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Vanguard’s recommended list of funds for investors via “hybrid” robo-advisor

Monday Money Tip: Investment help online and on the cheap

ERIN E. ARVEDLUND, INQUIRER STAFF WRITER

POSTED: Monday, April 6, 2015
Robo-advisers. They’re coming from the future, for your assets.

Actually, the term is just slang for low-cost, Internet-only money managers. Start-ups such as WiseBanyan.com and Betterment.com automate investing with few or no humans involved and offer extras such as tax-loss harvesting.

Betterment’s pitch: Investors pay a fraction of what it would cost at a traditional broker or money manager. Some, like WiseBanyan, offer money management for free. But how?

These young robo-advisers generally invest using ETFs, or exchange traded funds, rather than mutual funds.

At local investment giant Vanguard, the new robo-adviser is a hybrid. Clients of Vanguard Personal Advisor Services “have an online client experience but also an ongoing virtual relationship with an adviser,” says spokeswoman Katie Henderson.
That is, Vanguard Personal Advisor Services recommends mutual funds in which to invest and combines automatic investing with some human help from a financial planner.

Currently a pilot program, Personal Advisor Services will be broadly available by the end of the second quarter, according to Henderson. Account minimums are $100,000 but could drop to $50,000 eventually.

If WiseBanyan.com is free, how does a start-up ever make money? Cofounder Vicki Zhou says $30 million in assets and 6,000 clients are not charged fees for management, but the firm aims to up-sell insurance, mortgages, and other services down the road. Average account size is $5,000. WiseBanyan custodies its client assets with traditional broker FOLIOfn Investments in McLean, Va.

Charles Schwab advertised its robo-adviser service as free, which drew howls of protest from competitors. They noted that Schwab directs up to 30 percent of every robo-adviser account into cash, deposited at Schwab Bank. The bank then earns interest on the account.

“They sweep the cash into their bank, and then brand the robo-adviser as free,” Zhou says. “That creates mistrust of the industry, which is bad for everyone.”

Vanguard’s pilot robo-adviser is not free, although it does use low-cost index funds. Fees total 0.30 percent of the amount in an account annually, 0.44 percent including the cost of the underlying index funds.

Personal Advisor Services had $10 billion in assets by year-end 2014, up from $4.2 billion in the third quarter. Vanguard ramped up quickly by moving a portion of existing Asset Management Services clients over to the Personal Advisor pilot. Against the more than $3 trillion the firm now manages, its robo-adviser is a drop in the bucket.

Vanguard’s recommended index funds are all Admiral-share-class mutual funds – not ETFs, although Henderson estimates the costs are the same.

“We have a large amount of flexibility in terms of recommendations based on the client’s individual needs or preferences, but these are the top recommended mutual funds based on our investment methodology,” she adds.

Monday Money Tip: Personal Advisor Advice

Vanguard recommends these funds to customers of the new Personal Advisor Services. (You can invest in other Vanguard mutual funds, too; no exchange traded funds yet, however). All mutual funds are “Admiral” share class.

Portfolio Recommendation Fees

(both taxable and tax-exempt bonds)

Total Stock Market Index (VTSAX) 0.05%

Total Int’l Stock Market Index (VTIAX) 0.14%

Total Bond Market Index (VBTLX) 0.08%

Total Int’l Bond Market Index (VTABX) 0.19%

Limited-Term Tax Exempt* (VMLUX) 0.12%

Intermediate-Term Tax Exempt* (VWIUX) 0.12%

Long-Term Tax Exempt* (VWLUX) 0.12%

*Purchased in taxable accounts only

earvedlund@phillynews.com
215-854-2808
Read more at http://www.philly.com/philly/business/20150406_Monday_Money_Tip__Investment_help_online_and_on_the_cheap.html#syJTS3I1RaTyeOtH.99

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