Giant low-cost mutual fund manager Vanguard has agreed to buy Altruist, the fast-growing fintech custodian whose AI tax tool Hazel has roiled the financial advisory and wealth management industries. The acquisition instantly places Vanguard in direct competition with the three leading custodians for RIAs—Schwab Advisor Services, Fidelity Institutional and Pershing Advisor Solutions.
Vanguard didn’t disclose terms of the transaction but The Wall Street Journal reported the acquisition cost $4 billion
In the view of many advisors, it also fills a void created when Schwab acquired TD Ameritade in 2021. TD Ameritrade’s Institutional business was favorite of both small advisors and fintech companies and the Schwab acquisition eliminated the TD platform as an option.
In its news release announcing the definitive agreement, Vanguard noted that it invested in Altruist in 2020, “to bring greater competition to the registered investment advisor custody space” and to make advice more accessible.
After Hazel’s launch in March, shares of companies such as Charles Schwab, LPL Financial and Raymond James Financial took a hit, as the tool was seen as spurring a speedier adoption of artificial intelligence among financial advisors and within the wealth management industry in general. Industry observers suggested that Hazel could hurt the margins of legacy players.
The Altruist acquisition comes at a time when Schwab has raised concerns among advisors as it expanded its direct advice offering to affluent retail clients. Schwab’s has also increased the AUM referral minimum for which it will refer clients to independent advisors using its custody services from $2 million to $5 million.
Just before Schwab announced the TD Ameritrade acquisition in 2019, it debated to abolish all commissions on trades, a move that hit TD’s revenue stream harder than its own. However, in the last year, it has started to impose a series of platform fees on ETFs purchased by advisors for clients.
Few custodians are now positioned better to compete against that than a Vanguard-owned Altruist, which is already charging minimal or no fees for many services and transactions. That’s a major reason why Altruist has started to win over many smaller RIAs who are not eligible to participate in Schwab’s referral network.
Vanguard expects to close later this year, subject to customary closing conditions, including receipt of required regulatory approvals. Vanguard operates a giant 401(k) business and has a large team of its own in-house advisors to service qualified plan and other self-directed clients. Over the years, the asset manager has been one of the largest recruiters of CFP licensees in the nation.
The fund giant also said that Altruist will continue to operate as a stand-alone business, retaining its leadership, brand, advisor focus, and distinct operating model. Advisors familiar with Altruist’s AI technology expect it to use Vanguard’s scale to become a major player in the custodial space within a few years.
“This structure is intended to preserve the speed, entrepreneurial culture, and proximity to advisors that have shaped Altruist’s growth, while giving the company greater resources to invest and innovate,” Vanguard said in a statement. “Vanguard will benefit from the ability to get closer to independent advisors and their clients, as well as from direct access to Altruist’s innovative technology and advisor platform, which will allow the company to better serve its investors.”
In his letter to advisors, clients, his team and partners on the company website, Altruist’s founder and CEO, Jason Wenk, touted the deal as a “strong fit,” echoing many of the potential benefits Vanguard cited in its release.
“Shortly after starting Altruist, I remember one of my earliest investors asked me which company in our industry I would most want as a strategic partner,” Wenk wrote in the letter. “I answered Vanguard without hesitation. At the time, I never imagined that partnership could someday become this.”
For his part, Vanguard CEO Salim Ramji cited the benefit of being an early investor in the AI platform and seeing management work up close.
“What we saw was a mission-aligned organization building AI-enabled technology around the real needs of advisors and the investors they serve,” Ramji said in the release. “As more investors in Vanguard funds choose to work with financial advisors, we see a significant opportunity to build on the strengths of two highly complementary organizations to help advisors serve clients more effectively and help more investors achieve financial security and peace of mind.”
Since the beginning of the year, Altruist had been landing some big clients in the industry, signing on as custodial partner for firms such as Sowell Management, a $6 billion RIA in North Little Rock, Ark., and Gerber Kawasaki Wealth and Investment Management, a Santa Monica-based RIA managing more than $4 billion in client assets.