The semi-confused, higher-paying AmEx-Vanguard package is cheaper, clearer and better unbundled, calculates an RIA, but may not be too extravagant for one-stop convenience, vs. Morningstar analyst

Brooke’s note: As journalists, we can be as tired of sifting through ambiguous fee information as investors. It causes too much depression, boredom and brain damage to try to fix it all. So when we learned that Jeffrey DeMaso had worked out fees, confusing services (including the value of a card member “point” for a user of Vanguard through Amex) and disclosures in the Amex- Vanguard, it really advanced our understanding of history. When we let Ron Rhoades review it, he didn’t mince words either. These opinions are not only countered by the public relations departments of Vanguard and Amex; a Morningstar researcher argued that we all get a little too worked up for pennies. You decide if it’s a mountain from a molehill – or a mountain from a volcano.

American Express and Vanguard Group’s new private labeling deal literally doesn’t add up when confusing fees and service levels are ironed out, according to a newsletter billing itself as the ‘first authority’ on Vanguard funds.

Malvern, Pa., employee-owned discount manager and the often high-priced New York financial firm announced the joint service earlier this month, bringing Vanguard financial planning to the legion of cardholders credit card from Amex.

Ron Rhoades: “We seek to communicate transparency, openness and clarity.

The Kicker: A steep 50 basis point fee and a hair-raising tightrope conflict of interest.

Upfront, Amex will receive a “promoter fee” of up to 50% of the fees cardholders pay to Vanguard Advisers, Inc. (VAI) to sign up for INVEST.

But deep in the fine print is this disclaimer: “Amex’s receipt of this compensation creates a conflict of interest because Amex has a financial incentive to promote VAI’s consulting services.”

The Amex has a history of tackling bureaucracies on representation issues. Just two days after the Vanguard deal was announced, it was the subject of an extensive Wall Street Journal article titled: IRS investigates American Express sales pitches

Ron Rhoades, assistant professor of finance at Western Kentucky University’s Gordon Ford School of Business, says Vanguard has a fiduciary responsibility to make fees consistent and known.

“I think about Vanguard a lot. I think about them less after this mess,” he says.

Vanguard spokeswoman Karyn Baldwin said INVEST’s materials comply with Securities and Exchange Commission (SEC) guidelines and marketing rules.

“Details of fees and services, as well as the relationship between Vanguard and American Express, are clearly disclosed in these documents,” she says.

No net benefit

Formally known as “INVEST for Amex by Vanguard“, the credit card services and investment management program has a sweetener — Amex “points” to what it calls an “exclusive rewards package” for those who sign up.

But INVEST is far from a bargain, even with extra points, says Jeff DeMaso, research editor for the “Independent Advisor for Pioneering Investors.”

“Is there a net benefit to credit card holders who, without this deal, would be left without a planner? Not really,” DeMaso says.

Any investor can get the same advice from Vanguard Personal Advisor Services (PAS). The company offers a digital robo-advisor for 20 basis points, or a living, breathing advisor for 30 basis points, depending company website. Minimum investments apply.

INVEST investors would pay the same 20 basis points for Vanguard’s digital service, he notes. See: Vanguard Group reports launch of super-cheap, possibly ‘clunky’ robo-advisor, but Schwab and Fidelity should still be concerned, analysts say

It looks like private branding of Vanguard NOT to me,” DeMaso says. See: With McKinsey helping to improve its ‘efficiency,’ Vanguard Group strikes a tell-all customer acquisition deal with American Express that imposes a hefty fee on the financial planning offering that the two companies pretty much parted ways with

separate department

Amex spokeswoman Elizabeth Crosta said it was up to card customers to decide whether “INVEST is right for them based on their own financial needs and goals.”

Baldwin initially declined to answer specific questions but directed RIABiz with a statement. [She later responded to a series of follow-ups]

“INVEST is a new, distinct service available exclusively to American Express cardholders, combining Vanguard investment advice and management with cardholder rewards,” the statement said.

“To register for INVEST, card members will need to open (or already have) a Vanguard brokerage account.”

But Amex customers must go through a number of other steps before they can benefit from Vanguard’s services, according to the fine print on the INVEST website.

Another disclosure notes that the “same investment advisory and financial planning services” are available at a “lower fee” by investing directly in Vanguard’s advisory services – without the added benefits of Amex Rewards and proprietary advisory services. and planning tools offered by VAI.

The level of services provided to investors, however, depends on the amount of assets in their portfolio.

Captive market

INVEST imposes account minimums that start at $10,000 in “qualifying investments”. This caveat means that money should only be invested in Vanguard funds.

Karyn Baldwin
Karyn Baldwin: “Service is further enhanced by the card’s unique member benefits.

“Ineligible investments include non-Vanguard mutual funds, individual bonds, securities traded on international exchanges, preferred stocks, penny stocks, illiquid stocks and options,” according to the website.

Cardholders will be eligible for an exclusive set of rewards, and if they have an American Express High Yield Savings Account, they will also be eligible to earn an annual cash bonus of $45, according to the site.

“The only people who would get advice by signing up with INVEST for Amex by Vanguard who wouldn’t get it by opting for Vanguard PAS are Amex card owners with $10,000 to $50,000 to invest. But in this case , you only get a 30 minute consultation… What is the value or productivity of a 30 minute consultation?

“And if you have $50,000 to $100,000, you’re probably paying more but getting less,” DeMaso says.

To obtain unlimited consultations, an investor must have a minimum account balance of $100,000 at the end of the day at least once in a 30-day period and no less than $80,000 in consultation at all times. .

“Compare that to Vanguard PAS where you also get ongoing access with an advisor whenever you need it…and the minimum is $50,000,” DeMaso says.

The 50 basis point fee may be reduced depending on “asset allocation, account type and specific holdings”, but in no case will it be less than 45 basis points, say the fine print.

“All costs associated with fund expense ratios still apply. Other fees may apply based on a “brokerage account commission and fee schedule”.

The vaunted Amex points are counted annually and can range from 5,000 points on taxable assets of $50,000 to $100,000; 25,000 points for over $100,000 up to $500,000 and 50,000 points if taxable assets are over $500,000. Funds from traditional or Roth Individual Retirement Accounts are excluded.

Fee Dissection

The precise numbers make it clear that the fee difference is significant, DeMaseo writes in his analysis.

Alec Lucas, Morningstar
Alec Lucas: “This is yet another example of the industry using Vanguard to criticize Vanguard.”

For example, an investor with $100,000 could go straight to Vanguard and sign up for PAS and pay 30 basis points – or $300 per year.

Or, that same investor signs up with INVEST and pays 50 basis points or $500 per year.

“Does the ‘Additional Rewards’ make up the $200 cost difference? No. 5,000 points translates to $50 assuming a 1% conversion rate.

“Add in the $75 cash bonus for $50,000 that you also stashed away in your Amex High Yield Savings Account,” DeMaso says in his report.

“So ‘INVEST for Amex by Vanguard’ costs $500 a year, but you earn $125 in rewards, bringing your ‘rewards-adjusted cost’ to $375. That’s still more than the $300 that you would pay by going directly to Vanguard.”

Alec Lucas, a strategist at Morningstar Research Services, says this whole fee dissection may be going too far.

“This is yet another example of the industry using Vanguard to criticize Vanguard,” he says.

“If you think Vanguard’s 50 basis point charge with Amex is a bad deal, then you should also choose Fidelity Personal Planning advice and enhancement. But with Amex, you get rewards, too.”

The simplicity of bundling services under one account can provide its own value, Lucas says.

“If it wasn’t a better deal to go with Vanguard, then Amex wouldn’t be compensated for the deal,” he explains.

“At the same time, you get the high-yield rewards and savings you don’t get with Vanguard, but you also get the convenience of credit card use.”

Baldwin agrees. “Not only does INVEST offer customers an intuitive digital experience, seamless portfolio management, financial planning tools and guidance from a human advisor, but the service is further augmented by the card’s unique member benefits – including including membership rewards and a high-yield savings account bonus.”

Brand risk

Offering planning to people who don’t have it in a form that energizes them is a positive, Baldwin says.

“It is important to note that advice is not a single value proposition; it should be available in a range of options to best meet investors’ needs and preferences and the desired value for cost.”

Vanguard’s explanations for the discrepancy in fees and service don’t entirely satisfy, says Rhoades.

The fact that two sets of Vanguard brokerage clients end up paying two sets of fees poses risks, he says.

“Does Vanguard realize that the fact that some clients pay significantly higher fees for the same advisory services (even though those clients receive additional benefits from Amex), can likely damage Vanguard’s reputation? Vanguard as a low-cost supplier, and can also diminish the internal culture of the company?”