Vanguard’s Altruist Deal May Shake Up Robo-Advice

Dance the robot.

Vanguard’s acquisition of custodian Altruist for more than $4 billion may be the biggest wealth management news of the year. And developments haven’t slowed down. Just this week, Altruist announced a new financial planning tool on its AI-powered wealthtech platform, Hazel, that aims to connect six areas of advisor work in a matter of minutes: retirement savings, portfolio positioning, cash flow, estate needs, tax exposure and insurance and risk coverage.

The transaction will give Vanguard access to advisors using Altruist, and, by extension, their clients. However, Altruist’s financial planning capabilities may also meaningfully reshape Vanguard’s robo-advice offering. Vanguard said Altruist will continue to act as its own business once the deal closes. But bringing some of Altruist’s technology to Vanguard Digital Advisor was likely a core reason the asset manager made the offer in the first place, sources told Advisor Upside.

“Even though Altruist is advisor-facing, Vanguard [will own] the underlying infrastructure and has every strategic incentive to extend a Hazel-lite experience into its Digital Advisor tool,” said Tamara Stelting, executive consultant at The Arch’s Anvil. “[It] could allow the investor to access deeper planning intelligence beyond ETF allocation while still enjoying the conveniences, automation and mobile accessibility they experience with Digital Advisor.”

Let’s Get Digital

Vanguard’s robo-advisor already has some financial planning capabilities. Beyond portfolio management, the platform provides a debt payoff calculator and tax-loss-harvesting strategies, while users can set goals such as buying a house or paying for education and see how they fit into their overall plan. But a simplified, retail-friendly version of Hazel could make that planning substantially more in-depth.

“Vanguard [will own] the AI capability to build that without licensing it from a third party, and closing the advice-access gap for exactly this segment is the stated thesis behind the deal,” said Will Trout, director of securities and investments at Datos Insights.

Robo-advisors made a big splash when they first hit the scene around 2010. And for a time, many firms were either developing their own or buying others:

• Some have remained strong. Vanguard currently manages more than $30 billion in assets across its robo-advisor accounts. Meanwhile, Wealthfront manages nearly $55 billion in assets. 
• Others, however, including Goldman Sachs, JPMorgan and US Bank have retreated from the space, shuttering robo-advisors and selling off accounts amid thin margins and difficulty in attracting high-net-worth clients. 
• Even Charles Schwab ended its hybrid human-advice tier earlier this year.

A client-facing version of Hazel for Vanguard’s robo-advisor might shake up the space significantly, putting pressure on competitors, Trout said. Robo-advisors have historically differentiated themselves around fees and portfolio construction, but they could increasingly compete on planning. “If Vanguard proves that same capability works at the mass affluent, self-directed tier, the other robo platforms will need a credible answer fast, or risk losing the planning sophistication argument to the cheapest provider in the category,” he said.