The lack of advisers attacking Vanguard’s planned foray into the UK market suggests pricing pressure from the US passives giant may hit other areas of the investment industry harder, such as robo advice.
The $5.6trn asset manager confirmed last week it had received Financial Conduct Authority approval to provide retail advice in the UK.
A spokesperson for Vanguard said at the time it is “too early to speculate” about what impact the move will have on fees in the UK and reiterated efforts to bring the advice firm to market are still at an early stage.
Traditional financial advisers not ‘freaking out’ over Vanguard
“What you haven’t seen in the last few days is traditional financial advisers freaking out about how Vanguard are eating their lunch and attacking their market and becoming a competitor with them,” says Lang Cat consultant Mike Barrett.
Traditional wealth managers and advice businesses have “gone upmarket” by targeting wealthier and older clients since the retail distribution review (RDR) and pension freedoms have come into play, meaning Vanguard, which is trying to snag business from lower value investors, should pose less of a threat, says Barrett.
“Normally when a provider starts to communicate directly with clients, advisers go up in arms but because advisers are serving such a different segment of clients to the ones Vanguard say they’re going after traditional financial advisers don’t see this as a threat at all.”
Robo advisers suffering from lack of brand recognition
Seven Investment Management senior portfolio manager Peter Sleep says Vanguard’s arrival onto the scene will prove a bigger headache for robo advice firms that only offer advice on investments as opposed to full-service players.
Whereas traditional wealth managers like St James’s Place assist clients on everything from investments to mortgages, insurance and inheritance planning, robo advisers tend to have a more limited stable of products, Sleep says.
Many low-cost robo-advice firms have so far struggled to break even.
Nutmeg, the UK’s largest robo adviser, has yet to turn a profit and saw losses surge by 50% to £18.6m last year as it poured money into attracting new customers, including initiating a crowdfunding campaign over the summer.
“I think the problem for the robo advisers has been lack of brand recognition that makes the cost of customer acquisition very high indeed,” says Sleep.
But even fund groups that have the benefit of bigger brands and customer bases have been burned after wading into the low-cost robo-advice market. UBS’ attempts to break into the mass market were short-lived as it closed its robo adviser less than 18 months after launch. Investec’s Click & Invest business, which was scrapped in May, did not manage to survive much longer.
Nutmeg denies Vanguard threat
Nutmeg told Portfolio Adviser Vanguard’s UK advice proposition does not pose a threat to its business model.
“It’s traditional advisers that will be fearing Vanguard’s announcement the most,” says James McManus, director of ETF research at Nutmeg.
“Many of them will have been persuaded to trust Vanguard to manage their clients’ investments over the years, so Vanguard’s march into direct competition with them on the advice side will not be welcome news to many.”
McManus says Nutmeg’s proposition is different because Vanguard will only provide advice on investing in its own products, in the same vein as firms like St James’s Place and Hargreaves Lansdown.
In addition to investments, Nutmeg also provides advice on pensions and considers tax planning, including inheritance tax, alongside this. Customers that require advice on life insurance or income protection are referred to a third-party partner, Anorak.
“We are already covering the areas that the overwhelming majority of our customers require advice in,” says McManus.
SJP should start to feel the heat
Fundscape CEO Bella Caridade-Ferreira thinks all types of advice businesses should feel some type of squeeze on pricing following Vanguard’s splash into the UK advice market.
Like McManus she thinks advice firms that are part of “traditional, expensive vertically integrated businesses” will be the most vulnerable to Vanguard undercutting them on fees.
“Schroders and Lloyds should be OK as they’ll be tapping into their vast, captive audience but SJP should start to feel the heat,” she says.
Vanguard entry could prompt advisers to up their digital game
Nextwealth managing director Heather Hopkins sees Vanguard’s entry into advice as good news for the UK wealth management industry and says the low-cost passives provider can help address the advice gap.
“We don’t see this as a zero-sum game,” Hopkins says. “Vanguard’s proposition will be significantly different from either SJP or Schroders Personal Wealth.”
She adds that Vanguard’s arrival is also likely to “raise the game for customer experience and a slick digital offering”. “Vanguard’s move will push all players – advisers, product providers and platforms – to adapt and innovate which we think is healthy for everyone, especially customers.”
