Vanguard, Altruist Combo “Raises Stakes” for Schwab and Fidelity
Vanguard and Altruist shifted the custodial playing field overnight with the global asset managers $4.6 billion outlay for the scrappy, tech-focused custody platform, according to analysts and Altruist advisors evaluating the deal.
The legacy custodians, Schwab and Fidelity Investments, still have a commanding lead over Altruist in the marketplace, but Vanguard’s backing, along with its own advice business, makes it a more formidable competitor, according to both analysts and advisors familiar with Altruist.
“For Schwab and Fidelity, this raises the stakes without necessarily shifting the landscape overnight,” Will Trout, director of securities and investments at Datos Insights. “Both have absorbed real share loss to Altruist already, and this deal removes the argument that Altruist is a smaller, less permanent option.”
On Wednesday, Vanguard announced it had agreed to purchase Altruist for an undisclosed sum, after being a minority investor since 2020 and holding a board seat previously held by former Vanguard Chairman and CEO Bill McNabb. Two sources familiar with the deal said it was an all-cash offer for $4.6 billion. Both Vanguard and Altruist have declined to discuss details of the transaction that they expect to close later this year.
Trout said the deal gives Altruist “something it couldn’t build fast enough on its own: balance sheet depth and institutional credibility.”
RIAs wondering about Altruist’s longevity will no longer have that question, he said, which in turn “should help Altruist close deals with larger RIAs and institutional backers who liked the technology but wanted more assurance behind it before moving significant assets.”
A Schwab spokesperson wrote via email that, as the largest custodian for advisors, “Schwab is focused on creating long-term value and access for advisors and retail investors. Few firms can bring together custody, trading, banking, lending, wealth management, workplace and retail investing at Schwab’s scale and value – with the best client service, year after year. As we look to the future, we remain focused on investing in innovation, capabilities, and service to help advisors grow and investors succeed.”
A spokesperson from Fidelity wrote that the firm does not comment on competitors.
CEO Jason Wenk’s move is yet another shock to the financial sector this year from the entrepreneur. In February, Altruist’s launch of an AI-driven tax tool called Hazel prompted investors to pull out of financial stocks such as Schwab and Fidelity, fearing that Wenk was undercutting their business models.
Andrew Besheer, managing principal of Besheer & Associates, said it will be interesting to see how Vanguard handles offerings like Hazel, which is also available to RIAs not on Altruist’s platform. Besheer agreed that the move takes away some of Altruist’s “scrappy upstart” culture that Wenk has long championed. However, he believes the “Vanguard halo” will be enough to counter that loss.
He also said the move makes sense for Vanguard as it has been evolving into more of a “full-service wealth management advisor organization,” and speculated that Vanguard could eventually shift to Altruist for custody and clearance settlement.
Where the move gets confusing, Besheer said, is how Vanguard’s own client base for fund distribution, including Schwab and Fidelity, will feel about the move.
“Vanguard has now said that we are no longer a nice little fund company that has do-it-yourself investments that are all really technology and no advisors,” Besheer said. “Now, Vanguard is saying we are an RIA custodian, and we’re a technology platform provider, and we’re a lot of things—this clearly sets them up to compete with Fidelity for sure, and arguably it sets them up competitively with Schwab.”
Besheer raised the question of how Fidelity, with a large business in 401(k) and retirement assets primed for Vanguard funds, and Schwab might respond by shifting away from Vanguard funds.
Vanguard did not respond to a request for comment on that thesis.
“Vanguard is committed to improving financial outcomes for our 50 million investor-owners, including the many millions who choose to work with RIAs,” a Vanguard spokesperson wrote via email. “With Altruist, we can meaningfully deliver on our shared goal of making investing and advice more affordable and accessible.”
Doug Fritz, co-founder and executive chairman of F2 Strategy, a wealthtech consulting firm, said this deal changes the game in terms of what independence means, with an asset management firm now owning distribution to advisors.
“It changes the game in terms of how people build portfolios and the concept of independence and non-biased advice. All these things are going to get changed, not just because Altruist got acquired, because now it’s game on for other asset management firms to follow the same path. And I think it’ll happen pretty fast.”
The walls are getting knocked down between asset management and wealth, he added.
“In that middle space, like direct account opening, really complicated, complex products, high levels of customization, far more customized research, intel insights, the asset managers have all that capability and technology and firepower, and were never able to really distribute it well into advisors,” he said. “If you own the custodian, if you own the distribution, you own the advisor desktop; it makes it a lot easier to distribute that intel, that value, that IP.”
In addition, Fritz says this gives Vanguard a modern technology platform that’s far ahead of those of the other large custodians.
“Vanguard is a custodian, and now Vanguard’s custodial chassis is 20 years ahead of Fidelity and Schwab,” he said. “Account opening in seconds, not days, real-time data, fractional shares, all of the same trappings of the introducing broker/dealer structures of cash sweep and stuff like that, it’s all there. It’s legit, and it’s scalable as hell.”
“When I saw the news, I jumped out of my chair,” said Josh Brown, an Altruist investor and CEO of Ritholtz Wealth Management.
Brown said he believes Wenk and the team are gaining resources and backing that will strengthen the platform.
“The directive from Salim [Ramji, Vanguard CEO] is to go build a platform that is beyond parity with the incumbents,” Brown said. “They want to take what Altruist has built and supercharge it, which for me as a client is exciting.”
Brown’s Ritholtz is a multi-custodial RIA, with the majority of its client assets held at legacy players Schwab and Fidelity. But Brown was a believer in Wenk’s vision of a custodian that could build and evolve from scratch, and said his own firm’s use of Altruist with clients has “exceeded expectations.”
He also said Ritholtz has had good experience with the legacy custodians and believes the Vanguard deal will push both Schwab and Fidelity to improve.
“My instinct is to say they are going to be investing a lot more in their advising facing technology, and that’s a great development for their customers,” he said. “We want to see innovation, and we want to see more digital workflows happening at all of our custodians. If you’re a customer of all three, which I think increasingly we’ll see many firms doing, you want to see a horse race.”
Jason Barber, founder and CEO of Holistic Planning, a Texas-based RIA, and of Uptick Partners, a breakaway support platform that recently added Altruist as a preferred custodian, was similarly shocked to hear the news. Barber raised several questions on the tie-up, including whether advisors would have to repaper as a result. A spokesperson for Altruist said there would not be any repapering. Barber also questioned whether the Vanguard acquisition would slow the pace of innovation at Altruist and whether it would eventually lead to layoffs.
“You would like to think that we now have more financial resources to double down on all of this and to make it even better and make it more innovative,” he said. “That’s what I’m hoping obviously happens, but Vanguard is not exactly known for being the technology gurus.”
Altruist said its standalone operating structure will allow it to preserve the speed and entrepreneurial culture, and continue to innovate.
Vanguard’s brand recognition is certainly a win for advisors, Barber added. But another big elephant in the room is whether Vanguard will start to compete with advisors. One of Altruist’s big selling points, he said, was that the firm wasn’t competing with their advisors.
“Is it possible that Vanguard is going to take all of this data that they’re now going to own and solicit your clients with it?” he said. “They absolutely are going to have a financial incentive to do that. Now, whether or not they do is just, they might not until five years from now.”
Trey Prescott, director of business development at Advisory Services Network, congratulated Altruist but also expressed caution in an emailed comment about Altruist losing its independence.
“After all, independent, entrepreneurial advisors tend to gravitate to independent, entrepreneurial partners,” he wrote. “It is tough to argue with scale, but all eyes need to be on the end client. Will the advisors impacted by this news be able to serve them better while maintaining true independence?”
Trout agreed that there will be a “real risk” of Altruist losing independence, which might erode RIA interest.
“RIAs will watch closely for whether Altruist stays neutral or starts favoring Vanguard’s own products and services,” Trout said. “Advisors chose Altruist partly because it wasn’t owned by an asset manager with its own axe to grind. If Vanguard funds get preferential placement or if Altruist’s roadmap starts bending toward Vanguard’s distribution goals rather than advisor needs, some RIAs will notice, and some will leave.”
In a LinkedIn post, Wenk stressed that he and the Altruist team will continue to run the firm independently and with advisors as the core focus.
“A principle behind everything we do at Altruist has been: if something isn’t good for the end client, we shouldn’t do it,” Wenk wrote. “So the question was not simply who could help Altruist grow, but who I would trust to protect that belief and carry it forward. As Salim Ramji and I talked about Altruist’s future, the answer became obvious. Vanguard’s investor-owned structure and support as an early Altruist investor for more than six years made it the right fit.”
