With McKinsey helping to improve its “efficiency,” Vanguard Group strikes a tell-all customer acquisition deal with American Express that imposes significant fees on the financial planning offering the two companies roughly share

The New York card company will charge 50 basis points for Vanguard’s advice and then split half of that revenue with Vanguard.

With McKinsey apparently in hiding, Vanguard Group and American Express today (April 12) announced an unusual deal where the card company makes sales, the fund company makes “trust” advice, and they roughly split the catch.

Malvern, Pa., an $8 trillion employee-owned rebate manager, has partnered with the often high-priced New York credit card company to sell its RIA services in a package called INVEST and INVEST2 .

Stephen Squeri: Our collaboration with Vanguard demonstrates the power of partnership as we come together to provide access to seamless and reliable service

They include financial planning and discretionary investing for a 50 basis point fee and plenty of AmEx “points” — the kind of cross-company sorcery that sharp-pencil McKinsey efficiency officers are known for.

Asked how the two companies would split the proceeds, Vanguard declined to comment, but the Amex website said the two companies would split the pot, 50-50.

“American Express (Amex) will receive a promotion fee of up to 50% of the advisory fee you pay to Vanguard Advisers, Inc. (VAI) if you sign up for INVEST,” it says.

“I think it’s just about accessing Amex’s customer base and paying Amex a fee for any success they have in getting those people to pay 50 bps for something they could get directly for 30 bps,” said Dan Wiener, editor of The Independent Adviser for Vanguard Investors and director of RIA Adviser Investments.

Trusted buy

Indeed, the Vanguard-Amex program will primarily be an extension of Vanguard’s RIA, Vanguard Personal Advisor Services, which manages $268 billion.

The virtual call center advisor, largely located in Phoenix, Arizona, has been incredibly successful, becoming the largest in the world.

The only gripe is that most of these assets are simply grown internally, which limits the net gains for the company.

The deal with Amex could start attracting new investors to Vanguard in a way that requires little to no acquisition expense.

Dan Wiener: I was struck by the line in the press release about getting “one” consultation a year, unless you have more than $100,000 in the system.

“As Vanguard seeks to make our advice more accessible, we are thrilled to partner with the distinguished brand of American Express to fulfill our mission to give investors the best chance for investment success,” said Tim Buckley. , president and CEO of Vanguard in a release.

As Buckley seeks access, AmEx seeks to buy Vanguard’s trust, said Stephen J. Squeri, chairman and CEO of American Express.

“Our collaboration with Vanguard demonstrates the power of partnership as we come together to provide access to seamless and reliable service to help our cardholders achieve their financial goals,” he said in the statement.

Limited access

When asked if low-cost, low-cost Vanguard had any issues doing business with a higher-fee, higher-service brand like AmEx, Vanguard responded with a statement:

“We are thrilled to work with an established and respected company like American Express. We share a deep commitment to our customers and our complementary missions. Together, we aim to improve the financial results of our respective customers and cardholders.”

Yet Vanguard and American Express appear to be unduly limiting access to advice for a multitude of their joint investors, Wiener says.

“I was struck by the line in the press release about getting ‘one’ consultation a year unless you have over $100,000 in the system,” he said in an email.

“A consultation is what brokerages do, have you fill out a questionnaire, maybe talk to you once, then hand you a bound report and say, ‘Here’s your financial plan, have a nice day. “”

He adds, “In our business, we view financial plans as living documents, something that can and should be updated, at any time, for any reason, as your financial life whirls around. around you.”

leave lying around

Vanguard’s “access” move follows a series of strategic and tactical moves that mark a departure from its outright business model.

The apparent metamorphosis recently caught the attention of Bloomberg in an analytical article with the title: Vanguard Stumbles In Pivot From Cult of Jack Bogle: For die-hard fans of the company’s founder, what’s at stake is is the very soul of the $8 trillion mutual fund giant. .

Vanguard has let it all linger lately investing for alpha, raising fees and moving upmarket. See: After a freemium-like debut, Vanguard Group prepares its $243 billion RIA as a profit engine with high-octane, higher-risk, higher-margin proprietary funds tempered by a ” opt-in” for investors

Among other nuggets from the article, he noted that Vanguard is increasingly leaning on McKinsey; New York-based management consultancy uber was mentioned in the context of technology.

“Vanguard came to rely heavily on outside consultants and contractors. McKinsey & Co., for example, was hired to improve efficiency in the technology department and spawned a project called ‘New Ways of Working’. “, adds the article.

Offers… for some

American Express was a longtime partner of Fidelity Investments, although the two companies called off their card collaboration in 2016. See: As Fidelity divorces American Express, Schwab steps in to launch AmEx cards – with the help from RIAs – as part of a larger effort.

Vanguard hired Anne Robinson as general counsel in 2016 after spending most of her career at American Express. See: What Vanguard’s Hiring of a Sizzling Wall Streeter Reveals About Bill McNabb’s Determination to Avoid the Smell of Stale Passivity

INVEST clients can schedule a planning telephone consultation during their first year of enrollment. INVEST clients with at least $100,000 in assets advised will have unlimited access to consultations from Vanguard advisors.

Clients with at least $50,000 in taxable assets managed by INVEST2 will be eligible to earn rewards each year. INVEST clients with an American Express High Yield Savings Account will also be eligible to receive a cash bonus to their savings account.

Not everyone gets the offers.

INVEST for Amex by Vanguard will include a minimum investment of $10,000 and an annual gross advisory fee of 0.50%, with the advisory fee waived for the first 90 days for new enrollees.

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