Vanguard opens four model portfolios to outside fund choices

Vanguard is letting RIAs remove its funds from four of its model portfolios and replace them with outside managers, RIABiz reports. Orion, Black Diamond and Vestmark will handle the overlay administration — the rebalancing and trading that keeps an account aligned with the chosen model.

The change breaks with a long-standing condition. Until now, Vanguard took over management of RIA portfolios only if advisers accepted Vanguard's own funds inside the model. An RIA who liked the allocation still had to defend every fund in it, even when a client might be better served by a strategy from another shop. In the RIA-driven custom model portfolio market, that rigidity was costing Vanguard ground to BlackRock and other model makers, according to RIABiz.

The reset comes from the CEO. Salim Ramji, Vanguard's first outside CEO and a BlackRock alum, took the model portfolio unit as a direct report two months before the rollout, RIABiz reports. The structural change is small, the message is not: Ramji has put the model business under his own command.

RIABiz frames the move as a deliberate trade. Vanguard is sacrificing revenue and control, adding costs, and tiptoeing around its own Bogle tenets to preserve what the firm calls the 'Vanguard effect' — the low-cost advantage that has defined its brand. If an advisor has to accept a Vanguard fund to use a Vanguard model, the model stops carrying that advantage. Opening the door to outside managers keeps the model itself competitive.

Vanguard's own history makes the move awkward. The firm's Bogle tenets have long pointed toward low-cost index funds and against paying for active management that doesn't earn its keep. Now Vanguard is letting RIAs substitute a fund from another manager into one of its models. The contradiction is easier to accept when the alternative is losing the account entirely.

The rollout is deliberately narrow. Four of more than 20 models are open to outside funds, from a select list of managers. The reporting does not name the managers. The rest of the lineup still runs under the old rule, which lets Vanguard watch results before deciding whether to open the whole book.

The economics cut against Vanguard in the short run. The firm is sacrificing fund revenue when dollars move to outside managers and taking on costs from the overlay platforms. The bet is that a model which lets RIAs make their own calls will keep more RIA assets in Vanguard's orbit than a model customers increasingly bypass. RIABiz frames that as a risk worth taking compared with standing still.

Scott MacKillop, founder and former CEO of First Ascent Asset Management, the TAMP now owned by GeoWealth, read the change as a symptom of a broad shift. 'Vanguard is having to adapt to some of the new realities of how business is being done these days. This is a period of rapid change and the positioning in the new order is now being established,' he told RIABiz. 'Those who are slow to move or are stuck in the past will pay dearly.'

RIABiz puts the change in a straight line from competitive pressure: Vanguard is testing what BlackRock and other model portfolio makers have already learned, which is that advisors want the right to second-guess suggested models. The freedom extends to fund choices and some allocations, not just a swap at the margin. The model is no longer a package; it is a starting point.

Orion, Black Diamond and Vestmark are the operational backbone of the concession. Overlay administration means keeping a client's account at the model's target weights — tracking holdings, executing trades when the model changes, and handling the accounting of outside funds. The RIABiz headline describes the three as favorite RIA partners getting a cut of the action. The commercial logic is plain: every swap and rebalance that runs through their systems gives them a stake in the growth of Vanguard's open models.

RIABiz's commentary ties the concession to the broader arc of Vanguard's relationship with RIAs. The two sides have long shared client-first language, but Vanguard's business model had not caught up to the market power and value-add that RIAs bring in 2026. The model portfolio policy, in that reading, is not a product tweak. It is an acknowledgment that the advisor, not the fund company, controls the client.

The managers on the select list will define how far the concession goes. If they are low-cost index funds, Vanguard preserves its price message inside the models. If they are active managers, Vanguard is conceding that an advisor's edge can come from outside its own lineup. The reporting does not say what the list contains, so the size of the opening remains unknown.

What happens next depends on the rest of the lineup. A successful four-model test makes it hard to keep the other models closed. A lukewarm response would leave the experiment as a gesture. For now, a firm that once forced its funds on RIA clients permits swaps in a small corner of its models. The direction matters more than the size.