Vanguard Digital Advisor Review 2020: Pros, Cons and How It Compares

Vanguard Digital Advisor provides an affordable, convenient and personalized way to invest for retirement. Currently in the pilot phase, Vanguard Digital Advisor is planning to roll out more tools and features to handle multiple financial goals and optimize additional cash. 

Tiffany Lam-BalfourNovember 19, 2020
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Our Take

4.0

NerdWallet rating 

The bottom line: Vanguard Digital Advisor is an affordable robo-advisory service using several of Vanguard's key exchange-traded funds, or ETFs, to create a personalized retirement plan and portfolio for investors.

Vanguard Digital Advisor

Vanguard Digital Advisor

Fees

0.15%

per year (approximately)

Account Minimum

$3,000

Promotion

None

no promotions at this time

Pros & Cons

Pros

  • Access to Vanguard’s investing expertise and ETFs.

  • Low management fee relative to competitors.

  • Low investment expense ratios and no additional account fees.

Cons

  • Limited tools and account types as the program remains in pilot mode into 2021.

  • Limited portfolio options and customization.

  • No tax-loss harvesting for tax minimization.

Compare to Other Advisors

Betterment
Wealthfront
SoFi Automated Investing
NerdWallet rating 
NerdWallet rating 
NerdWallet rating 
Fees

0.25%

management fee

Fees

0.25%

management fee

Fees

0%

management fee

Account Minimum

$0

Account Minimum

$500

Account Minimum

$0

Promotion

Up to 1 year

of free management with a qualifying deposit

Promotion

$5,000

amount of assets managed for free

Promotion

Free

career counseling plus loan discounts with qualifying deposit

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Full Review

As one of the oldest and largest investment firms in the world, Vanguard capitalizes on its global scale by using its size to reduce fees for investors. Its new all-digital robo-advisor service, Vanguard Digital Advisor, gives investors the ability to create a personalized retirement plan and corresponding portfolio for a mere 0.15% advisory fee, using four low-cost and time-tested Vanguard ETFs with an average expense ratio of 0.05%.

This service suits those investors comfortable with guidance via technology instead of assistance from human advisors, though Vanguard does provide investor education along the way. For those who prefer a more high-touch experience with human financial advisors, consider Vanguard’s flagship offering, Vanguard Personal Advisor Services.

Vanguard Digital Advisor is best for:

  • Those who value low-cost offerings.

  • Investors desiring a personalized plan to reach retirement goals.

  • Investors comfortable with leveraging technology instead of guidance from a human advisor.

Vanguard Digital Advisor at a glance

Account minimum

$3,000 for retail brokerage accounts, $5 for eligible defined contribution plan participant accounts.

Account management fee

Target net advisory fee is 0.15%, although actual fee will vary depending on the specific holdings in each enrolled account.

Investment expense ratios

0.05% for retail clients with Vanguard brokerage accounts; fees vary for defined contribution plan participant accounts.

Account fees (annual, transfer, closing)

None.

Portfolio mix

For retail accounts, portfolios will be constructed with varying contributions of four Vanguard ETFs: Total Stock Market ETF, Total International Stock ETF, Total Bond Market ETF and Total International Bond Market ETF.

Portfolio is well-diversified but lacks exposure to non-market correlated assets like real estate investment trusts (REITs) and commodities.

No socially responsible investing (SRI) options.

Accounts supported

Individual brokerage accounts (joint accounts forthcoming), Roth and traditional IRAs, 401(k) (Vanguard is rolling out this service to eligible defined contribution plans on its full-service record-keeping platform).

Tax strategy

Portfolios constructed with low-turnover, tax-efficient ETFs. Using an "asset location" approach optimizes tax efficiency by allocating investments strategically among taxable and tax-advantaged accounts.

Vanguard Digital Advisor uses the minimum tax cost basis method, which is generally designed to minimize tax impact and lower an individual's tax burden by identifying selective units or quantities (lots) of securities to sell in any sale transaction (including rebalancing) based on specific ordering rules.

Automatic rebalancing

Portfolios evaluated daily to compare against target asset allocation, and rebalanced as necessary when portfolio found to deviate by more than 5% in any asset class. Monitoring in place to rebalance if cash balance is more than $300.

Human advisor option

None through Digital Advisor. Vanguard does offer access to advisors through its Personal Advisor Services platform, which has additional fees.

Bank account/cash management account

Self-directed cash allocation can be put in a Vanguard money market fund. There is no other short-term savings option, but no gross advisory fee is assessed on any cash equivalent balances. Excess cash is automatically transferred into the Vanguard Federal Money Market Fund with current SEC yield of 0.07% (as of 9/16/20).

Customer support options (includes website transparency)

Phone support Monday-Friday, 8 a.m.-8 p.m. Eastern time.

Promotion

None.

» Want to check out other providers? See our top picks for robo-advisors.

Where Vanguard Digital Advisor shines

Low account management fees: Considering the range of robo-advisors we review, Vanguard Digital Advisor’s flat 0.15% management fee is on the lower end. However, some of these robos provide access to human advisors, so it makes more sense to compare Vanguard’s fees with other similar offerings without human guidance.

Both Wealthfront's and Betterment's entry-level tiers charge a 0.25% management fee. Fidelity Go has a tiered fee structure in which all balances above $50,000 carry a 0.35% advisory fee. Ally Invest Managed Portfolios also has a tiering component, but its clients who want full market exposure pay a 0.30% management fee.

In comparison, Vanguard's low, flat fee is attractive.

Low investment expense ratios: Vanguard Digital Advisor creates personalized portfolios based on a client’s situation, preferences and retirement goal. These portfolios are built from four popular Vanguard exchange-traded funds — Total Stock Market ETF (VTI), Total International Stock ETF (VXUS), Total Bond Market ETF (BND) and Total International Bond Market ETF (BNDX) — with a low average investment expense ratio of 0.05%. These expenses are lower than the competition with the exception of Fidelity Go, which has zero expense ratios in its Fidelity Flex funds.

Additionally, Vanguard Digital Advisor charges no annual fees, transfer or closing fees, or setup or onboarding fees. Low fees benefit investors as the less you pay in fees, the more money you can keep working for you.

Personalized retirement plan: Clients use Vanguard Digital Advisor's online retirement calculator to create their personalized retirement plan. The calculator begins by prompting the user to complete a financial profile. The service requests details about household income and tax-filing status, with the option to link outside accounts. Next, Vanguard’s risk tolerance tool figures out a client's attitude toward risk by posing various scenarios. Then, the client moves on to establish their retirement goal, taking into consideration contributions to retirement accounts, time horizon, Social Security benefits and more to produce their retirement outlook.

Based upon their plan, Vanguard Digital Advisor customizes a portfolio aligned with their goals and provides ongoing management. Once a portfolio is active, Vanguard Digital Advisor evaluates daily and rebalances if any asset class deviates more than 5% from the target asset allocation.

Where Vanguard Digital Advisor falls short

Still-evolving tools and account types: Vanguard Digital Advisor will be in a pilot phase into 2021, and its current capabilities are best suited for investors planning for retirement. However, Vanguard is adding the ability to plan for multiple goals such as education costs and saving for a vacation or other large ventures alongside retirement. A forthcoming Smartcash tool will help investors identify the best place to put any additional cash, and the service will nudge clients to review their details and inputs to ensure the portfolio remains relevant for their needs. An emergency savings feature, which examines both short- and long-term savings needs, is also forthcoming in 2021.

At present, Digital Advisor is able to manage individual taxable brokerage accounts, IRAs (traditional and Roth) and 401(k)s for those eligible defined-contribution plans on Vanguard’s full-service record-keeping platform. Joint accounts are still to come sometime in 2021.

Limited portfolio options: Vanguard’s Digital Advisor uses four popular Vanguard ETFs mentioned above (VTI, VXUS, BND, BNDX) to construct personalized portfolios. While these ETFs do provide investors with a well-diversified and tax-efficient portfolio, some investors may feel constrained without access to any socially responsible investment options or smart beta portfolios provided by other robo-advisors. Also, using Digital Advisor limits the investor to only these four Vanguard ETFs instead of being able to use ETFs from various investment management companies, or mixing ETFs with mutual funds or individual stocks.

No assistance from a human advisor: As mentioned above, Vanguard’s Digital Advisor platform doesn't provide investors with access to a human advisor for questions or planning purposes. While this is not uncommon among robo-advisors, competitors such as Betterment and Ellevest offer the ability from within their digitally minded offerings to purchase one-off or a la carte access to a human advisor.

Those who require a human touch can check out Vanguard’s Personal Advisor Services platform, which provides unlimited access to advisors. However, those investors happy with leveraging technology as their guide will likely gravitate toward Digital Advisor to create their personalized plan using Vanguard’s various tools (including one on debt payment strategies) and other investor education.

Tax-loss harvesting: Vanguard Digital Advisor doesn't have any automatic tax-loss harvesting service for its accounts. Instead, opportunities to reduce an investor’s tax burden are found using its minimum tax cost basis method, which sells units or quantities (lots) of securities with the greatest loss during every sale transaction. Vanguard also optimizes for tax efficiency using asset location, placing more tax-efficient investments in taxable accounts, and those investments with the greater tax burden into tax-sheltered retirement accounts, when the client has both types of accounts. Clients who want daily monitoring for tax-loss harvesting opportunities may not be happy with this approach.

» Want to check out other providers? Here are our top picks for best robo-advisors.

Is Vanguard Digital Advisor right for you?

If you’re comfortable leveraging technology and online tools to create your retirement plan, Vanguard Digital Advisor provides you with the means to do so. Combined with its low-cost ETFs, Vanguard’s platform guides investors to their retirement goals with a personalized, diversified portfolio aligned with their goals along with ongoing management. You may need to wait a little while to include other financial goals beyond retirement into your plan, but additional capabilities are on the way as the platform heads toward a full rollout over the next year.