The low-fee provider of ETFs and mutual funds flexes its muscles south of the border. Is Canada next?
In just nine months Vanguard’s robo-advisor pilot project, which is operating on a limited basis for eligible existing customers, has blown past its competition gathering a total of $4.2 billion at the end of September.
Increasing assets under management by more than 400% in 2014, it appears almost certain that when the pilot ends sometime next year, the Philadelphia-based company will roll out Vanguard Personal Advisor Services across the country.
Which begs the question: Is Canada next?
If you’re a robo-advisor already operating here you have to be wondering if Vanguard will do the same north of the border. It’s a natural progression.
The good news for startups such as Wealthsimple and WealthBar, who are looking to take market share from full-service advisors, is that even if Vanguard wanted to set up shop they’d have to do so as an ETF-only operation. That’s because their low-fee model doesn’t align with embedded commissions, a major part of active management in this country.
As WP discussed
in November, CRM2 will apply significant downward pressure on mutual fund fees when fully implemented in July 2016. Some speculate that embedded commissions will disappear entirely in the next few years just as they have in other jurisdictions.
If that were to happen Vanguard would have a big opportunity (relative to Canada) in front of it because not only would it be able to roll out its low-cost mutual funds to dovetail with its existing ETFs, it would have the necessary pieces in place to become the number one robo-advisor in the country.
South of the border the largest robo-advisor is Wealthfront with $1.7 billion in assets under of management. It’s gathered those assets over its three-year existence. Vanguard, which isn’t officially in the game, took a little more than a year to get to the same amount.
Brand name recognition definitely gives Vanguard a huge advantage over its competitors. The question is whether they’re going to use it.
An ETF-only operation, while a possibility, isn’t likely on their radar. Canada’s market is small, there are other better options available such as the UK, and its ETF business is in fourth place well back of iShares, by far the most dominant participant in terms of market share.
In other words, Vanguard’s got a lot of work to do when it comes to building its ETF business in Canada. While opening a robo-advisor here might help bump AUM, it could also act as a distraction.
The numbers in the U.S. are impressive indeed. Yet the odds of them opening something here before fully maximizing the potential in its home market seem slim.