Vanguard's Maria Quinn: An 'Amazing' Opportunity Is Here for Advisors

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Hello and welcome to Barron's The Way Forward. I'm Greg Bartolis, and my special guest is Maria Quinn, Senior Advice Strategist at Vanguard's Investment Advisory Research Center. Welcome to the program.

Thank you so much for having me. I'm delighted to be here, Greg.

Excellent. Well, my pleasure. Today I want to talk about Vanguard's advisory study and how it attempts to quantify the value of financial advice, and I'd like to discuss all this in the context of this massive wealth transfer that's underway that will see younger people and women as beneficiaries. And I want to unpack all that and figure out what advisors should know from these findings and how they can act on, on the advice.

All right. A lot to do.

Yeah.

In our short amount of time.

Exactly. So tell us a little about yourself, what you do, and then like, let's hop in.

All right. So I sit in our newly formed Investment Advisory Research Center. We've been together for about 2.5 years now. We We are a dedicated research entity within our Financial Advisor Services division. So I work exclusively with external advisors and intermediaries in the wealth management space. My function is trifold. I, I do research, so I actually am involved in the quantification of Vanguard's Advisors Alpha, our behavioral coaching research, our research on next-gen investors and women. I also serve as an internal business consultant across all of Vanguard's enterprise on some advice initiatives, particularly some of these themes. I'm an ambassador for Vanguard.

So you've been at the firm for over a decade, right?

I have. Yeah. I've been there for about 11 and a half years and in a variety of functions, but almost exclusively working with external financial advisors.

Okay. So the topic's really interesting because, you know, quantifying the value of financial advice is tricky, right? The quality is not always apparent in numbers, right? So what is interesting, however, is that Vanguard has been historically synonymous with value because of its rock-bottom expense ratios, right? So that at least is very tangible. It's clear, specific, but again, we know there is good advice and bad advice, but it doesn't show up always with a, you know, 1%, it might be a screaming great deal or might not. It all depends. So, so high level, start, tell us a little about the study and what it reveals.

Yeah. So the original research actually came out over 20 years ago. Two colleagues, Scott Donaldson and Don Bennyhoff at the time, they themselves had been a vice commissioners so they knew what it was to sit in the seat of the financial advisor. And they were looking at some broad trends, aging demographics of the retail participant in the capital markets, complexity of regulation, taxes, a lot of product considerations out there, and the entry of the baby boomer into pre-retirement, right? So kind of that, that big motion. And they realized clients are better off being advised than they are doing it on their own. And the premise of the original research, Vanguard's Advisors Alpha, In 13 pages, more or less said that. Now we fast forward to 2014 and the quantification of Vanguard's advisors' alpha, probably the piece that's more familiar in the marketplace that came to be. And that's where we decided to really look at the practice of advice, kind of at the practice level, looking at portfolio construction value, wealth management value, behavioral coaching value, and trying to quantify a number of, of the return to a client. And we quantify that value of working with a financial advisor at about 3%. Could be more or less, right? Depending on unique client circumstances, situations, and level of wealth. But really, you know, underscoring that there is significant value to working with a financial advisor, significant benefit to a client above them trying to do it on their own.

3% over what timeframe? And can you provide more particulars about how that number is kind of arrived at?

Yes, we try to, we look at that number in an annualized number, but I will say the largest component of that value upwards of 200 basis points is behavioral coaching. And what we find is that behavioral coaching, the most significant value tends to be episodic because if we think about market volatility, we can look at any of the past market events, be that first quarter of 2022, be that COVID, be that prior financial crises, right? Always going to be something in the marketplace. But that moment of connection that you get to have with the client, they call you because there's a panic point or an inflection point and you're able to Listen to them, hear what they have to say, provide them the guidance that they need to keep them invested, right? That 15-minute conversation, that 10-minute conversation ultimately could be worth a lifetime of fees other than them, say, abandoning to cash or trying to abandon a financial plan or an asset allocation that was made when less emotion was present at the table.

Yeah, I mean, the behavioral component is extremely important. Indeed. Indeed. With the coaching, can you give any other examples of how it might benefit advisors?

Yeah, so we actually think about coaching in two different ways. I say that there's always a weather for coaching, so it's a thing that we can lean into in the industry. We think about coaching proactively, which right now, you know, we've had a pretty positive swing in the market and we've had very positive years, you know, kind of take 2020 out of the mix there. But proactive coaching is anchored in financial planning, right? Really getting clients Talking about not the goals per se, but what they value, what's really important to them, then translating that into a goal that we can measure to, that translates into an asset allocation, you know, a mix of assets and then daily performance. So we have that frame of the plan. Then we think about how we proactively message to that plan, reminding clients, not a means of instilling fear, but reminding clients that at some point something's going to go wrong, right? We can't, we, we, We plan with the best intent, but we can't control all the factors. There'll be external forces. There'll be something happens in the marketplace. And, you know, being proactive in that coaching and that guidance and then being very deliberate in the type of language we use, right? How are we messaging? How are we conveying things with empathy, right? Really tapping into that EQ. You'll hear me say to advisors, get comfortable being uncomfortable, right? Ask a lot of questions, learn a lot of things. You're building trust, but you're also aligning to them in a very positive manner. Will be much more receptive to hearing things, or, you know, be that good news, bad news, or any potential advice that you might be giving them in going forward. So we think about that proactively, right? Reminding clients that things will go awry at some stage. But then there's also reactive coaching, right? So when you're in it, right, something is going on, how do we react to that? And I think that's probably where I've had more conversations with financial advisors, the how do I talk my client off the ledge, right? How do I set this up in a means where we are proactive in our portfolio construction conversations? And for us, that framework is really, you know, assessing what's going on with the client, right? Your client's calling you because something has happened, be that something in the market, something in their personal lives, maybe it's both. First, I think that's a wonderful thing. They're calling you because they trust you, right? That you're on the other side of the phone to them. You're their partner in this. But you want to get as much information from them as you are able to in that moment, because it might not be a financial impact. It might just be an emotional impact. It could be both. And then we have to figure out how do we address that with them. But you have to hear them first.

Yeah. I mean, I hope it's not a stretch, but I do think of— and this almost makes me think of potential health ailment where someone might have something, it's on their mind, it's bothering them, but they're like, ah, it doesn't rise to the level where I should go see the doctor. And then they wait and then, oops, I waited too long. So getting in front of stuff, addressing things sooner than later, being transparent. Reaching out more often, right? All of these things presumably are helpful, I'm hearing then.

Yes, and I do appreciate it takes time, right? In order to be very proactive, to be very top of mind to our clients, we have to have a lot of time in order to do that. But it's an amazing differentiator, especially right now where a lot of things feel commoditized, but a human connection is not by any means commoditized.

Right, right. And I don't know if you can answer this, but have you seen that clients are more amenable to this, are behaving better, if you will, about doing the right things over time, or is their unwillingness, is that kind of fixed and evergreen? I'm just curious if, and that's tough to quantify. I'm just curious.

It is tough to quantify, but we can look at a number of studies. So we've looked at cash flow and emotion between the various asset classes over lengthy periods of time. And what we found actually in the last, you know, 10 or so years is that those allocations have held fairly constant despite significant market volatility. I do think that's probably a measure of, of advice and advisors being able to step in and soundly coach clients. I know Morningstar has Behavior Gap. We do some similar research as well, but I think that there is a noticeable benefit to investor behavior.

Yeah. And I think as a complement to Vanguard that I think historically the Vanguard investors have been much better in general about buying and holding and staying the course. It's, it's, there's perhaps an element of self-selection, but But it does seem that they're not as ruffled compared to some other companies.

So they are, they are a very different type of investor. Yeah. But having had the fortune of working with so many external advisors and how they've been faring over periods of market volatility, I do know that these coaching principles are very much present and being there for clients, I think is just something we observe so much more.

Absolutely. Yeah, for sure. Okay, so let's dig in a little bigger picture, I guess, to, trends, people, you know, longevity, next gen, or a lot of big things changing. It's not rapidly, but it is slowly happening. And a lot of money changing hands here. So tell me a little more about this.

So the great wealth transfer, as it's been deemed, depending on how you look at the number, the Cerulli stat that we kind of come back to as a benchmark in the industry is $84 trillion will be changing hands by 2045. About $72 trillion of that will go to heirs, and the remainder of that will go through charitable contributions, charitable donations. Bank of America did have a study last year, though, that said coming out of COVID that number could be as high as $129 trillion. But for the purposes, we, we do benchmark to the $84 trillion. We know that money in motion is a potential loss or risk of loss of assets within a book of business. There are a lot of factors that come into play there, but The way I view wealth transfer is it's opportunity. It's a means of making meaningful connections with existing clients, right? A thoughtful level of care to our existing clients, but also almost a warmer introduction to family members to, you know, I think about it as business development and prospecting within a warmer pool of prospects.

Right. And, you know, it's interesting because so often people hire advisors when there is a life event such as a divorce, new child, new house, or what have you. But what's happening here is it's not so much one singular event. It's a gazillion incremental small events that are adding up to something really profound. And, you know, an interesting part of this is just that, you know, although people are living longer, you still have this massive demographic shift where next gen and women are going to be controlling a lot more money in the future. Tell me a little more about that and what you're seeing.

Yeah, there are so many converging trends right now on looking at broad demographic data. We're hitting peak 65 this year, right? So more baby boomers turning 65 than any other year in history, which I think holds true until next year, and that'll hold true until the year after that, right? So we're kind of in this like this massive inflection point. We, the statistic of 10,000 baby boomers retiring a day is still holding true until 2040. So we have that. So looking at, you know, entry into retirement, what that looks like, you'd mentioned increasing longevity. We are observing, you know, women on average typically outliving their spouses by 5 years or so. That's maybe the largest delta we've had in, in kind of modern era. So within the last generation, there are also some other trends that I've been talking about recently with former colleagues where when we think about, you know, the matriarch, patriarch of a household, women tend to marry older men as well. So if your husband is 5, to 10 years older than you, right? That 5 years could be 10 years, could be 15 years of, you know, outliving your spouse. So that's going to have a significant impact. The, the, the entrance into the marketplace, both in terms of product, in terms of technology, in terms of new investors and new participants in advice and millennials, you know, Gen Z kind of when they come into the fold, right? There's so many things converging right now. And I think what it's doing is providing this opportunity for us to rethink what our advice service offer looks like, to not capitalize per se, but to, to really ensure that we, we have a value proposition that's relevant to not only our existing traditional clients that have been with us for a while, but those new people who are coming in who think about advice very differently, who expect a different type of service and becoming, as I mentioned before, much more relevant to them.

Right. And there's a lot of inertia in the business. A lot of people, oh, I did this for 20 years, it works. And then kind of like each year feels the same. And then all of a sudden it's like, oops, things, yeah, things are different. Right. So how do, what should advisors do to help reorient their firms? Just adapt basically and make sure that they keep clients and, and, you know, within intergenerational wealth, you obviously keep it in the family if possible. Right. Just tell me about that.

The inertia thing does come up a lot. So I often frame this as this is the easiest conversation in the world to not have. One, because we don't want to, right? We can be very complacent. The traditional advice client is somewhere between the ages of 57 and 65, right? They fall squarely into the baby boomer population, and the baby boomers control upwards of, you know, I think it's 52% of private wealth in this country. We can be complacent with them. For a long time. But what we observe is that money is going to start to move. That money is going to start to move from, you know, the Greatest Generation, Silent Generation into the younger baby boomers, primarily women, and then from the older baby boomers into Gen X, into the millennial generation, ultimately into Generation Z. And so I think overcoming that inertia is one recognition of what do I want my business to look like, right? What is, what is the, what is the value proposition that I'm bringing? What do I want this to look like in 5 years, 10 years, 15 years? Maybe it's not worth someone or this effort if someone's about to retire. It might not be the undertaking they want. But if you're not planning to retire for 15, 20 years and you want to grow your business and you maybe want to, you know, have a succession plan in place, we want to get in front of these next generations. The way in which I envision that is not necessarily a wholesale change of how we do business, but how do we add to our business? How do we enhance it? That might be by adding on different services, by being a little bit more flexible with how how we do business, the, the technology we leverage, apps, websites, all of those things that can make us relevant, make us more able to better engage. But I do think it comes down to what does that service offer look like? And I think that's an easier thing to modify and add to than I have to throw everything I've done out the window. I don't think that's the solution.

Right, right. And, and in terms of services and specifically hiring, let's just say it's a small firm with 5 advisors, let's say they're all, let's say, older men, but they want to reach out more to next gen, right? A lot of clients like to have advisors who kind of look like them, or there's something right in common. So tell me a little about that.

Yeah, I think before we look outward, we look inward at our business. So we kind of have to take a look at what we're doing, how we're doing it, and who's in the room. One thing that we observe, and I think this is just broad trends across the industry for the last, you know, 10+ years, women like to see women in the office regardless of whether or not they're working with a female financial advisor. When we look at recent studies, though, actually, so Ellevest, their survey work in the industry has been fantastic. And they look at younger women, millennial, younger Gen Z, having more of an interest in working with other women, whereas looking across older demographics, we don't necessarily see that. We actually observe in some instances, at least anecdotally, we've seen that older women actually may prefer to work with a male financial advisor. So looking at, you know, who's in the room, who's in the office, how are you aligning that with the target demographic? We see this a lot through— you mentioned the example of a 5-person firm. You know, we see this a lot with teaming as well. Who can you add on, right? What's that? What's that next skill set that's going to get you further? Is that a young person and their digital savviness? Is it a woman that you're incorporating much more in your financial planning conversations? And aligning that, because to your point earlier, I don't think it's a, I want someone who looks like me and sounds like me. It's someone who can I share something in common with. I want to feel like we have something in common.

Absolutely. And I think for some advisors, going out of your comfort zone could be tricky. But I think if you keep your eye on the prize, that strictly from a, I mean, from a business perspective, it's in your best interest and it helps serve the client. So it would really be a win-win. So I think that's something, again, back to inertia. It's kind of— it might be like, oh, it's quite an adjustment. There's a discomfort. But like, yeah, if you do want to evolve, if you're not going to retire in a year or two or what have you, then certainly makes sense to look there.

Yeah. And change is easier when it's incremental, right? So if you start instituting things now, your business is going to be where you want it to be in the next year to 2 years.

Tell me more about next gen. So you spoke a little about women and, you know, them, maybe millennials, Gen Z. Any other observations or conclusions from the report?

Yeah. So we've been taking a look at the future, the rising generations of wealth. And I know we all capture it somewhat differently. You've got your Gen 1s, Gen 2s, Gen 3s. So I've kind of seen all of the terminology at this stage. But what we observe with younger investors, they particularly young Gen Z or younger Gen X and millennial generation, Gen Z, we'll put to the side for the moment. They're growing wealth, right? They have an interest in, in, you know, participating in the markets. They have an interest in investing, which is fantastic. And how can we capitalize on that? How can we partner with them? How can we think to provide them services that are relevant to them, coach them along the way, right? In appreciation for what they're doing and their participation, but Thinking long-term, thinking strategically as well. There was a survey done by Broadridge last year, actually, that looks specifically at millennials and what type of financial services they would look to receive in the next 5 years. And 67% of the respondents said that they were looking for, you know, traditional wealth management services. So there's an interest, there's an appetite, and younger investors actually believe that they're going to need much more retirement advice than older generations have. So when we look at our younger Gen X, we look at our millennials, you know, they are, they're hungry for information. They're hungry for someone to connect with them, to kind of partner with them as they think through what this means to them. Because looking at broad trends, right, they fully believe that they might be self-funding their retirement or, you know, with 401(k)s and their employer-sponsored plans, there's going to be some form of co-funding that. But what does retirement look like to them is going to be dramatically different than what it looked like to their parents, to their grandparents.

Oh yeah, totally. I mean, you mentioned, alluded to Social Security, living longer, the traditional days of like, well, even now it's kind of in yesteryear, the whole pension, staying with a company 30 years. So the pensions are basically gone now. It's 401(k)s. But a lot of these next gen, a lot of them don't have the full time. They're juggling different jobs. They're entrepreneurs. You know, it's a very different experience. And it's more uncertainty, but potentially more opportunity in some ways too. But that is definitely very interesting and not in a way surprising, but it is in a way surprising because often there's a common caricature of the media like, oh, young people like wheeling and dealing and day trading. And, you know, of course there is some of that, but there's also a lot more awareness, I think, of money. I mean, embedded in our culture and social media, money is such a mainstream thing. You know, I'm a Gen Xer, so, you know, I remember growing up, you know, as teens, it was quite a bit different. But yeah, now we're kind of immersed in this for better and for worse.

You know, I've been having so many conversations of that culture shift because when we think about the conversations you would have around the dining room table, right, you weren't talking about money, you weren't talking about politics, you weren't talking about religion. But when it comes to younger people and their willingness to discuss it, the rise in money conversations, the conversations that they're having among themselves of, you know, how, what are you earning? How are you investing? I think it's really good news for our business.

I think it's great. Yeah. Yeah. 100% on many, many levels. I mean, I think growing up it was a little bit more like not uncouth, but like you kind of just don't go there. You don't talk about it. It's a little crass or whatever. It was just, you know, you figure it out and, oh, you know, you're a little above that or whatever.

Yeah. Yeah.

And I do think that for people to judge that is mistaken. I think, I think it's incredibly important because we're all we're all, you know, captains of our own destiny, if you will. We all have to navigate and figure it out. We're all managing our money, our finances. Like, why the heck would you not be discussing this and being transparent and, you know, comparing notes with your friends, peers, colleagues, etc.? So I think it's all ultimately, yeah, a good thing.

Yeah. And I've seen some amazing advisors foster those conversations among cohorts of their clients, bringing them together to have more dialogue. And I think ultimately, leads to, to very positive outcomes for the advisors and also for the clients themselves.

Anything else you're seeing on a generational note that's worth, you know, addressing that the research shows or that you think and believe?

Yes. So research shows us that we have to be very digitally savvy with younger investors. And I think that that is probably not surprising to anyone listening to, to this conversation. But when we think about our outreach, our, our being relevant to younger people and how we engage with them, The old way of doing business is not necessarily going to get us to new business. So, you know, as compliance allows us, you know, text communication, short-form video communication, having a web presence, the amount of times I've talked through advisors, you know, having a demonstrable presence either through your firm website or, you know, your engagement on LinkedIn, your engagement on social media, whatever that might look like. I never say to go out and, you know, be prescriptive about what you should do. But just make sure it's really authentic to you. It's relevant to what you're trying to accomplish in the marketplace, because we do find, you know, your younger— the younger engagements that you're going to have, the younger investors that you're going to have conversations with, they've done their research on you, right? They've Googled you, they've looked you up online. They've kind of done all of that, that, that base case research before they come into the conversation. So if they're having the conversation, it's— they vetted you, right? So it's much more about how you work with them, how you engage with them. And then when it comes to technology, you want to make sure your technology is working for you. When we think about our websites, when we think about our app connection, I talk a lot about there are some assumptions that we've kind of baked in to our mindset in the industry. Younger people only want to use digital solutions. They do to a certain extent, right? When we think about, we mentioned the day trader earlier, right? The ability for someone to go on and open up such an account is very easy, right? You go into their website, you create a username password, you verify your identity, you go through a kind of on a robo platform, maybe a risk tolerance questionnaire, right? Seed it with some capital, a direct transfer from your bank account, and boom, you're a client. Or you could be an advised client if it's a robo. When it comes to traditional wealth management, right, we have a lot of disclosures. We have a lot of paperwork that we have to go through, right, to protect us, to protect the firm, to protect our clients. But how do we think about that from an experience perspective, from a younger client that is no more than 2.5 feet away from their phone, how they engage, how they like that immediacy, and how can we kind of curate that experience for them. So they feel like it's a little bit more for them than it has been maybe historically.

Yes. And I think that's tremendously important. So for that younger person, they're holding their phone, they're looking at the app, and the user experience is really, you know, paramount. You could have 200 years experience, be in business, you could be in business 5 years, and it's almost academic. Think in terms of how they, what they experience, right? They're just reacting to what's in front of them. I think people know it's incredibly important, but I think it's almost still the reminder of it. Yeah, it's just, it's really, it's really profound. And I think, you know, to some extent that even manifests itself with content as well. You know, it's like in the old days, let's go back to '80s. Let's go back to pre-internet. What was important then is if you think about news, think of who's the messenger, who's publishing or telling you something, and then what's the message? Messenger, message.. And in the old days, it would be like, oh, get the New York Times, go to ABC. You go to an authoritative source where there are centralized gatekeepers, and they will tell you what's important. Well, the internet blew all that open. So of course, big brands still important, still matter. Thank you, Knock and Woodward, parents. But the message is of relatively more importance. It's also what is being said. So I think in all of this, you can't— I guess my point, what I'm saying is you can't really rest on your laurels. You have to prove yourself yourself day in, day out. And it's a very competitive field and everyone's jousting for dominance, legitimacy, all that.

The rise of the finfluencer culture I found to be very fascinating. And we as a team, right, when we think about how we distribute content and how we distribute information, right, it used to be in our business, it was always a long-form white paper, right? 28 to 40-page paper. And then we went to the brief, which was 10 to 12 pages, and then the note, which was 4 pages, and now it's like the one-pager that's probably 2 to 3 pages because of disclosures. But then also thinking about video, because, you know, I kind of mentioned earlier, I set Gen Z to the side a little bit and younger millennials, but think about how they consume information, right? Think about your Snapchat, your TikTok, right? That is short-form video content. And are we built and equipped for that? So, you know, is it the 30-second kind of like, you know, blast on your website? Is it the podcast? Is it the videos that are on your team page, what are you putting on your LinkedIn? We have to kind of think in multiple media now.

And it comes back to the idea of meet them where they are.

Exactly.

And I don't think there need be any compromise in messaging because if you stand for something, you should be able to relatively succinctly distill that and then convey it across any number of platforms.

It's true, and your authenticity will show through, right? You always know when you feel like something's disingenuous. So if it's you and you're telling me what you're passionate about and I know that that pops off the page or that pops up the screen, it's going to resonate.

Exactly. Yeah, exactly. Anything else that we haven't touched on that you think is important that from the study or otherwise that you want to share?

I feel like we've hit so many kind of the key highlights. I think, you know, the one thing I reemphasize and, you know, it hopefully is echoed throughout, wealth transfer is an opportunity. I think it's— I think that's an amazing opportunity. I think that we as a firm believe that there are wonderful ways in which we can engage and be relevant and very, I think, meaningful in the lives of our existing clients, but also within their families. If we think about this not as something that's looming in the distance, and it's been looming for 20 years, I think for the last 10 years I've been talking about wealth transfer, but it feels a little bit more here. But just seizing it and realizing this is something that can help my business, but ultimately can also help my clients and how I frame that and how I go about that. So I very much welcome the discussion. You know, it starts with women, it goes to that next generation, how we think about that, how we start now to incorporate that in our practice.

Excellent. Well, a lot of really useful information. So thank you so much for joining. My guest has been Maria Quinn. For more podcasts and the latest wealth management news, visit barons.com/show. Advisor. For The Way Forward, I'm Greg Bartellis.

This podcast was brought to you by Wells Fargo Advisors. Looking for a firm your clients can't outgrow? Wells Fargo Advisors offers financial advisors full balance sheet solutions with wealth planning, investment products, banking, and lending that meet the needs of affluent to ultra-high net worth clients. Build your practice your way and on your schedule with independent and employee model options designed to meet your needs today and tomorrow. Learn more at joinwfadvisors.com.