Vanguard has announced last November, the creation of a new operation entirely focused on developing services to meet the evolving needs of its individual, financial advisor, and institutional clients. The Vanguard Innovation Center, expected to open in the second quarter of 2017, will be located in Philadelphia halfway between the city's robust academic and business communities, and in proximity to the firm's global headquarters.
“With a centralized, and centrally located, Innovation Center, Vanguard seeks to harness emerging technologies and new processes to create value for our clients by improving their investing experience and their investment outcomes” the CEO said.
While still in the early stages of development, Vanguard envisions the Innovation Center as an internal, entrepreneurial team of initially 20-member (up to 100 crew in the medium/long run) dedicated to galvanizing existing innovation efforts and serving as a catalyst for new ideas and solutions. The employees have not been picked yet but are expected to be a mix of Vanguard’s current employees and outside hires.
The Innovation Center will primarily focus on Vanguard’s technological offerings. It will also evaluate mutually beneficial partnership opportunities with other businesses and universities as a way to share experience and expertise, from research to process to technology, across industries.
The creation of a behavioral research center
Already active in this field, Vanguard has given a fresh boost to its research activities in behavioral finance with the creation of a new dedicated center last January. The Center for Investor Research (CIR) initial focus will be the study of individual investors behavior and how they make their decisions through studies that will exploit Vanguard's databases and digital capabilities.
This structure is an evolution of the Vanguard Center for Retirement Research, whose proprietary research analyzes the behavior of participants in defined contribution pension plans since 2001.
"We know that successful investors exhibit smart behavior—they keep costs low, diversify their portfolio and refrain from trading," said Vanguard CEO in a statement. "Investor behavior is at the heart of successful outcomes, and the aim of our new center is to advance the case for better investor outcomes through research and experimental techniques in an increasingly digital world."
The Center's expanded reach encompasses a wide range of potential research topics addressing the behavioral and psychological aspects of investing. Planned research topics include investor expectations for stock market returns, the role of trust in advisor-client relationships, and the transition from work to retirement. In addition, with more than 90% of its 20 million U.S. clients interactions conducted online or via a mobile application, Vanguard’s new Center will explore how investors make choices in the digital realm, informing test-and-learn strategies to guide online investor behavior. A recent example is Vanguard Personal Advisor Services, one of the industry's first hybrid advice offering that combines the virtual engagement, customized financial plan, and computer modeling of robo-advisors with the judgment and behavioral coaching of a human financial advisor. Introduced in May 2015, Personal Advisor Services now manages $52Bn in assets as of December 2016.
Vanguard has already demonstrated the efficacy of behaviourally-oriented interventions, particularly among 401(k) plan participants, with the growing use of automatic enrolment and the design and application of online experiences to increase savings rates. Online savings experimental interventions provide personalised, specific guidance on how much participants should save to maximise their critical earnings years, and a simplified – often “one-click” – path to take action.
Although Vanguard will conduct the research to develop investment strategies for clients, research results will be open to all, the company said.
Author: Eddy Arnaud
