Case Study: How Vanguard’s Robo-Advisor Platform Leads the U.S. Market
The robo-advisor market is ever expanding and numerous startups are entering the fray hoping to make their mark. These new companies, not yet experienced in the field, will become one of the many failed startups if they don’t learn how to play the game.
Smart startups will look at the leaders in the field and learn from them how to best manage their new business. For robo-advisors, Vanguard can show them what true success comes from. The company, which lists itself as “a client-owned mutual fund company with no outside owners seeking profits,” has launched a robo-advisor platform that is easily eclipsing the success of the other major players.
One reason for its success: Vanguard’s Personal Advisor System melds technology with human advisors, giving investors the best of both worlds and easing the concerns they might have about giving control over to faceless technology. After setting up an account, human advisors guide investors through their goals, concerns and expectations, making sure the right options were chosen and customizing the plans as needed. This human aspect is a huge part of their success, as the personalized interaction means customer satisfaction is much higher. Although startups may not have the manpower available to offer constant one-on-one interaction to their customers, the need to speak to a human cannot be underestimated.
Another main advantage Vanguard has is a large distribution team in the United States and easy access to an already established customer base. In fact, more than 90% of their robo-advisor clients were already Vanguard clients and just adopted the new service. Although this may seem like bad news for a new startup, what it really tells you is your strongest client base will come from pre-existing connections.
In Vanguard’s case, as with many of the established players, this pre-existing base consists of older generations and approximately two-thirds of Vanguard’s clients are retirement age. True, this is the section of the market that have investment portfolios, but startups do not necessarily need to compete for these customers. Instead, focus on the younger sections of the market. There is real opportunity here, as technology-friendly investing will heavily appeal to generation X and millennials.
By using Vanguard as a model, startups can learn how to shape their company in order to compete in the digital wealth management market. Startups should adapt the company’s successful choices to fit with their company. If done properly, your robo-advisor business will move from the startup stage and continue to grow.