In May, I returned to the States from the United Kingdom to lead Vanguard’s burgeoning financial advisor business. As part of the initial team that helped build our partnership with advisors about 12 years ago, I’m thrilled to be back and eager to work with you as you navigate a changing landscape.
As head of Vanguard’s European business for the past seven years, I had a front-row seat to massive change implemented at warp speed. Starting in January 2013, U.K. financial regulators banned commissions and any type of payment from providers to advisors, forcing advisors to charge fees and be transparent about them. It was a huge shift—and advisors had only a year or so to prepare for it.
I talked to many advisors about the increased need to explain their value to clients, who suddenly knew exactly what they were paying. The big lesson from that experience: Advisors who thrived saw the new rules as an opportunity, not a threat.
In the United States, the investment advisory business is also undergoing change. Of course, the two situations differ in important ways. First, we don’t expect the U.S. market to shift completely to fees. In fact, we believe that there should be a mix of advice models to serve different types of clients. Second, competition and consumer demand, not regulation, are driving the move to a fee-based model and creating pressure to lower fees for advice here. But whether change arrives via free-market forces or regulation, the keys to thriving in the new environment are the same:
Define your value proposition clearly and consistently.
Advisors can’t expect to succeed in the long term simply by trying to beat the market. As the move toward fee-based advice has taken hold, so, too, has holistic investment guidance. It allows advisors not only to better demonstrate their value but to better differentiate themselves. The rise of computers, with their ability to efficiently and quickly analyze, compare, and recommend products and portfolios, has the potential to diminish the value of investment management and selection.
As a former portfolio manager, it pains me to say that. I still love analyzing investments and am guessing that many of you do, too. But the days of adding value solely by poring over strategies and products are gone. Increasingly, advisors must be behavioral coaches, keeping clients on track to achieve their financial goals. Vanguard Advisor’s Alpha™ research can help you explain this philosophy and the value you offer to clients.
Adapt and evolve.
Advisors who managed the switch to fees in the United Kingdom recognized that talking to clients about the value they could provide opened up the potential for deeper conversations and strengthened relationships.
Similarly, advisors in the United States can turn the rise of the robo-advisor to their advantage. You can use it as an opportunity to differentiate the services you provide. Automated systems can meet certain investor needs, but they can’t meet all investor needs.
My predecessor, Martha King, addressed this and other issues pertaining to our own virtual advice service, Vanguard Personal Advisor Services®, in a blog post. The service often mistakenly gets lumped into the robo-advice camp but differs in that clients get a Vanguard advisor who advises on Vanguard funds. It’s recognition of the value of advice and the value of the the advisor. However, as Martha said, “we have no plans to hang out a shingle in your hometown.”
Recognize that being on the same side of the table as your clients is good for your business.
This isn’t about commissions versus fees. No matter what model you use, aligning your interests with those of your clients can generate loyalty and client referrals. We built our $3 trillion business on this principle. Putting clients first means choosing low-cost investments, enabling clients to keep more of what you help them earn.
As I take on this new job, the main thing I want you to know is that we will continue to partner with you to help you build your business through what will likely prove to be a period of dynamic and, possibly, rapid change in the advice industry.
You can count on us for the thought leadership, tools, and resources that can enable you to handle that change. We are constantly seeking ways to up our game when it comes to serving advisors.
Our new Client Relationship Center™, which we will roll out later this summer, is just the latest example of that. It aims to give you everything you need to articulate your value and expand your business. It will provide coaching for handling tough client conversations, as well as customizable tools that will help make your client meetings and other communications more effective. The service will also provide resources that will help enhance your client retention and acquisition efforts. It’s the go-to destination to define your value proposition, adapt, and evolve.
You can even bounce sports-nutrition questions off me. It’s my fantasy career and an expertise that has enhanced my training for August’s Leadville Trail race—100 miles on a mountain bike through the Colorado Rockies at elevations up to 12,600 feet. So whether you are wondering about the ideal recovery snack—I’m a fan of smoothies made with almond milk, protein powder, and dates—or about how to approach your clients’ kids, let us know. We look forward to continuing to partner with you.
All investing is subject to risk, including the possible loss of the money you invest.