As widely expected, Philadelphia-based firm Vanguard confirmed it would launch a direct to consumer service in the UK on Tuesday, highlighting its low annual account fee.
The new service will charge an annual account fee of just 0.15% a year, capped at £375 (€441, $483), adding to the continual pressure across the industry to lower fees.
The firm said it wanted to “offer investors value for money” in reaction to the FCA’s interim asset management market study which found fees had not fallen far enough given the growing scale of the industry.
Pressure on fees
Patrick Connolly, a financial planner at Chase de Vere, said it would be a big concern for platforms and investment companies.
He said: “I think generally across investments there is a downward pressure on charges, this is a big step toward that.
“I think the immediate pressure is on platforms and investment companies but we are seeing downward pressure across the industry.
“What it means is companies have to show not only that they are offering lower charges but also that they are adding value.”
Investors access the service online and pay the 0.15% account fee along with an ongoing charge figure of 0.14%.
There is no fee charged on the first £250,000 invested and customers can invest a minimum lump sum of £500 or a minimum monthly contribution of £100.
However only Vanguard funds are offered, including its LifeStrategy range, index funds, ETFs, target retirement funds and actively managed funds.
‘Threat to advisers’
Mike Barratt, consultancy director at The Lang Cat, said while the service was limited in the funds it offered advisers could feel threatened by the launch.
“Whilst this launch is aimed at the direct market, the threat could well be felt most in the advised space.
“The £375 price cap on the direct offering means that potentially a large number of clients will be better off in cost terms moving from their current advised platform to the new direct one.
“Overall this feels like a big moment, and almost certainly the biggest launch of the year.
“If this results in a shift of investor behaviour akin to the one taking place in the States, where Blackrock and Vanguard are eating everyone’s breakfast, lunch and dinner then this launch will be a pivotal moment.
“We’ll be watching closely to see what happens.”
Sean Hagerty, head of Vanguard’s European business, said Vanguard had agreed with the conclusion of the FCA’s interim market study that fees should be lower.
He said: “Vanguard’s new online investment service is designed to help simplify and lower the cost of investing in the UK.
“Only recently, the FCA’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.
“This is why we are launching our new service – we want to offer investors the value for money they deserve.
“We aim to offer investors the highest value investment products and services available with an unwavering commitment to lowering the cost of investing in the UK.”
