Vanguard's Advisory Service Rattles Advisors Who Use Its Funds For Clients

Wealthiest Customers

Still, many wealth managers are concerned that one day Vanguard will target their wealthiest customers. When it announced the advice service in May, its fee schedule ranged from 0.30 percent on assets below $5 million to as low as 0.05 percentage points for customers investing $25 million or more at Vanguard.

Some also took personally a website promotion that said Vanguard is "reinventing financial advice to help you earn more, pay less and partner with an adviser who works solely for your benefit."

"They are going after my clients," said Rick Ferri, an independent Texas-based financial advisor and blogger who touts Vanguard's philosophy of keeping investment costs low and says he has put more than $1 billion of client money into its funds over the last 15 years.

"It's scary to have Vanguard do this," said Bill Hayes, co-owner of Kingston, Massachusetts-based advisory firm Charles Carroll Financial Partners. "I have a lot of clients' money there, and I'll pull it in a heartbeat if they start going after the smaller advisors." His firm manages about $43 million for 91 clients.

Outside advisors may fret, but few plan to stop sending clients' money to the Malvern, Pennsylvania-based company. Ferri said he has a duty to invest client money in consistent, reliable funds at low prices, and that's what Vanguard and a few competitors provide. Ferri also said he is fighting back by offering a broader range of investments -- including exchange-traded funds that Vanguard doesn't offer in its new program -- along with an advisory service that has different price tiers.

King, the Vanguard executive, says the only advisors who might feel pushed around are those who have been shifting down-market to less wealthy clients. "The threat is greater there, but most of our advisors do not feel threatened by PAS and really shouldn't be," she said.

Some advisors who spoke to Reuters agree.

"They are going to fill a part of the market that is still overlooked or poorly served," said Chris Cordaro, managing partner of Regent Atlantic Capital, which manages $1.2 billion of assets and works with clients whose accounts average close to $3 million. "We bring a different value proposition. For someone who has $250,000 or $350,000, there are not a lot of good choices and Vanguard can help them."