Should you see a worker in the financial services sector kicking a wall today, or muttering slowly whilst tearing up a newspaper, or taking off their shoes and walking into the sea, Reggie Perrin style, then spare a thought (and perhaps a few coppers) for the poor dabs.
Because fund giant Vanguard – famed for its cheap trackers [1] and its all-in-one LifeStrategy [2] products – is now enabling UK investors to invest in its own funds directly.
This means we can now put money into its funds without having to use a third-party platform such as Hargreaves Lansdown [3].
And with Hargreaves’ shares having fallen as much as 5% on the news, City traders seem to believe Vanguard’s launch will spark a renewed price war.
Which is nice – for us investors, anyway. Not so good for rivals.
- Vanguard says [4] it will levy an annual fee of 0.15% on up to £250,000 invested with it.
- There will be no account fee on the excess above £250,000.
- The platform fee is thus capped at £375 a year for even the largest portfolios.
- The minimum lump sum investment is £500. Monthly savings start at £100 a month.
- There are no initial or dealing charges, and no cost levied by Vanguard for transfers in.
Vanguard’s 0.15% platform fee will levied be on top of the ongoing charges that you pay for whatever Vanguard funds you own.
For example, if you opened your Vanguard account by investing £20,000 into its 60% LifeStrategy fund, you’ll pay:
Fund charge of 0.22% x £20,000 = £44
Account fee of 0.15% x £20,000 = £30
Total annual fee = £74
Some Vanguard funds boast even lower fees. For instance, its FTSE 100 Index Unit Trust charges just 0.06%. So £20,000 invested into that fund on the Vanguard platform would cost a total annual levy of 0.21%, or £42 a year.
Vanguard is currently offering ISAs and non-ISA accounts, but no SIPP. It plans to add a SIPP option to the platform “within the next year”.
The new Vanguard site has the website address www.vanguardinvestor.co.uk [5]. (Vanguard says it will eventually retire its existing UK website [6]).
The FAQ [7] is pretty comprehensive, if you have any particular questions.
The Vanguard platform looks hard-to-beat cheap
Vanguard is not the first fund provider to enable us to invest directly into its funds without using a platform.
For instance, I’ve held a small proportion of my portfolio directly in Legal & General [8] tracker funds for many years. (And no, it’s not cheapest! Even us investment bloggers have our foibles. Besides, I favour platform diversification [9]).
But Vanguard’s offering is more transparent (and cheaper) than Legal & General’s, as fans of the US group would expect.
With Legal & General you pay much higher ongoing charges than with some competitor trackers, but there’s no platform fee. In contrast, Vanguard is explicitly breaking out the platform fee. This enables you to compare costs more directly.
The big question then: How do those costs compare with the others you’ll find in our comparison table [10]?
Well, I’m not the Monevator expert on platform charges. Also, anyone who has tried to navigate the nightmare of comparing one particular portfolio invested on a particular platform with another platform knows there can be more quirks, hidden corners, and labyrinthine passages than you’d find in a medieval city.
Caveats and costs lurk around every corner!
That said, I believe Vanguard’s new offer looks pretty darn compelling.
For those wanting to hold Vanguard funds it looks substantially cheaper to do so directly via its new investment platform than via a percentage-fee charging rival.
For fixed-fee brokers, it could still be cheaper to go with one of the alternatives if you have a large portfolio. You’ll have to run your own numbers [11].
But for small portfolios of Vanguard funds, going direct again looks cheapest.
Holding Vanguard ETFs with rivals instead of Vanguard funds1 [12] with Vanguard could also be cheaper for some investors with large portfolios.
For instance, our table [10] notes that AJ Bell [13] caps its quarterly platform fee for shares (including ETFs) at a maximum of £7.50 for an ISA, or £25 for a SIPP. That means platform charges are capped at £30 and £100 a year respectively.
Do remember that’s before ETF dealing fees and the ongoing charges on your Vanguard ETFs. Still, there could be savings to be had on larger portfolios.
Low cost barbarians at the gate
To be honest it’d be nice to find some bigger holes to poke in this new Vanguard platform.
You see, for our lauding its cheap funds – and for celebrating the pressure it puts on the wider industry to drive down costs – we’ve been accused in the past of being a sneaky Vanguard promotional site.
In reality, Vanguard has never even advertised with us. And it didn’t care to send us a press release to announce its new service.
Ho hum.
Fact is though, with this very competitively priced platform, Vanguard is likely to provide massive disruption to the incumbents.
While we like to argue the toss between this and that [14] tracker fund, the average person would do fine just investing in Vanguard’s cheap passive offerings, or even its all-in-one options such as LifeStrategy and its target date funds [15].
Heck, it even has (low cost) active funds if you really must.
Rivals have some thinking to do. The lack of a Vanguard SIPP account at launch gives them some breathing space there. Some may be able to find a niche serving harder-to-please clients, such as expat investors.
But most are probably going to fall back on star active fund managers and heavy advertising to try to keep the Vanguard threat at bay. They should be aided in this by rival fund groups, who have just as much to lose from Vanguard gobbling up yet more market share.
Low-cost rival platforms are in trouble because they’re not cheap enough. Higher-cost offerings touting wunderkind active funds have the flow of history against them. Only a handful of these platforms were making good profits to begin with.
Monevator readers are in clover!
Finally, one of my spies in The City has sent in this documentary footage of the kerfuffle that the launch has already kicked off. (Sensitive readers should look away now).