Investors with under £100,000 can now invest directly with Vanguard – which provides nine of our First 50 funds for beginners - as the provider has launched its own platform.
Vanguard, which is best known as a tracking or index company, previously only took direct investments from those investing at least £100,000. Most investors with smaller amounts accessed Vanguard funds via DIY investment platforms run by firms such as Cavendish Online, Hargreaves Lansdown and Interactive Investor (Moneywise’s parent company).
However, Vanguard has today launched its own platform solely for Vanguard funds with lower minimum investment levels of a £500 lump sum or a monthly investment of at least £100.
The platform costs 0.15% per year up to a maximum of £375 per year. In practice, this means the account fee is only applicable on the first £250,000 invested.
This fee is in addition to each individual fund’s ongoing charges figure (OCF) – Vanguard’s average OCF is 0.14%.
Sean Hagerty, head of Vanguard’s European business, says: “Vanguard’s new online investment service is designed to help simplify and lower the cost of investing in the UK. Only recently, the Financial Conduct Authority’s interim asset management market study report stressed asset managers' obligation to act in the best interests of investors, including requiring the industry to show how it delivers value for money. It also highlighted that fees have not decreased enough based on the economies of scale achieved by the industry. Vanguard agrees with these conclusions.
“This is why we are launching our new service – we want to offer investors the value for money they deserve.”
‘This will set the cat among the pinstripe-suited pigeons’
Holly Mackay, chief executive of investment website Boring Money, believes the launch will shake-up the industry. She comments: “The launch from Vanguard is great news for suspicious savers who are fed up with cash and want a low-cost straightforward alternative.
“The ability to access fully diversified Vanguard LifeStrategy funds at an all-in fee of 0.37% rips up the rule book and puts the pressure on higher charging wealth managers to justify their charges and demonstrate value. This is dignified, low-key disruption which will set the cat amongst the pinstripe-suited pigeons.”
Nic Round, a chartered financial planner at Treowe echoes this sentiment. He says: "It is a direct offering at low cost, which inevitably will impact on other direct providers, such as Hargreaves Lansdown. It also drives down both investment management costs as well as platform costs."
But Brian Dennehy, managing director of platform FundExpert, doesn’t believe Vanguard’s focus on passive funds (where there’s no active manager) adds value for money.
He says: “Surely the big issue is helping investors identify funds with outstanding potential? Anyone who can help investors do this (with clear evidence that this is the case) is adding huge value.
“Is Vanguard going to add value in the way I’ve suggested? I can’t see this in a million years as actively managed funds are the antithesis of its business model.
“If the most suitable option for many investors is entrenched mediocrity (at best), then Vanguard has a place. But given a clear choice, and clear evidence, most investors would spurn the Vanguard offering.”
How can I invest in Vanguard’s new platform?
Investors can use the new service to invest in a general account, a Stocks and Shares Isa or a Junior Isa. Sipps (self-invested personal pensions) are not available at launch but will be added “in due course” – Vanguard couldn’t give us a timescale on when this might be.
Vanguard will also continue to offer its funds via a range of other major platforms.
I already invest directly with Vanguard. What does this mean for me?
Savers already invested directly with Vanguard will be moved onto the new platform.
However, as they currently don’t pay a service charge (they only pay the OCF), the 0.15% annual account fee will be waived.