Vanguard’s King: Advisors Need Endgame Aid
March 14, 2013
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The rise of fee-based financial advisors makes life a whole lot easier for companies like Vanguard, whose low-cost products and long-term focus dovetail elegantly with the buy-and-hold—and rebalance—sensibility that is increasingly taking hold in the world of money management, says Martha King, a managing director at Vanguards Financial Advisory Services.
Still, King, a nearly 28-year veteran at Vanguard, told IndexUniverse.com’s Managing Editor Olly Ludwig that the onus is on companies like Vanguard to help advisors come up with ways to tackle the biggest problems facing investors these days, such as how to make it to the finish line at a time when fixed-income markets look rather overvalued.
IU.com: How would you rate advisor awareness about indexing and about ETFs?
King: The short answer is the awareness is pretty good today and, I would add, has come a long way. Of course, advisors aren’t just one kind of animal. There are many different kinds of advisors, and there are subsets within the advisor community that have been committed to indexing for decades. The registered investment advisor community has seen the value of indexing strategies for a decade and has been using Vanguard products before we even had an ETF. Similarly, the portfolio managers in bank trust departments have been enormous advocates for the benefits of indexing in their portfolios, again, for decades.
Contrast that, though, with advisors like those at the broker-dealer firms. Obviously, they had a steeper learning curve to go up, just relative to use of indexing, period, whether it’s in traditional funds or ETFs.
IU.com: Are you talking mostly about wirehouse broker-dealers?
King: There are wire house broker-dealers, or retail broker-dealers, independent broker-dealers. It could be an LPL advisor, it could be a Morgan Stanley advisor, it could be a Raymond James advisor, or a really local advisor. And they’re just coming around to realizing indexing strategies over the past decade.
Why that is the case is pretty easy to figure out, and has to do with the fact that many of the broker-dealer firms just in the past 15 years certainly have been employing fee-based approaches to managing client accounts, where historically they would not have done so.
IU.com: Do you think you have to work harder in this realm to raise the awareness about indexing?
King: I’m pleased with the progress and advisor awareness about indexing strategies broadly and about ETFs as well. I also think there’s more work to be done because all indexes aren’t created equal and all ETF’s aren’t created equal. And helping advisors who are newer to these kinds of investment strategies understand what things to look for and evaluate, I think is part of our job.
IU.com: Is the population of advisors you work with preselected in terms of understanding what Vanguard brings to the table that perhaps other fund companies don’t?
King: It is somewhat self-selecting. First of all, an advisor who is not doing fee-based business, but who is doing transaction-based business, is unlikely to use Vanguard. So the first part of this is, Are they compatible with Vanguard? We only call on certain advisors who are a special class, who are doing some degree of fee-based business.
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