participate in some tactical market timing executed by active managers. I don't like that myself, but again, there may be feedback that Vanguard is getting about how to get more customer AUM that says they need such an offering within PAS.

The fact that they are offered only under an advisor tells me that they think they need to be handled carefully too.

All this tells me that these offerings are about as niche as the factor ETFs that they don't push much but feel they must have in the arsenal to provide a complete offering set.
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Re: Vanguard - New Active Funds for PAS

Post by afan »

retiringwhen wrote: Fri Aug 27, 2021 7:15 am
I am a broken record, but I am sure that these funds will not end up in 8M investors PAS portfolios, they are going to end up in the group of PAS customers that desire active funds. This fills a hole in Vanguard's offering for PAS customers that is happily provided by Fidelity, Schwab, DFA, etc. at usually an average ER well over 0.7%. This offering continues in the long-tradition of Vanguard under-cutting the competition. Heck, Fidelity has those active Target Date Funds with average ER of 0.75%, see FFFX - Fidelity Freedom 2040 Fund. Even under PAS, this is a better deal, I also expect that Vanguard will normally only hold a portion of the investor's accounts in active funds, so the realized ER will be much lower.

Vanguard is continuing to put real pressure on their competition for costs. The truth is that index funds are all essentially free these days, with no room to go lower. So, Vanguard is moving BACK to cost cutting on active funds. I am old enough to remember that the primary cost competition with the industry was with active funds, we are just back to that arena again.

Vanguard is doing what it always does, it finds weaknesses in its competition and tries to exploit it by finding a lower cost alternative.

Also, most people on BH conveniently forget that Vanguard has long had a very very large active fund offering, at times the largest AUM in the industry. This is nothing new under the sun.
That is a hopeful attitude. However, that does not explain a need for new active funds. Vanguard already has plenty of active funds. Why create more? Particularly, why create more that do the same things as the existing funds?

My biggest concern remains that, by allowing Vanguard to make transactions on one's behalf, customers create the possibility of being shunted into these overpriced funds without their knowledge or ability to block it. Unless Vanguard allows PAS subscribers to specify "no active funds", this would be a major risk.

PAS is already too expensive for something that, once set up, does almost nothing at all. Paying 0.3% for almost nothing is hard to justify. Paying 0.75% for almost nothing is crazy.
I will have to stop recommending PAS to people who want some help with investing.
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Re: Vanguard - New Active Funds for PAS

Post by Da5id »

retiringwhen wrote: Fri Aug 27, 2021 7:15 am I am a broken record, but I am sure that these funds will not end up in 8M investors PAS portfolios, they are going to end up in the group of PAS customers that desire active funds. This fills a hole in Vanguard's offering for PAS customers that is happily provided by Fidelity, Schwab, DFA, etc. at usually an average ER well over 0.7%. This offering continues in the long-tradition of Vanguard under-cutting the competition.
If Vanguard PAS advisors can't persuade customers that beating the market with active funds is a losing game long term, why have advisors? But sure, the active funds are much cheaper than the industry average for what that's worth.

Separately from that, I've never wanted an advisor. However If I felt I needed one I'd probably want the nice warm confident feeling that personal meetings with the advisor can bring. I connect much better with people in person than over the phone or via zoom, at least for an initial meeting. I expect this is common, and wonder if Vanguard's next step will be brick and mortar facilities for normal retail customers in order to compete with Schwab, Fidelity, Edward Jones (ugh) etc. I'd not be surprised...
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Re: Vanguard - New Active Funds for PAS

Post by retiringwhen »

Da5id wrote: Fri Aug 27, 2021 7:26 am
retiringwhen wrote: Fri Aug 27, 2021 7:15 am I am a broken record, but I am sure that these funds will not end up in 8M investors PAS portfolios, they are going to end up in the group of PAS customers that desire active funds. This fills a hole in Vanguard's offering for PAS customers that is happily provided by Fidelity, Schwab, DFA, etc. at usually an average ER well over 0.7%. This offering continues in the long-tradition of Vanguard under-cutting the competition.
If Vanguard PAS advisors can't persuade customers that beating the market with active funds is a losing game long term, why have advisors? But sure, the active funds are much cheaper than the industry average for what that's worth.

Separately from that, I've never wanted an advisor. However If I felt I needed one I'd probably want the nice warm confident feeling that personal meetings with the advisor can bring. I connect much better with people in person than over the phone or via zoom, at least for an initial meeting. I expect this is common, and wonder if Vanguard's next step will be brick and mortar facilities for normal retail customers in order to compete with Schwab, Fidelity, Edward Jones (ugh) etc. I'd not be surprised...
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