Using Fidelity, Schwab, or Vanguard as Your Advisor?

Reader Doug wrote to me this week:

Any thoughts on using one of the ‘Big Three’ as a financial advisor.  Fidelity, Schwab and Vanguard have different programs at different price points (shown below).  

For some background…it’s vital to remember that these companies swim in various lanes at the same time.

They are custodians – places where you can open and keep accounts.

They are fund managers – organizations that offer ETFs, mutual funds, etc. that you can pay to invest in.

They also offer advisory services.

These organizations can be great custodians and excellent fund managers, yet have different standards for their advisory services.

I’ve got some thoughts for you, Doug.

There’s a Spectrum

I’m biased here. It’s important I disclose that. Though I’d like to think my bias is “pro-client.”

Here are some great questions to help you discern between good, bad, and ugly advisors. And definitions about how fees are charged.

I’d also recommend this podcast episode too:

The broader point is that:

• Some advisors provide detailed planning. Others don’t.
• Some advisors sell commissioned products (insurance, annuities, etc) and others are fee-only.
• Some advisors charge high fees, others low fees.
• Some advisors intentionally work with 40, 60, 80 clients. Other advisors work with 200+.

All else being equal, you’d probably prefer an advisor who provides detailed planning, is fee-only, spends plenty of time with you, and charges reasonable fees.

So – is that what the “Big Three” provide?

Service Tiers

We should be looking at the “dedicated advisor tier” in the table below.

The robo-only and hybrid tiers provide very little human expertise. They are essentially “investing-only” services. That’s fine – if that’s what you want.

But if you are looking for true financial planning, we want to look at the “Dedicated Advisor” tier.

Fees

Vanguard is the clear winner here at 0.30%.

Fidelity and Schwab charge fees much closer to what small, independent financial planners charge.

Fidelity’s fees start very high. Well above 1.0% on the first $1M in a client’s portfolio.

Schwab’s fees are more reasonable.

Client Service and Planning

Client service and in-depth planning are where the rubber meets the road.

I’ve had a ~dozen prospective clients (and a handful of actual clients) talk to me after working with one of these Big Three. I also regularly read online communities – both of individual investors (customers of the Big Three) and of other financial advisors (including many who work for the Big Three).

The commentary always sounds the same.

Advisors at the Big Three are overworked. They have too many clients to serve each client well.

Big Three advisors tend to be earlier in their career, with less experience. Eventually, they look for opportunities to join an independent investment advisor.

The planning work from the Big Three tends to be boilerplate and basic. You (the client) input your information into financial planning software, they press some buttons on their end, press “go,” and send you the templated 20-page output document.

This is a symptom of being overworked. If you have 200-300 clients, it’s impossible to spend more than a few hours per year with any one of them.

Fee-Only vs. Products

Unfortunately, both Fidelity advisory and Schwab advisory have a reputation for being sales organizations.

Many of the financial advisors at these firms are so-called “dual hat” advisors. In some interactions, they wear their “fiduciary” hat. But in other interactions, they are held to a much lesser standard, and thus:

They push high-fee, proprietary products.

Vanguard, to their credit, has a much better reputation on this front. They maintain their low-fee, index fund approach.

However, all three firms tend to offer only their own products to their clients. Fidelity clients are steered toward Fidelity funds, Vanguard toward Vanguard, etc. On one hand – what did you expect? Of course this is going to happen. But this is clearly a conflict of interest against the client.

Friends Don’t Let Friends…

If a close friend or a family member came to me with this question, I would 100% point them toward any number of independent, fiduciary, fee-only advisors around the country.

And it doesn’t have to be me! 🙂

There are many advisors whom I admire for their combination of:

• High service
• Planning expertise
• Simple, low-cost investment management
• Fiduciary status
• Reasonable fees

In my experience, the “Big Three” firms’ advisory services miss the mark on too many of the five bullets above. You can do much better.

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