Vanguard Pays $4 Billion for Altruist, Pushing Into Schwab and Fidelity Territory

Vanguard announced Wednesday, August 26, that it has agreed to acquire Altruist, an AI-driven wealth management and custody platform for independent financial advisors, in a deal worth roughly $4 billion, according to Vanguard's own announcement and reporting from The Wall Street Journal cited by LiveMint. The deal is expected to close later this year.

Altruist was valued at $1.9 billion when it raised $152 million in funding last year, according to The Wealth Advisor. Vanguard is paying about double that valuation for a company founded in 2018. This suggests Vanguard CEO Salim Ramji is determined to own the infrastructure, not just supply the funds that sit on top of it.

Charles Schwab stock retreated Wednesday on the news, according to Yahoo Finance / Investor's Business Daily. Schwab and Fidelity Investments currently dominate custody services for registered investment advisors, according to Morningstar. Vanguard just bought its way into direct competition with both.

Why Vanguard wants this

Vanguard manages about $12 trillion in assets as of March 31, according to LiveMint, making it the world's second-largest asset manager behind BlackRock. But managing money isn't the same as owning the plumbing advisors use to run their practices, day to day, client to client.

Altruist handles the unglamorous stuff that keeps an advisory business running: account opening, portfolio management, billing, reporting, and custody, according to the company's own announcement. It became a self-clearing broker-dealer and custodian, according to The Wealth Advisor, which combined functions advisors used to have to piece together from multiple vendors. It attracted thousands of advisors and more than $600 million in venture capital along the way, with Vanguard itself as an early investor starting in 2020.

"Many investors in Vanguard funds choose to work with financial advisors, and far more people could benefit from access to financial advice than the industry can serve today," Ramji said in Vanguard's announcement. "Technology can help close that gap by enabling advisors to serve more people and serve them better, while preserving the human judgment and relationships at the center of good financial advice."

Altruist founder and CEO Jason Wenk framed it as validation of an eight-year fight against bigger incumbents. "Altruist was built on the simple belief that when independent advisors have better technology and lower prices, they can do their best work and bring high-quality advice to more people," Wenk said in the joint announcement. "Vanguard shares our conviction in that mission, and their trusted investment expertise and resources will enable us to pursue it with greater speed and reach."

Altruist will keep operating as a standalone business under its existing leadership and brand after the deal closes, according to both the Vanguard announcement and The Wealth Advisor.

Not Vanguard's first swing at this

This isn't Vanguard's first attempt to get into advisor custody. Morningstar notes Vanguard tried this back in the mid-2000s and it didn't work out, and the firm hadn't tried again until now. It also picked up wealth management tech provider Just Invest in 2021, according to LiveMint, and this month launched customizable model portfolios for advisors alongside new public-private investment products with Wellington and Blackstone, per The Wealth Advisor.

Altruist has been on its own expansion tear too. It added personalized indexing in March and rolled out alternatives, margin, and options access in June, embedding private-market products from Blackstone, J.P. Morgan Asset Management, KKR, and Pantheon directly into its platform, according to The Wealth Advisor.

The service problem behind the deal

Vanguard has been criticized for lackluster client service in recent years, and this acquisition is part of a broader push to fix that and build out capabilities across every client segment it serves, particularly the advisor channel, which it calls its largest segment, according to Morningstar.

That criticism isn't hypothetical. Breitbart reported that during a market sell-off, Charles Schwab and Fidelity both suffered significant outages, based on Reuters reporting, with Downdetector logging more than 3,400 outage reports for Schwab, over 3,500 for Fidelity, and nearly 2,500 for Vanguard itself. Robinhood also had to pause its overnight trading service that day. None of the three brokerages gave Reuters a detailed explanation for the cause, though extreme trading volume during volatile sessions is a known stress point for these platforms. Vanguard buying more resilient, AI-forward infrastructure addresses the kind of embarrassment these outages represent.

What's unresolved

The deal still has to close, expected later this year, and terms around exactly how Altruist's custody relationships with advisors who currently compete with Vanguard-affiliated products will be handled haven't been detailed publicly. Also unanswered: whether independent advisors who chose Altruist specifically because it wasn't owned by a giant like Schwab or Fidelity will stick around now that it's owned by an even bigger giant. Wenk says nothing changes. The next year of advisor retention numbers will say whether that holds.