RIABiz: Vanguard Hits Back at Fidelity’s Loss-Leader Strategy…

Since occupying Vanguard’s Chief Executive seat in January of this year, Tim Buckley has been quick to assert his leadership and begin building a legacy. Most recently they’ve announced partnerships that will expand their reach into China, a venture into private equity, and the shuttering of their annuity business. 

Writing in RIABiz about all of this news, journalist Oisin Breen notes that the annuity announcement “comes at a surprising time, given the recent fee-only Renaissance for the retirement products.”

RetireOne CEO David Stone sees it as a chance for Vanguard to get out of a business that may have made more sense at one time: “Taking on the administration of the products. That was a model that might have looked good 20 years ago but simply does not work well anymore.” 

It’s a tough business. In spite of recent low-cost innovations, annuities face strong headwinds due to regulation and perceptions of high cost and lack of transparency. Indeed, some of the credit for the innovation and great strides goes to Vanguard for working with Transamerica to build such a valuable, client-friendly product.

Even accounting for the annuity’s broad appeal, Michael Kitces wonders if Vanguard underestimated the administrative burden of trying to bring it all in house.  Regardless, experts agree that Vanguard’s end game may be to support the fee war they’re waging with Fidelity. Loss leaders can be costly.

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