State Street’s SPDR S&P 500 ETF Trust began its remarkable three-decades long run as the world’s largest exchange-traded fund back in 1993 when The X Files topped Nielsen ratings and MTV’s The Real World was “all that … and a bag of chips.” 

Fast forward to today and there’s a new king. Vanguard’s S&P 500 ETF (VOO) finally cemented itself as the undisputed ETF heavyweight topping $632 billion in assets this week, thanks to a record-shattering $116 billion pulled in last year, according to Bloomberg. Now, the Malvern, Pennsylvania company is eyeing BlackRock’s crown as the world’s largest asset manager, and could potentially close the $157 billion gap this year, said Aniket Ullal, head of ETF Research at CFRA. It’s proof that Vanguard’s commitment to low-cost investing is becoming just as popular as Beanie Babies were in the ‘90s. 

“Vanguard continues to dominate mindshare,” Ullal told The Advisor Upside. “VOO’s success isn’t just driven by fees, but also by strong brand awareness.”

A-Van Guard

While SPY charges a bargain-basement price of just 0.095% per year to track the S&P 500, VOO’s fee is just 0.03%. Vanguard even doubled down on cost-cutting this month with the largest fee reductions in its 50-year history:

• Equity ETFs now charge roughly five basis points, while fixed income products clock in at just four basis points.
• Almost nine in 10 Vanguard funds are in the lowest-cost decile of their Morningstar categories.

Still, State Street offers a similar S&P 500 fund SPLG that’s priced at 0.02%, less than VOO. Once fees get that low, other factors like brand awareness and distribution become equally important, Ullal said. It’s a strategy Vanguard is taking into new segments. The company launched two active muni-bond ETFs in November with more potentially on the way. 

“This is a major milestone for Vanguard and the ETF industry,” said Todd Rosenbluth, head of research at VettaFi. 

I, Spy. Hats off to SPY for an unforgettable run. It’s not only the oldest ETF still in existence, but will remain the default fund for the vast majority of institutional investors with its low bid-ask spreads and high trading volumes. With much longer time horizons, clients are simply favoring lower costs. “Much like Babe Ruth, whose records were broken, SPY will remain in the minds of many as a legend,” Rosenbluth said. 

Just like Mulder and Scully.

Joe Duran is betting his new venture can turn middling advisory firms into decabillion-dollar Goliaths. 

The former Goldman Sachs executive and United Capital CEO launched the wealth management investment firm Rise Growth Partners last year, and announced a minority investment this week in Grimes & Company, a $5.7 billion fee-only RIA specializing in investment management. Grimes creates actively managed custom portfolios that help ultra-high-net-worth clients diversify highly concentrated portfolios. While most advisors are dumping assets into low-cost, plain-vanilla funds and leaning into planning, active management is an area of the market that is simply being ignored, Duran said.

“It’s the story that everybody tells, and our industry tends to be followed by sheep,” he said. “Planning is actually the commodity, and the investment piece can be differentiated.”

Rise, which also acquired a minority stake in the $10 billion, insurance-based Bleakly Financial in August, is backed by Charlesbank Capital Partners and said it will eventually invest upwards of $250 million in a handful of companies this year. Duran is already in talks with firms that cater to Gen X and Gen Y clients, which he sees as a growing, and lucrative, segment of the market, he told Advisor Upside. “We’re not just people writing a check,” he said.

We chatted with Duran about his latest investment in Grimes, the reason his firm is backing active managers and insurance-based providers, and where he sees the most opportunity for financial advisors. 

What’s the biggest competitive threat to the industry right now?

These large national firms that have been built up are basically just modern-day wirehouses. They are just buying and renting advisors. They’re bringing them onto their platform, paying bigger checks, and doing exactly what the wirehouses did for decades. It’s not additive to the end client; it’s not additive to the end advisor.

You’ve seen some of these firms start that way, but now because of all the PE money, it’s just: buy, buy, buy. There’s no migration to put them under the same name, or worry if they deliver the same product. The large RIAs — most of which are just an amalgamation of advisors doing their own thing on a shared platform — look no different than Merrill Lynch or Morgan Stanley. They’re not doing anything in a way that would suggest their brand counts for anything but having big advisors. 

The reality is, it’s a great opportunity for everyone else to help create very specific, tailored, and integrated platforms, which most of these large national firms are not.

Active management is having a bit of a Renaissance moment. Why is that?

Active is very out of fashion right now because with most of the large, national firms, you have to model everything and it’s all ETFs. The pendulum is actually swinging in the other direction though, especially for higher-net-worth clients. It’s still planning centric, but you lead with a different investment approach. They want a totally personalized portfolio. And a lot of people today are choosing to ignore that. 

How are insurance-based advisors different?

Everybody loves the wirehouse advisor, but nobody loves the insurance-based advisor. I love the insurance advisor because they’re great at relationships. They come from a background where they know how to sell, and they’re really ambitious growers. 

Many of them do a very small amount of insurance business and are predominantly RIAs, but they don’t have any natural home in the RIA universe. They’re exceptional advisers, with deep relationships, who grow at double digits a year, and that’s very exciting.

What’s the next big opportunity?

One of the next things that we’re looking at is our Gen X and Gen Y strategy. So, we’re looking at other segments that we think are interesting. Frankly, a lot of people are piling into that exact same marketplace. There are just segments of the industry where there’s big opportunities … where the water is just bluer.

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Like many folks during the pandemic, CPA Ryan Bannister turned to video games for some much-needed human interaction, specifically the live-streaming platform Twitch. What began as a way to talk to others while playing Dark Souls and The Legend of Zelda quickly became “the financial advice hour,” where he informally helped fellow gamers with their finances. In 2022, he launched 1Up Financial Advisors, an RIA that largely targets internet content creators.

“The Mr. Beasts and big streamers of the world are already being taken care of, but I’ve been able to find a sweet spot,” said Bannister, who mostly caters to small- to mid-size creators with six-figure salaries.

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