Vanguard shifts self-directed brokerage, non-qualified plan record keeping to 2 firms

Vanguard Group on Wednesday announced several changes to its defined contribution plan services, assigning record-keeping duties of its self-directed brokerage to TD Ameritrade and transferring record-keeping duties of its non-qualified plan business to Newport Group.

The goal for both transactions was improving services to participants, said Martha King, managing director and head of the Vanguard institutional investor group, in an interview. The transactions represent a partnership with each firm. "These are best-in-class solutions from other parties," she said. "We didn't want to restrict ourselves to homegrown or homebuilt" services.

Ms. King said participants will see improved services with no impact on fees. Vanguard's action in both instances was not aimed at increasing participation or reducing costs, she added.

Within Vanguard's institutional DC business, self-directed brokerage options represent a tiny portion of participants — less than 1% out of 4.6 million. Vanguard participants had invested $2.8 billion in options offered by the self-directed brokerage as of March 31.

Vanguard began offering a self-directed brokerage account in 2002 and has made periodic adjustments and enhancements. However, TD Ameritrade presented "an opportunity to improve," Ms. King said.

Existing self-directed brokerage clients under Vanguard's record-keeping platform will be transferred to the TD Ameritrade platform beginning in June — a process that will take until early 2019 to complete.

Participants will continue to have access to Vanguard's commission-free mutual funds and exchange-traded funds, plus "a broad range of other securities, new robust trading tools and third-party research," said Laura Edling, a Vanguard spokeswoman.

"For participants working with financial advisers, this new service will give advisers access to TD Ameritrade institutional account management and trading platform for independent (register investment advisers) — called Veo," Ms. Edling added. "Using this service, advisers who work with Vanguard 401(k) plan participants can view and manage client accounts individually or collectively. Participants will need to verify their financial advisers' access as part of the enrollment process."

The transition for the non-qualified plan record-keeping business will start in early 2019 affecting 520 Vanguard clients with 45,000 participants and $3.8 billion in assets.

Newport Group offers "best-in-class capabilities," said Ms. King, adding that the firm offers more choices to Vanguard clients. "We could have invested in our model to get where they are now."

Vanguard will continue to provide "sponsor relationship management, participant education strategy, call center support, advice, and service and fee agreements," Ms. Edling explained. The Newport Group will offer "state-of-the-art systems and technology, flexible administration and streamlined processing," she added.

Vanguard also reported that it has been conducting a pilot project to develop a website for DC plan consultants with the goal of creating "a better and more efficient experience" for consultants, Ms. King said. "We heard the voices of consultant clients" requesting more services to help participants improve their retirement readiness.

Five firms are participating in the pilot project, and more will be added this year, Ms. Edling said. The full rollout to all consultants is scheduled for next year.