So, it’s finally happened. Vanguard, the world’s best-selling asset manager, has launched an online service to sell its funds directly to UK investors.
Vanguard, which charges an average annual management fee of 0.14% of invested assets, is offering its funds to investors for an annual administration charge of 0.15%.
It means, for example, an investor who wishes to invest £10,000 will pay just £22.00 a year in total charges when buying Vanguard’s FTSE UK All Share Index Unit Trust. Alternatively, they can invest the same mount in a globally diversified equity fund for just £37.00 a year in total charges when buying Vanguard’s LifeStrategy 100% Equity Fund.
It’s hard to over-estimate the importance of this development. My fellow investment blogger Holly Mackay has called it “a game changer” for UK investors, which will be “seriously disruptive” to established brokers and wealth managers.
My friend the financial planner and entrepreneur Jason Butler told the FT that competitors would have to start offering customers “something truly amazing” to justify their higher costs.
Hargreaves Lansdown, for example, the UK’s largest retail broker with £60 billion of assets under administration, charges 0.45% of invested wealth for an ISA account on top of what the fund managers charge. When transactions costs and other fees and charges are factored in, a typical Hargreaves customer could easily end up paying ten times what a Vanguard investor will pay.
Of course, just as they always have, the likes of Hargreaves and Fidelity will continue to peddle the same old myth that paying more to invest will deliver better results. No doubt, too, large sections of the financial media, which has given the actively managed fund industry a mouthpiece for the last 30 years in return for massive advertising spends and a constant supply of “stories”, will continue to relay the same tired old messages.
But the evidence has been there for decades that the more you pay to invest, the less you end up with for yourself. A new generation of investors has emerged that won’t be fobbed off with marketing-speak. They won’t simply accept that something is a good idea just because a middle-aged man in a suit and tie tells them it is.
They want a simple, transparent and evidence-based solution that offers them the best possible chance of achieving their goals at the lowest possible cost. That solution, for UK investors, has arrived.
Congratulations, Vanguard — and good luck to the rest of the investing industry in keeping up with you.
ROBIN POWELL is a freelance journalist and the founding editor of The Evidence-Based Investor. Based in Birmingham, England, he founded Ember Television and Regis Media, and he specialties in helping disruptive financial firms to grow. He also campaigns for a fair, transparent and sustainable investing industry. You can follow him on Twitter at @RobinJPowell.