Vanguard's investor insights help advisors

May 21, 2019

Steve Utkus

Steve Utkus

Vanguard provides advisors with practical insights on a variety of topics, including the economy, markets, and investments strategies. But a growing focus of our research is investor behavior. The Vanguard Center for Investor Research (CIR) is a behavioral sciences unit devoted to understanding investor decision-making. Its work is intended to benefit a wide range of audiences, including advisors. We sat down with Steve Utkus, a principal and director of the center, to discuss the center's mission and some of its latest research.

Steve, can you tell us more about the Center for Investor Research and its goals?

Our formal mission is to improve investor outcomes through a program of behavioral research and experimentation. That's a mouthful, I admit! But to put that in more practical terms, we're trying to understand how investors make consequential financial decisions in their lives and how we and others might help them become better investors. For most investors around the world, the advisor-client relationship is at the heart of these critical financial decisions, and so it's squarely part of our research agenda.

How do you develop your insights about investors?

One rich source of insights comes from our 5 million retail investor households and a similar number of defined contribution (DC) participant households. The experiences of self-directed investors often highlight issues common to all investors. Also, within our U.S. retail business is an advisory service, and we expect over time for that to yield direct insights on the advisory process. And finally, we do strategically use surveys so we can capture investor insights beyond Vanguard's walls.

What are some interesting things you've learned about investor behavior so far?

One of the first issues we tackled was about the risk-taking appetite among millennial investors. Were millennials as a generation scarred by the great financial crisis of 2008–2009? Were they taking too little risk when investing for long-term goals?

Our findings showed that the answer was nuanced—"no, but." We found the typical Vanguard millennial held a 90% equity share in their retail portfolios (including taxable accounts and IRAs), so there was no evidence of widespread risk aversion. However, we also noticed a jump in the proportion of young investors holding low-risk portfolios. This effect was particularly pronounced among young investors opening their first Vanguard account just after the financial crisis. So yes, there is cause for concern—but more around a targeted group than a whole generation.

What did you uncover around risk-taking by gender?

We are often asked about gender differences—are women more cautious than men in their portfolios? Looking at both retail and DC data, we found that this was generally not true, despite some of the folklore to the contrary. Again, there was a nuance here. If you looked at frequent traders, or investors who had a high level of active or individual stock risk, they tended to be disproportionately men. But at Vanguard, these were a small minority of investors, and the typical male and female investor were quite similar.

Why do we share these insights externally?

"We have millions of data points, so why not share insights from this data with the investment community at large?"

There is also a growing emphasis on investor outcomes in the financial system. We believe behavioral insights can help pave the way for improvements in how we interact and serve end investors and how we can enhance outcomes.

Our research is designed to target many groups—regulators, the media, the financial industry, employers, and consultants. And, of course, advisors, given their importance in shaping financial outcomes for so many end investors around the world.

We have millions of data points, and so why not share insights from this data with the investment community at large? One example is our newest paper, Early ETF adoption among self-directed investors. Our goal was to understand how people were using ETFs today. These insights can inform product development and selection, the design of the customer experience, plus marketing and sales strategies—for Vanguard as well as advisors.

Speaking of the ETF adoption paper, can you share some key takeaways from that research?

Let me say at the outset that most advisors make product-selection decisions for their clients, and, as we know, most advisors already use ETFs in client portfolios. So our work on self-directed investors wasn’t directly related to that decision by the advisor. But it was relevant, I think, in thinking a bit about client investor psychology, particularly how the person across the table might perceive the adoption of new financial instruments.

So what did we find? First, older, affluent households tended to augment existing fund portfolios with small positions in ETFs, typically less than 25% of total portfolio assets. This is a way for investors to learn about a new instrument, by "dipping their toes" in the water. Second, there was a group of ETF enthusiasts who had, on average, more than 95% of their portfolios invested in ETFs. They were disproportionately younger, lower-wealth investors. And third, virtually all Vanguard retail investors were using ETFs for equity exposure. Although Vanguard has offered fixed income ETFs for a long time, they were hardly used by self-directed investors.

What does this suggest for advisors?

Certainly if an advisor is leading with ETFs, and working with an older investor accustomed to funds, our results suggest an opportunity here for product education and awareness, given the lack of familiarity and a certain skepticism about innovations. By comparison, among younger clients, that effort is less likely to be needed. And certainly for all investors, we have evidence that equity ETFs may be easier to grasp or have a higher degree of familiarity. So more of an effort is needed to explain and educate around the fixed income ETFs in the portfolio and how they work.

How do you expect Vanguard insights can help advisors over time?

We think there are a number of ways we can help. One is by highlighting a particular theme among investors that could be relevant to advisors and their clients—think of generational risk-taking attitudes as an example. Second is by providing data to benchmark client behavior—in my client interactions, do I see similar or different patterns of behavior versus Vanguard's data? And a third possibility is that advisors might be prompted to generate their own data on their book of business.

We aren't suggesting that Vanguard investors are the benchmark for investor behavior. Instead, they are an interesting and important benchmark, and that's why we are dedicated to publishing this work. Advisors will need to ask themselves: How do my clients look relative to Vanguard's insights? And does any similarity or difference make sense to me (or not)?

What's next for the center?

As we think about the future, there are some pretty exciting questions to tackle. Our growing advisory business will allow us to measure the real-world impact of clients switching from being self-directed to advised. It's a new way to measure the value of advice and advisors. At Vanguard, we also receive more than 1 billion clicks per month on our digital platforms. We just published an introductory study of digital financial attention among self-directed and DC investors, and there's more to come on this front. These are just two of the many important questions that are out there to explore.

Stay tuned for the next article in our series, where we'll delve into the center's paper, Introduction to digital financial attention.


  • All investing is subject to risk, including possible loss of principal.
  • Bond funds are subject to the risk that an issuer will fail to make payments on time and that bond prices will decline because of rising interest rates or negative perceptions of an issuer's ability to make payments.
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