Update 18 May 2012: Since this post was written, we have been informed by Interactive Investor that Vanguard funds are NO longer available on its platform. We are told that the company is piloting seven Vanguard funds to ensure its systems work, but will be removing them at the end of testing. We’re advised to inform you that “they will be not be available until further notice.”
We at Monevator are sorry for contributing to this confusion, which was prompted by the fact that readers kept telling us that the funds WERE available – reasonably enough, because they saw them there – and asked us what we thought.
Sure enough, we were informed by Interactive Investor staff that the funds were available to trade.
However, we were not told that the Vanguard funds were only available for a strictly limited period as part of a pilot scheme.
Interactive Investor have since confirmed that any investors who have managed to buy Vanguard funds during the test period will be unaffected by the end of the pilot scheme. You will still be able to track performance and receive valuations within your Interactive Investor portfolios. However, it is unclear whether you’ll be able to add to your Vanguard holdings through the broker.
Apparently Interactive Investor is engaged in ongoing negotiations with Vanguard about its entire range of funds, but we don’t know on what terms they will be offered, if at all.
We’re leaving this post up as an historical artifact, and as something to point readers to when they next ask us about this subject. This is the second time we’ve been confused by iii’s systems here, so we’re backing away slowly, closing the door, and running in the opposite direction. No more updates until we get an extremely official announcement, perhaps signed in blood.
At last! Vanguard index funds [1] are now available through a broker that doesn’t impose platform fees, annual charges, dealing costs, or any other sneaky expenses that can nobble a small investor’s returns.
The broker is Interactive Investor (iii) [2] and this development means Britain’s cheapest trackers [3] can now be bought for sums as low as £20, which previously would have been suicidal in the face of flat-rate fees.
Seven funds from the Vanguard index fund range [1]are available through iii, including a few of the instant-portfolio LifeStrategy funds [4].
However, this is a developing situation and I recommend you ring iii to check whether the funds you require are available.
When rumours first circulated a few weeks ago that iii stocked Vanguard, I was told that only Vanguard’s FTSE UK Equity fund was available. This despite the fact that the entire Vanguard range is listed on iii’s website. That toe in the water has now become a whole leg, so the possibility remains that iii will go all in at some point in the future.
The currently available Vanguard funds are as follows:
All funds are available in ISA accounts and are accumulation flavour [12].
Don’t take ‘no’ for an answer
One Monevator reader, Sam, has already reported being told a different story – that only the LifeStrategy 100% fund is available, and not in an ISA.
I have previously found with brokers that the story can change from operative to operative, depending on how au fait they are with their internal systems. So if you get a different tale, ask for a double-check and tell the rep to ignore NASDAQ listings – you are only interested in UK or Irish-domiciled OEICs.
Do let us know about your experiences in the comments section, too.
Sadly, iii’s website isn’t keeping up with events and there is currently no way to tell online which of the funds are available to buy and which are listed for information purposes only.
No doubt this situation will change in time – again many brokers often make funds available over the phone for a period before updating their website. So much for the wonderful world of instant digital gratification.
In general, if you want a fund that your broker doesn’t apparently stock, it’s always worth hounding them about it over the phone. They may well say ‘yes’.
A rare victory for the little guy
It’s taken three years for Vanguard funds to breakthrough on a no-fee platform [13] and achieve the same no-strings-attached status as the HSBC index funds, for example.
The reason Vanguard has been resisted is that they don’t pay trail commission to platform operators (i.e. a fee deducted from the fund’s TER that makes it worth the while of your broker or fund supermarket to stock the fund).
Commission of this kind is due to be abolished by the end of the year under the FSA’s Retail Distribution Review (RDR) [14].
The likes of Hargreaves Lansdown [15] recoup their expenses through a platform fee, while Alliance Trust charges dealing fees for buying Vanguard funds.
Many have predicted that all low-cost online platforms will go down this route, making life extremely difficult for small investors as flat-rate fees take large bites out of modest contributions.
But iii have specifically added the following line to their charges sheet:
Charges for “non-commission paying” products – NIL.
It’s a positive sign that iii are seeking to differentiate their offering from other platforms as RDR approaches. There are no guarantees the situation won’t change, but it would surely be a PR disaster for a firm to stake out that position ahead of RDR, luring small investors in, only to move the goalposts a few months later.
So assuming the Vanguard funds aren’t being used as bait, and the website issues are sorted, this new ultra-low cost option adds up to great news for small investors.
Stop press
Before you take any big decisions, you should know that Vanguard is about to launch five physical ETFs on the London Stock Exchange. The Motley Fool has the scoop [16].
Apparently the FTSE 100 tracker will have a TER of 0.1%, which will make it an instant low-cost table-topper. Expect a listing in the next few weeks, and a Monevator report to boot.
Take it steady,
The Accumulator