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Hargreaves Lansdown bags Vanguard funds

Fee raising broker Hargreaves Lansdown is offering Vanguard index funds through its online trading platform for the first time.

Vanguard offers the UK’s cheapest index funds, and if the testimony of Monevator readers is anything to go by then Hargreaves Lansdown spared itself a lot of ranting phone calls over its new platform fees by suggesting that the cost hikes could enable it to sell Vanguard.

And that’s what’s transpired. Here’s the skinny:

  • All the Vanguard trackers listed by Hargreaves Lansdown so far incur a platform fee of £2 a month per fund. Bad news for investors with small holdings, who suffer disproportionately from flat-rate fees.
  • Crucially though, the broker is offering Vanguard’s LifeStrategy funds – the passive investor’s equivalent of a matryoshka Russian doll, enabling you to nest a diversified portfolio inside a single fund for only £2 a month in platform fees.
  • You’ll need to be able to invest a minimum of £1,000 per fund, or £50 a month (per fund) with the broker’s regular investment scheme.
  • The full Vanguard range isn’t available through Hargreaves Lansdown yet. The Irish-domiciled funds are missing, which includes a couple of tasty treats like emerging markets and global small cap. The word is that they will follow in due course.

Check out Hargreaves Lansdown‘s Vanguard range (scroll down after clicking) and compare that with Vanguard UK’s complete line-up to see if any of your faves are missing.

Those platform fees still hurt

The arrival of Vanguard’s dirt cheap trackers will certainly draw some of the sting of the new platform fees for investors wedded to Hargreaves Lansdown’s platform. The broker’s trump card is that it doesn’t charge dealing fees on Vanguard funds.

But if you’re a new investor tempted by Vanguard funds – or you’re happy to consider a switcheroo away from Hargreaves Lansdown – then take the time to explore your alternatives:

  • Bestinvest: High-ish flat-rate management charge, no dealing fees.
  • Sippdeal: Low-ish flat-rate management charge, dealing fees.
  • Alliance Trust: Lowest flat-rate management charge (except SIPP), dealing fees.

Which is the cheapest route to Vanguard? It depends on how many funds you need, how often you trade and what kind of account you want. I’ll run through some of the scenarios in next week’s post.

Stop the press! In another development, Hargreaves Lansdown has just bagged an exclusive on a FTSE All-Share index fund that’s even cheaper than Vanguard’s.

The ‘SWIP FTSE All Share Index (SWIP Foundation Growth) B class fund’ is from Scottish Widows, has a name longer than a python, and sports a TER of 0.11%. That compares to 0.15% for Vanguard’s equivalent and 0.27% for HSBC’s.

The platform fee is £2 per month so again, it’s not so cheap for small investors in comparison to offerings from rival platforms.

Curiously, there comes attached a mysterious message from Hargreaves Lansdown that implies this offer is available for a limited time only:

If you would like to invest in this fund at the fixed offer price we need to receive your order by close of business on 12 December 2011 (midnight for orders placed online).

Exclusives and limited offers? The term fund supermarket is being taken more literally than ever.

Take it steady,

The Accumulator

 

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{ 24 comments… add one }
  • 1 Lemondy December 6, 2011, 12:01 pm

    This is fantastic news, thanks for posting. Come on Vanguard and HSBC, can you do better than 0.11%?

    HL have a nice page showing all the tracker funds they carry, I hadn’t seen this before:

    http://www.hl.co.uk/funds/index-tracker-funds/view-index-tracker-funds

  • 2 William December 6, 2011, 12:17 pm

    As I had a number of HSBC tracker funds I was going to be hit hard with HL’s Platform fees, however, I have decided to transfer my entire holding(s) into the Vanguard Life Strategy 60% Equity Accumulation. So HL are again best bet as my annual cost in Platform fee will be £24.00. Have done the same for the wife. For my daughter I have gone for the Life Strategy 80% Equity Accumulation. Annual Platform fees for whole family now £72.00. Still a low cost pension proposition. As these funds cover full spectrum of passive equities and bonds/gilts I can spent even more time reading Monevator!

  • 3 Steve December 6, 2011, 12:39 pm

    Hi William

    Just about to do the same for my Wife as she has what I would call a static pension at 46k across HSBC TRACKERS and L&G Gilts. What’s the best way to do the transfer without incuring any hidden costs .

  • 4 Ben December 6, 2011, 12:42 pm

    @william

    me too – makes my life simpler and its still the cheapest option available…

    as Hannibal rightly said, ‘i love it when a plan comes together’

  • 5 Len December 6, 2011, 1:29 pm

    HL make this fixed price offer with all funds they launch. All it means is
    that after the specified date you will pay the price then ruling.

  • 6 William December 6, 2011, 1:49 pm

    Steve,

    Within HL SIPP – place deal icon – choose switch fund – sell whole holding – then choose new fund – confirm with trading password – will then appear in pending deals as out/in. I put my instruction in last night around midnight – showing as trading as I type this. My portfolio size is similar to that of your wife and my wifes holding is just under £20k. Only thing to do now is find some spare cash to put in fund as either lump sum or regular savings.

  • 7 Jonny December 6, 2011, 2:26 pm

    How are the £24 pa fees collected by HL?

    I’ve been put off opening a SIPP previously due to what appeared to be high charges, and the inability to diversify (relatively low amount to invest each month can’t be split that far in £50 chunks for different funds). This Vanguard LifeStrategy offering from HL really excites me in that I can get a SIPP for just £24 per year. I’m sad I realise getting excited over a fund!

    If it proves to be the wrong decision I can move it in the future (albeit with some penalty), but more importantly I’ll finally be contributing to a pension (rather than constantly evaluating and never making a decision) [See GRS’s “The Perfect is the Enemy of the Good” – http://www.getrichslowly.org/blog/2009/11/23/the-perfect-is-the-enemy-of-the-good-2/ – though I am going to wait until next week’s examples post by the Accumulator before I commit!]

    Even with just £2000 invested, the annual charge would work out at 1.2%. High perhaps, though with regular investing this percentage should reduce quite nicely.

  • 8 webnibbler December 6, 2011, 3:20 pm

    Good to hear that the emerging markets and global small cap Vanguard funds may be turning up soon on HL as well – I was wondering where they were. The L&G emerging markets has always seemed a bit pricey, especially now with the £1 platform fee.

  • 9 William December 6, 2011, 7:11 pm

    Jonny
    With your £2000 investment and using the Vanguard Life Strategy Fund plus HL Platform fee averaging out at 1.2% is still better value than most actively managed funds available on the HL platform. And as you say with regular investments and perhaps a few lump sums the cost of your portfolio will decline over time. I think the Vanguard Life Strategy funds are great as we all spend far to much time worrying over allocation and which funds to use. Vanguard do all the hard work on the allocation/rebalancing front. All we need to worry about now is earning the money in the first place.

  • 10 Jonny December 6, 2011, 8:31 pm

    Thanks William,

    Another thing that strikes me as good about them is that it takes the temptation out of staying more highly allocated than you plan to, because a fund is doing well.

    I still plan (when I can afford to) to (passive) invest based on my own choices/allocation, as I enjoy doing so, though I’ll leave the “serious” pension to the experts!

  • 11 Steve December 6, 2011, 8:58 pm

    Thanks William that sounds like a good plan and saves me having to move my wifes SIPP to Alliance Trust where I have most of my own Pension and savings. Looks like HL have just about saved their **** with the addition of the Vanguard Funds.

  • 12 Helen December 8, 2011, 8:17 am

    I’m really interested in these trackers! I notice Vanguard charge a Dilution Levy, which HL shows as an initial charge.

    Does that mean if you are investing by monthly savings you have to pay that each month on top of the HL platform fee?

    Thanks

  • 13 Ben December 8, 2011, 11:46 am

    @helen

    Yes, a % of your monthly payment will be gobbled up by the Vanguard dilution levy.

    The dilution levy will be taken from the amount you invest by Vanguard. You could think of it as part of the TER, albeit a part you only pay once per transaction, as opposed to the ongoing annual management fee.

    From your perspective it just looks like you’ve bought slightly less units than you would if the dilution levy didn’t exist.

    Whereas the platform fee is taken out from cash in your HL account separate from actually purchasing any fund units.

    The purpose of the levy is to push the dealing costs incurred by the fund manager on to those punters who are creating them, i.e. those that are buying and selling.

    Therefore passive investors looking at long term buy and hold strategies tend to approve of them.

    Note, as the levy is a % cost it makes no difference if you are buying weekly, monthly, annually or once in a blue moon as to the total amount it costs you

    or better put (from wikipedia):

    A dilution levy can be charged at the discretion of the fund manager, to offset the cost of market transactions resulting from large un-matched buy or sell orders. For example if the volume of purchases outweigh the volume of sales in a particular trading period the fund manager will have to go to the market to buy more of the assets underlying the fund, incurring a brokerage fee in the process and having an adverse affect on the fund as a whole (“diluting” the fund). The same is the case with large sell orders. A dilution levy is therefore applied where appropriate and paid for by the investor in order that large single transactions do not reduce the value of the fund as a whole.

  • 14 Jonny December 8, 2011, 2:06 pm

    (In the case of the Vanguard Fund) is the dilution levy only applied when you purchase, or does it also apply when you sell?

  • 15 Helen December 8, 2011, 6:35 pm

    Jonny, maybe others can confirm but I’m sure I read that it’s only for purchases.

    Ben, thanks for your helpful reply, which has cleared up the Dilution Levy for me.

    My main concern is actually with the HL £2 a month platform charge. I will be investing small amounts monthly (£50) and may well have to stop that entirely in a few years as I hope to buy a house and doubt I will have much spare cash! Therefore I am unlikely to have as much as £2000 in the fund. If I stop investing, I believe HL will continue to take the platform fee. Then, if the fund isn’t doing well, the £2 a month platform fee will reduce my capital a fair amount. It’s only £24 a year I realise, but if the fund is stagnant or losing money and it is also losing £2 a month to HL it could be significant.

  • 16 Jonny December 8, 2011, 8:34 pm

    @Helen, thanks, that was my thought on it too; it’s just that the the wiki description mentioned it could be used on the way out too.

    Assuming you have no initial lump sum, then over the course of a year you would make £600 in contributions, and be charged £24 (or 4%) This means a fair bit of growth is needed before you even break even.

    It may be worth considering (assuming you don’t already have one) a Stocks & Shares ISA built up of low cost index trackers. This would allow you to start investing (tax free), with out worrying too much about costs and fees eroding your investments. Once you’ve built up a sum of £2000-£3000 you could then look to withdraw it (in one lump sum, or gradually to take advantage of pound cost averaging) to put that in a Vanguard LifeStrategy fund in the SIPP.

    Interactive Investor offer an ISA with no charges. From within here you could open one or more low cost index trackers (HSBC, L&G etc) depending on your asset allocation preference (you could try to mimic the Vanguard LifeStrategy). Another advantage is the minimal contributions for these is £20, so you can add additional bits and bobs as you can afford them.

    I should point out I am in no way an experienced investor, and have only been doing it for 12 months (with an Interactive Investor ISA and low cost index trackers ).

  • 17 Ben December 8, 2011, 10:09 pm

    Is the SWIP FTSE All Share available on any ‘free’ platforms?

    with a TER of 0.11 that could be the answer for those with a small pot wanting to cut costs to the bone…

  • 18 Jonny December 8, 2011, 10:37 pm

    I think the advert/news article on HL stated it was exclusive to HL.

  • 19 William December 9, 2011, 9:38 am

    It is taking HL a long time to purchase/trade into the Vanguard Life Strategy 60% Accum fund. I gave them a switch fund instruction – and they sold the HSBC trackers in a timely fashion but it has taken a couple of days and it only shows Vanguard funds as trading. So currently bulk of money in SIPP sitting as cash awaiting Vanguard purchase. If not resolved soon I will be chasing up HL.

  • 20 Ben December 9, 2011, 11:02 am

    @william

    thats not good – keep us posted as to how long it takes, nad waht HL has to say on it…

  • 21 Paul R December 9, 2011, 5:55 pm

    Just seeing if the Vanguard Life funds performance are any good, they are around £100 each a unit, so could be hard to get decent capital growth out of them?…
    Am currently in HSBC trackers with HL, so will sell before the year end.
    Will re-invest into high income funds, as for me, the platform fee is not good, as i buy small amounts.

  • 22 William December 9, 2011, 7:01 pm

    @ Ben
    HL emailed me to confirm purchase placed with Vanguard but indicated that the deal could take up to 5 days to process. If not a problem with HL then Vanguard seem to be very slow in processing.

    @ Paul R

    The unit price/valuation is high. Does anyone have views and/or insight on whether they have realistic growth prospects. I had assumed the valuation was high fiven that it is in effect a fund of funds.

    I trust that my investment with Vanguard is the wise course of action or are we all buying into the ‘hype’ of Vanguard?

  • 23 The Accumulator December 9, 2011, 10:04 pm

    @ Helen – a dilution levy can be charged on the way in or out. Vanguard say they only expect to charge it on purchases, but there’s no guarantee. As Ben said, it’s a charge that plays in your favour if you’re staying put for the long-term. It’s meant to protect investors from market-timers constantly swapping in and out of funds.

    Just want to echo Jonny’s comment. The HL platform fee is a killer for your level of contributions. Here’s a post that may give you some low-cost pointers: http://monevator.com/2011/01/06/passive-investing-model-portfolio/

    @ William or Paul – the growth prospects of those funds rely on the prospects for the mix of assets represented by each fund. So if you expect global equities to do well over the next 10-years then 100% equities could be for you. Ultimately each fund represents a reasonable snapshot of the worldwide equities market, diluted according to risk tolerance by bonds, while skipping property and commodities. So if you believe in the market, then these funds should see you ok over the long-term.

  • 24 Steve December 10, 2011, 8:26 pm

    Hi,
    Hi,
    Slightly random question, but I cant seem to find the answer anywhere so I thought I would ask you clever folk! I was looking at selling a few of my investments with H-L in light of these ‘rip-off’ charges – I have relatively small investment amounts and the flat platform charges are penalising me….OK enough moaning! My query. If I sell after the Ex-Divi date, but before the Divi payment date do I still get the payment or do I have to hold until the actual Divi payment date?
    Many thanks for your thoughts.
    Steve.

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