Would today’s adviser please step forward?
It's funny, we’d known for months it was going to happen. But when it finally did, Vanguard’s announcement yesterday that its new low-cost self-invest platform in the UK is now online, many reacted as though it were a bolt from the blue.
Of course, the investing chatterati have been busy speculating what it all means — not just for investors but for everyone involved in the value chain.
I’ve written for a couple of years now about broken business models, and how some of the biggest names in UK investing, including the giant broker Hargreaves Lansdown, need a whole new value proposition. Asset managers, too, of course, will have to get their act together, cut their fees substantially and start delivering actual value net of costs.
But what about Britain’s advisers? What does Vanguard’s new digital offering mean for them?
Regular readers of this blog already know this, but that depends on what type of adviser they are. If their value proposition largely consists of their investment expertise — their ability (or otherwise) to pick the right sectors, the right fund managers and the right time to buy and sell — they need to face up to the evidence that no one can do that successfully with much degree of consistency.
That will involve being thoroughly honest and open with their clients and, no doubt, some loss of face as well. It also means having to rebuild their business along completely different lines. That will take time, effort and financial resources; and many advisers will calculate that they’re too close to the end of their careers to make the sacrifice.
However, to the increasing number of advisers who’ve been moving away from the old model towards a more client-based, rather than product-based, approach, Vanguard’s announcement is a huge opportunity. It’s a chance to show how advisers truly add value — not by picking funds, but helping the client to establish their priorities, to give them peace of mind whatever the market conditions and, of course, to ensure they have sufficient money to do the things in life they want to do.
Of the numerous responses I had to my blog post for The Evidence-Based Investor yesterday about Vanguard’s new service, the one that really struck a chord with me was from Rick Ferri. For those of you who aren't aware of Rick, he’s a former US Marine Corps officer and fighter pilot who went on to be a popular investment author, a leading advocate for better value for investors and a founder of one of America’s first low-fee advisory firms — the hugely successful Portfolio Solutions.
Rick said this:
“The UK market for low-cost asset management and indexing is where the US was 20 years ago. It’s a great opportunity for passionate and enterprising UK advisers to step out on their own and seize the day.”
Exactly so. US advisers have had to contend with a low-cost, direct-to-consumer offering from Vanguard for years. Some traditional advice firms folded; others muddled on much as they had done before. But some, like Rick, seized the opportunity to give consumers what they really needed, and greatly prospered in the process.
Vanguard’s retail offering doesn’t just mark the start of a new chapter in UK investing; it’s the beginning of a new era in financial advice as well.