Vanguard’s foray into the financial advice space has been hailed for its “genuinely disruptive” potential to close the UK advice gap though it is unlikely to shake demand for traditional face-to-face services.
On Monday the trillion dollar passives giant finally launched Vanguard Personal Financial Planning, its new financial service for UK retirement savers, on its Personal Investor platform.
The service will recommend and manage a tailored portfolio to investors, made up of Vanguard’s low-cost and broadly diversified equity and fixed income funds, for an all-in cost of 0.79%.
The 0.79% fee encompasses a 0.50% advice fee, including VAT where applicable, a 0.12% ongoing fund charge, 0.02% transaction costs and a 0.15% platform fee capped at a maximum of £375 a year. The service will have no entry or exit charges.
Vanguard’s message of low cost quality advice should resonate
The move has broadly been welcomed by commentators with Nextwealth managing director Heather Hopkins calling it “great for consumers and great for the industry”.
Hopkins said: “Anything that increases access to advice is good news. One of the main reasons consumers say they don’t take personal financial advice is a perception that it costs a lot. The value is certainly there – that has been demonstrated time and again. And yet, it continues to be perceived as expensive.”
She added: “Vanguard’s message of low cost quality advice should resonate and attract new people to financial advice. That is good news for all of us.”
Boring Money CEO Holly Mackay called the launch “genuinely disruptive, in a positive sense” that will serve to bridge the “substantial” UK advice gap. Only 9% of UK adults currently see a financial adviser.
Clive Waller, managing director of CWC Research called the launch a “very welcome new venture” which will not only help to “reduce costs across the board and save clients money” but increase access to advice for those without large portfolios.
Waller commented on the timelines of the launch following a recent Numis report on the total costs of drawdown portfolios. The report showed one of the largest advice firms coming in at a total of 2.8% per annum, while the average IFA cost was lower at 2%, with many far lower than that. However, Waller noted that too many wealth managers are “way above that figure”, adding that it is “too big a drag on performance”.
Cheaper digital advisers out there
However Lang Cat consulting director Mike Barrett said he would be surprised if traditional advisers lose clients to Vanguard, noting the “nature of the service which Vanguard are offering is probably inferior to the type of financial planning service that many customers will get face-to-face”.
Vanguard Personal Financial Planning operates a tiered service. At the lowest tier, which targets clients with £50,000 to invest, the service will provide digital financial planning with access to Vanguard’s service team for administrative support.
Clients with over £100,000 will have video or telephone based access to a team of financial planners, while those with over £750,000 will have access to face-to-face support via video or in-person.
See also: Robo advisers could be biggest casualties of Vanguard advice push
Barrett notes Vanguard’s proposition is not unique, with many digital advisers offering similar services and some at a cheaper cost. Open Money has annual fees as low as 0.50%, for example.
However he said Vanguard’s launch would still highlight the importance of keeping costs under control.
Mackay said Vanguard’s service would appeal to “people with relatively simple financial affairs in their late 20s to mid-50s” who want to save for retirement with “minimum fuss and low fees”.
“At 0.79% a year all-in, to have a discretionary managed account, a service which maximises your tax allowances, does the juggling between ISAs and pensions for you, keeps an eye on future nasties such as the Lifetime Allowance, and provides regular access to people on the phone if you have more than £100k invested – that’s interesting.”
