One theme we have been tracking closely is how “software is eating investment management.” By that I mean that automation is making more services available to investors at increasingly lower costs. As Jonathan Clements notes in this Wealthtrack interview the trend towards lower costs for investors has been a big trend in 2014 and will be in 2015 as well.

I wanted to highlight two items today that track along with this theme. In a profile of Vanguard Investments, Stephen Foley at the FT, highlights the firm’s plans to roll out more widely portfolio advisory services to its clients. Foley writes:

Executives at Vanguard’s Valley Forge, Pennsylvania headquarters have been quietly working on a way to give simple but effective portfolio advice to US savers. It promises to offer the service at a fraction of the cost of the average financial adviser, 0.3 per cent of assets annually compared with an industry average of more than 1 per cent.

Using mainly online tools, including webcam chats with advisers, it will avoid the expensive infrastructure of existing financial adviser chains.

“Can we provide really super-high quality advice at a very low cost and do that in a very large way, and change that market? I think we can,” says Mr McNabb.

“We continue to think of our primary mission to reduce the complexity and cost of investing across the board.”

None of this necessarily new news, but it just highlights the potential threat Vanguard poses to traditional advisors. The article actually cites advisors who are skeptical of Vanguard nudging in territory of advisors who primarily use Vanguard funds. No matter how you slice it Vanguard’s full-scale entry into portfolio advice will serve to expand offerings and push down costs at traditional and robo-advisors alike.

Speaking of robo-advisors an additional challenge popped today as well. Karen Damato at the WSJ reports that Cambria Investments is launching a new ETF, the Cambria Global Asset Allocation ETF, which will charge no fees on top of those of the underlying ETFs it holds. The firm plans to make money on the portion of the fund that is invested in its own funds. Damato writes:

Investors shouldn’t pay high fees for a buy-and-hold portfolio because “by definition, you are not supposed to be doing much” with those holdings, Mr. Faber says.

Cambria Investment Management will earn fees on the 9% of the fund that is going to be invested in three of its four ETFs initially, and Mr. Faber says that percentage could grow over time as the firm rolls out more funds. But for now, the fund will be a net money loser for Cambria.

The point is that Cambria, like Vanguard, earns fees on the ETFs they manage in-house. Robo-advisors, almost exclusively, use third-party ETFs to build customer portfolios. They do not earn any fees on those funds. Therefore the only money that make is the portfolio fees as a whole. As pressure gets put on portfolio fees the big robo-advisors will be forced to bring the management of funds in house. Maybe that is what they will do with all the venture capital money they have raised.

Managing as many of the slices of your customer portfolio will be likely become a necessity and will serve as table stakes for those robo-advisors looking to compete with the Vanguards and Charles Schwab’s of the world. As Clements notes this pressure on fees is a great boon to investors, especially to those novice investors who are just getting started and looking for a comprehensive solution to their portfolio needs. Software is great at reducing the complexity of and cost of investment management. Expect to see more of the same in the new year.

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