The new chief executive of Vanguard has challenged the US adviser community to adapt to the new reality of the compression of fees for financial advice or struggle to survive.
Speaking at the Inside ETFs 2018 conference in Hollywood, Florida, Tim Buckley - only the four chief executive at Vanguard in the firm's 43-year history - said that the disruption that was affecting the world of finance would have a profound effect on the advisory market.
"It can't be ignored," he warned delegates. "Disruption has taken place in money management. This has fuelled the rise of low-cost investment. You have voted with your clients' money. The change has been dramatic."
Pointing to the cumulative flows of funds towards low-cost investment options, he suggested that the obvious next pressure point would come in the advisory market itself.
"With mutual fees coming down, the single highest cost is the advisory fee themselves," he pointed out. "Just as there has been a war on fees in the mutual funds world, the is also likely to be a war in the advisory world."
This will largely come from the robo-advice sector, he suggested, adding that the rise of the robos would lead to a lowering in the price of advice and a change in the nature of that advice.
However, he added that much of the fear of change came from what flawed assumptions on what automation would mean for jobs in the future. Although financial advisers were noticeably fearful of what automation might do to their sector, he suggested that instead they should view the progressive automation of the advice sector as an opportunity to make their businesses more efficient.
Looking at the lower elements of the advice "stack", including asset allocation and rebalancing decisions and tax efficient advice, he suggested this would be taken over by machines.
"The lower elements are easily automated," he said "They don't change much and don't vary client to client. It is easy to code these things. In coding these, we have reduced our costs. The robos have done this to. They have put a price on it - 25-30 basis points. You won't get paid for this, it is truly commoditised."
Instead, advisers should focus further up the stack at how they can add custom solutions for each client that are difficult to quantify such as estate planning and lo g-term care provision.
"You don't measure the return in basis points - you measure it in less anxiety."
Citing recent research from Bain, he suggested that solving anxiety issues for clients had two times the impact on client loyalty over functional help such as rebalancing.