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.

Portfolio construction these days is less a matter of what and more a matter of why.

As advisors put greater emphasis on financial planning, they’re moving beyond traditional asset allocation toward what might be called outcome allocation. The two approaches can overlap, but the latter puts the individual client’s goals at the center of the process.

“Historically, portfolios were built around labels: US equity, international equity or fixed income,” Mayank Goradia, head of portfolio construction at Fidelity, said during a midyear review. “Increasingly, advisors are starting with the investor objective, and then determining which combination of tools can best help them achieve that outcome.” That could mean focusing on income, tax efficiency, downside risk management, growth or wealth transfer, he added. “We’re seeing this marriage of financial planning and portfolio construction.”

What’s Your ETA?

In a financial world full of cryptocurrencies, alternatives and emerging private market assets, it can be easy for clients to get distracted by shiny new objects. While those investments can play a role in a portfolio, they shouldn’t necessarily drive its construction.

“Asset allocation is still important, but it is the means, not the objective,” said Scott Bishop, co-founder of Presidio Wealth Partners. “The real objective is to build a portfolio that produces the income, growth, tax efficiency, liquidity and risk profile the client’s financial plan actually requires.”

The shift toward outcome-oriented strategies comes as advisors have largely resisted getting more defensive this year:

• Average equity allocations remained above 70% while fixed income stayed at 23%, Goradia said.
• Advisors boosted their allocations to US equities while slightly lowering exposures to international stocks. They also ramped up their allocations to active ETFs.

Everything in Time. Eliot Weissberg, president of the Investors Center, uses a variation on the bucketing approach he developed that’s organized around phases of a client’s life and their priorities. “Target-date funds were the beginning of outcome-based investment,” he told Advisor Upside. “But it’s time for advisors to step up and do a better job of self-managing how asset allocations should vary over time depending on the client’s circumstances.”

We may be 14 years past pop singer Carly Rae Jepsen’s breakout hit, but many advisors are still using her refrain: Call me … maybe.

As digital options continue popping up to connect advisors to their clients and people get used to doing more of their tasks from home, financial professionals must constantly redetermine the best ways to communicate. Plenty still prefer some face-to-face time, with nearly 70% of 2,000 consumers who have worked with a financial advisor saying they prefer either in-person or hybrid communication methods, according to a recent report from Million Dollar Round Table, a trade association for financial professionals.

“If it’s basic administrative data gathering, then email or text is easy,” said Anderson Wozny, wealth manager at Savvy Advisors. “But if we’re talking about an actual financial decision with a dollar sign associated with it, that’s almost always handled better by a live conversation.”

Here’s My Number

Live conversations aren’t always best in person. “Phone and video are often much more flexible and can make the conversation more relaxed. Plus, in a metropolitan area, fighting traffic and finding parking can turn a 30-minute meeting into a half-day affair,” Wozny said. “On the other hand, if you’re close by, meeting in person can be a more natural option.”

What works for one client may not work for another. But roughly 46% of respondents said that additional in-person conversations during periods of market volatility or financial stress would strengthen their trust in advisors. Speaking with someone directly can also make the most sense early in the relationship:

• “I have found that [for] the clients that do want a more in-person type of relationship, it is mostly for the first meeting to make sure I am real and not an AI bot or something,” said Michael Whitman of Millennium Planning Group. “Once that is established and out of the way, we can usually move forward in a mostly virtual way.”
• Many clients, particularly retirees and those nearing retirement, want at least one initial in-person meeting as part of their due diligence, said Edward Mahaffy of ClientFirst Wealth. Then, clients tend to be fine with Zoom calls every quarter. “Afterward, getting together once a year or so, whether to meet or just grab lunch, is sufficient, as long as we continue to do an effective job of communicating throughout the year,” Mahaffy added.

To Be Clear. Not all digital communications are equal. Survey respondents find digital communications ineffective when they receive a generic or automated message, have trouble reaching a human advisor or there’s a lack of clarity around next steps.