Low cost entry does not put Vanguard in competition with Hargreaves, bosses say
The heads of Vanguard’s long-awaited direct-to-consumer platform have shed light on their plans in the UK market and what the investment industry should expect form the US-giant asset manager.
Today, the firm, which has been in the UK for over nine years, has launched an online investment platform for UK mass-market investors at a much lower cost than many of its competitors.
The new platform will charge 0.15 per cent in addition to underlying ongoing fund charges and will have a minimum monthly contribution of £100 and/or a £500 lump sum.
Account fees will be waived above the first £250,000 invested, meaning the maximum account fee payable is £375 per year.
The online investment service will partly replicate Vanguard’s existing US offering, as it will limit selection to its own funds, including the popular LifeStrategy range.
Vanguard head of personal investing Ryan Barrows, who will head the platform, tells Fund Strategy Vanguard has “no current plans” to extend the choice to external funds but doesn’t rule out this happening in the future.
He says research into UK investors’ behaviour has primarily driven their decision to limit the scope to Vanguard’s products.
He says: “One of the things we heard loud and clear from investors when we did our research is that the current investing landscape is quite confusing and one of the aspects of that is the overwhelming selection that is available of many of the platforms in the market.
“They don’t know where to start with a large selection of funds and so we believe that our funds focused on global bond and equity markets already offers a great deal of diversification in itself so we wanted to start there.”
Taking Hargreaves’ dinner?
But while the firm might extend the offering to other firms’ funds, it won’t claim to be one stop shop like competitors such as Hargreaves Lansdown.
Barrows says: “We will never endeavour to be an open architecture fund platform. Our value proposition will never be ‘come and invest with Vanguard and buy whatever you want’. We have a perspective on investing.
“What we found in the US over time is people saying they like Vanguard but also hold other funds so we’ve chosen to accommodate that. I wouldn’t be surprised if we got the same point in the UK but there’s no imminent plan.”
The duo also suggested Vanguard might launch an advice service in the UK, to replicate its US business.
Vanguard’s head of European business Sean Hagerty says: “We are an investment management firm first not a platform. In the US today we do offer an advice service that we are not offering here. We have no plans at the moment but we certainly won’t rule it out”.
Having a direct offering in the UK will improve brand recognition, says Barrows, but the firm has not set any aggressive marketing strategy like some other direct platforms.
Barrows adds: “Our goal is to use world of mouth [to get clients]. We have experienced that third party endorsement, such as the financial press or from advisers, is much more powerful than paying for promotion. Because we are relatively low cost we won’t spend too much on advertising. But will do some online search or ads online for people looking for funds.”
Overall, the new service hasn’t made any growth projections for now as to how the platform will impact the whole Vanguard business in the UK.
Hagerty says: “We have this paradoxical belief that the more you tend to existing clients and just try to do the right thing, all the other things just happen. They’ll tell their friends and they will come to us as well and it is like a little co-op almost.”