Vanguard and Robinhood may seem worlds apart at first glance. Vanguard, a long-established asset manager, has built its reputation on low-cost index funds. Robinhood, by contrast, is the innovative brokerage app that revolutionized zero-commission trading and surged in popularity during the meme-stock frenzy. Yet, both share a common trait as low-cost disruptors in their respective domains, and both are now expanding into wealth management.
Robinhood has announced its acquisition of TradePMR, a custodian for independent financial advisors, alongside plans to launch an AI-driven financial advice service next year. Vanguard has also made significant moves, creating a new advice and wealth management division under the leadership of Joanna Rotenberg, a former Fidelity executive. These strategies signal each company's ambitions in the lucrative and growing wealth management space.
For Robinhood, this marks an entry into a new business sector, while Vanguard is doubling down on an area it already occupies. Both companies are eyeing wealth management for its promising financial prospects. The sector not only generates consistent returns but also benefits from demographic trends, such as aging populations and intergenerational wealth transfers. Additionally, wealth management tends to foster long-term client relationships, which translate into stable revenue streams.
“The addressable market is enormous, around $30 trillion in the U.S.,” says Devin Ryan, an analyst at Citizens JMP. “Unlike other areas of financial services that have been commoditized and face fee pressures, wealth management remains a high-value, noncommoditized sector. It’s a way to secure a larger share of the customer’s financial wallet and build enduring relationships as clients’ financial needs evolve.”
Wall Street has long been enamored with the wealth management industry, and for good reason. Firms like Morgan Stanley have demonstrated its potential as a foundation for growth and resilience. In the aftermath of the financial crisis, CEO James Gorman transformed Morgan Stanley by prioritizing wealth management, acquiring Smith Barney, and later adding E*Trade in 2020. The results speak for themselves: today, Morgan Stanley is one of the largest wealth managers in the U.S., overseeing roughly $6 trillion in assets. Its wealth division alone contributed nearly half of its $15 billion revenue in the most recent quarter.
Banks such as JPMorgan Chase and Bank of America have also placed wealth management at the center of their strategies. Meanwhile, private equity firms have entered the space, acquiring and consolidating registered investment advisors (RIAs) into larger entities. Observers believe it’s only a matter of time before one of these entities goes public.
The appeal of wealth management has grown in part because other financial services face significant fee pressures. Financial advisors typically charge a 1% fee based on assets under management, a figure that has remained steady despite predictions of decline. Meanwhile, fees on investment funds have plummeted, thanks largely to pressure from Vanguard, and trading commissions have all but disappeared.
“Charles Schwab initiated the first wave of commission reductions in the 1970s and 1980s, and Robinhood essentially eliminated them,” notes David Goldstone, research manager at Condor Capital Wealth Management. “Now, firms are seeking ways to add value and increase revenue by focusing on wealth management.”
Switching to a financial advisor, however, involves a level of commitment and trust that differs from simply choosing a trading platform. “People don’t often change their financial advisor,” Goldstone says. “It’s a deeply personal relationship. Moving from Schwab to Robinhood for trading is relatively simple. Changing advisors is a much bigger leap.”
The demographic trends underpinning wealth management’s growth are significant. As millions of baby boomers approach retirement, they have increasingly sought professional advice for managing their assets. Now, firms are gearing up for the next major shift: the multi-trillion-dollar wealth transfer from baby boomers to their heirs.
Robinhood is keenly aware of these trends. Seventy percent of its 25 million users are millennials or Gen Z, groups poised for decades of wealth accumulation and eventual inheritance. Though the average account size on Robinhood is just $6,500, the platform is positioning itself to serve this younger demographic as their financial needs evolve.
“Robinhood could grow the wealth management pie just as it did with trading by bringing in first-time investors,” Ryan observes. “They have the potential to do something similar in financial advice.”
To this end, Robinhood plans to create a referral program linking its customers with financial advisors who use TradePMR’s custodial services. Simultaneously, the company is developing an AI-powered financial advice platform aimed at investors with smaller portfolios, providing a low-cost entry point to professional guidance.
Vanguard, on the other hand, is building on its existing capabilities. The company recently lowered the minimum investment for its digital robo-advisor from $3,000 to just $100, making it more accessible to a broader audience. Vanguard’s hybrid robo-advisor, Vanguard Personal Advisor, is also one of the largest in the industry. This service combines automated advice with access to human financial planners and charges a modest fee of 0.3%.
According to Goldstone, both Vanguard and Robinhood have opportunities to convert self-directed investors into digital advice clients. “Many DIY investors aren’t managing their portfolios on their own because they prefer it,” he says. “They often avoid traditional advice due to high fees or because they don’t meet the asset minimums.”
However, breaking into wealth management is no easy feat. One of the sector’s strengths—its “sticky” clients—also makes growth challenging. Clients who rarely leave their advisors are harder to win over, making organic growth difficult. Acquiring advisors or their client bases through mergers and acquisitions often becomes the most viable growth strategy.
Another challenge lies in serving diverse client segments. While targeting high-net-worth individuals allows firms to scale up by adding specialized expertise, reaching smaller investors can be more complex. “Playing upmarket is easier if you have the resources to add expertise,” says Alois Pirker, founder of Pirker Partners, a consulting firm. “Going downmarket, however, poses more challenges.”
Despite these obstacles, Robinhood and Vanguard possess distinct advantages. Both brands are well-known and boast large existing customer bases. Robinhood’s user-friendly app appeals to a tech-savvy audience, while Vanguard has a legacy of cost disruption and customer trust. Both companies are leveraging these strengths to expand their wealth management footholds.
The evolution of financial advisors has also shaped the industry’s trajectory. Advisors once concentrated on stock picking and trade execution. Today, they provide holistic services, including comprehensive financial planning and customized estate and trust strategies for affluent clients.
Robinhood and Vanguard are setting their sights on redefining the wealth management landscape. Whether they succeed in replicating their disruptive histories remains to be seen, but their commitment to innovation and accessibility could reshape how Americans manage their wealth for generations to come.
