Those are lofty objectives. So when Vanguard Group offered BusinessWeek a first peek at its newly revamped financial-planning service that it's unveiling Apr. 17, I decided to take a test drive. (We're already Vanguard customers.) The program combines an online questionnaire with over-the-phone advice from one of Vanguard's 200 financial planners.
The service is free to anyone with $250,000 or more at Vanguard or $1,000 for those with less. It's also free if you transfer $100,000 to a Vanguard account. Vanguard has been offering fee-based financial advice since 1996, but the earlier iteration resulted in a 50-page financial plan that was difficult to digest.CUTTING THE KEYBOARDING
The streamlined service includes asset allocation advice, portfolio recommendations, and a college savings strategy, all in fewer than 20 pages. "Simple is better," says John Brennan, Vanguard's chairman. Another difference is the price: The old program cost $1,500.
Getting started seemed easy enough. We had a lot of financial information at our fingertips from tax season. While we hold accounts at Fidelity Investments, Wachovia (WB
), and a few other places, I didn't need to key in all of my account information. With software called CashEdge, Vanguard can retrieve your data housed at other financial institutions, assuming you have the passwords. Data from some of my accounts, however, didn't transfer and had to be entered manually.
I then turned to the questionnaire, which asked for basic information on our salaries, savings, income, and expenses. I also answered a series of questions on my tolerance for risk-taking. Completing the profile took about 20 minutes, although I wasn't sure what I should put for our expected retirement age since people are working longer. I stuck with 65, the default setting. Since we live in pricey Manhattan, I upped the rate to 80% from the default 70%, the amount of our preretirement income we'll need to maintain.
Less than 24 hours later, I got an e-mail that my financial plan was ready for review at Vanguard.com. The good news: We've accumulated more than $200,000 in retirement savings. Our recommended asset allocation plan is 80% stocks and 20% bonds, a slight shift from our current 90/10 as measured by the program.
The bad news: To meet our projected retirement goal of more than $4.8 million, we need to save $67,500 more annually, which seems unrealistic, in part because federal law limits how much you can stash away tax-free.
My financial planner, Mark Yakupcin, trimmed our portfolio of 30 funds from varied companies to a mix of 10 Vanguard funds, which have lower expenses. As an alternative, the plan suggested I simply use Vanguard LifeStrategy Growth Fund (VASGX
), a managed mix of stocks and bonds. I didn't like the recommendation to dump my stock in BusinessWeek parent McGraw-Hill (MHP
) and Vanguard Health Care Fund (VGHCX
) because they didn't fit the asset allocation strategy. I asked Yakupcin to put both back in the plan.
To help us meet our goal, Yakupcin factored into the retirement plan $20,000 from our taxable accounts and extended our retirement age to 70. Three days later a new plan arrived. Those key changes helped us get to a more manageable savings rate of $25,000 per year. I can cover some of that by upping my 401(k) contributions. Medical expenses prevented me from putting away more in 2005. The plan also suggests that we save more than $5,000 per year for our son's college fund, so we've opened up a 529 savings plan.
I asked Dan Wiener, editor of the Independent Adviser for Vanguard Investors newsletter and an adviser himself, to review the recommendations. He thought the plan was fine, but griped that the fact we need to save $25,000 more per year "is the most important part of this whole plan...and it's buried" on page three.
How does Vanguard's service compare with the competition? At Fidelity Investments, the most comparable program is a fee-based advisory service that includes real estate holdings, which Vanguard's service does not. "Real estate valuation is very subjective based on an unlimited set of circumstances and is not viewed as an income source by most investors," says Vanguard spokeswoman Melissa Nigro.
The Vanguard plan is certainly simpler than Charles Schwab's (SCH
) $2,000 service, which links you with an adviser and results in a 50-to-70-page report. T. Rowe Price (TROW
) offers a $250 annual checkup that focuses on asset allocation, not strategy, and can be submitted only by snail mail.
By playing around with some numbers, Vanguard helped create a retirement plan that seems reasonable enough. The hard part will be to stick to it. By Lauren Young