Vanguard turns screw on UK rivals with ultra low cost D2C products
US fund manager Vanguard, which has grown through its sale of indexed and other low-cost passive funds, has slashed fees and the minimum investment for UK clients. The new offering sidesteps advisers and brokers, which have been the traditional channel of distribution for investment products. Vanguard launched in the UK eight years ago and until now its minimum investment threshold had been £100,000. That will now be lowered to £500. Vanguard's fees will begin at 0.23%, which compares with the 0.5% to 1% typically charged by rivals such as Hargreaves Lansdown and Fidelity
A US fund manager has thrown down the gauntlet to high-charging rivals and financial advisers by slashing fees to less than half the UK average.

Vanguard will offer the cheapest way to buy funds and investment ISAs in the UK, with fees half the level charged by Hargreaves Lansdown and Fidelity Funds Network.

Until now, fund groups have shied away from offering direct-to-consumer deals, preferring to sell through financial advisers or platforms such as Hargreaves Lansdown’s Vantage system.

But Vanguard will now sell its range of index funds directly to consumers, charging from just 0.23% a year. That compares with the 0.5% to 1% fees charged by rivals.

Vanguard is the world’s second-largest fund manager, with $4.2tn (£3.3tn) under management, mostly in low-cost index funds, which promise to track a particular index, such as the FTSE 100.

Set up in 1974 by financier John Bogle, Vanguard pioneered index investing – which aims to replicate the performance of a specific share index such as the FTSE 100 – with the world’s first mutual index fund available to the general public.

It is client-owned, so does not pay dividends to shareholders. And, as it has expanded, it has consistently cut charges.

The group launched eight years ago in the UK, where it has already acquired $72bn under management but until now has had a minimum investment of £100,000 for direct buyers.

Under its new deal, investors with £500 upwards will be charged an account feeof 0.15% to administer their money, plus the underlying fee for each fund. Its cheapest mainstream fund is its FTSE All Share tracker, with a fee of 0.08% a year, making the total cost over one year 0.23%.

Hargreaves Lansdown, currently Britain’s biggest firm of financial advisers, charges 0.53% a year for the same fund.

Vanguard said that someone investing £10,000 a year would pay £23 a year in total charges, compared with an average of £49.58 for online investing services and up to £128 at the most expensive platforms.

The authors of a book last year on investment industry charges, What They Do With Your Money: How the Financial System Fails Us and How to Fix It, highlighted the damaging impact of a seemingly innocuous 1.5%-a-year fee typically levied to manage money.

Over a lifetime, a 1.5% charge means a fund manager and advisers help themselves to 38% of an individual’s pension savings, much of it, they alleged, the result of pointless short-term positions and over-trading.

Sean Hagerty, head of Vanguard’s European business, said: “Only recently, the FCA’s [Financial Conduct Authority’s] asset management market study highlighted that fees have not decreased enough based on the economies of scale achieved by the industry. Vanguard agrees with these conclusions.”



The chief drawback to Vanguard’s deal is that it will only sell its own range of funds, unlike Hargreaves and Fidelity, which allow investors to keep a wide range of different funds from asset managers in one place on their platform.

Vanguard also largely offers index and “exchange traded” funds rather than actively managed funds.

But it said that $1tn of its assets under management are now in actively managed funds, with fees starting at 0.6% compared with the industry’s typical fees, in the UK, of about 1.5%.

Hargreaves Lansdown said: “We don’t comment on our competitors or their propositions.

“Our clients tell us they appreciate our extensive range of shares, funds, investment trusts, ETFs [exchange-traded funds] and cash open to them, all in one place, and most of them take advantage of the choice available to invest across multiple fund groups.”