Vanguard move sparks price war for personal investors

Stockbroker at work Image copyright AFP
Image caption Stock market investors can do-it-themselves cheaply, argues Vanguard

The huge US investment firm Vanguard is launching a new service to attract personal investors in the UK.

The company specialises in offering tracker funds with very low charges.

Until now most of its business in the UK came through stockbrokers and financial advisers, only dealing directly with individuals with at least £100,000 to invest.

Now customers will be able to open an account with just a £500 lump sum or a monthly investment of £100.

The move threatens to undercut existing stockbroking and investment firms that would have directed some clients to Vanguard funds while charging a higher fee than the firm is now proposing to levy.

Shares in the UK's leading online personal investment firm, Hargreaves Lansdown, fell almost 8% after the Vanguard announcement, as its own fees will now be undercut. It was the biggest faller on the FTSE 100.

Nick Train, who runs the investments of the Finsbury Growth & Income investment trust, told his investors on Monday: "It seems certain that the growth of tracker products has accelerated and this brings challenges, possibly existential challenges, for some traditional 'active' managers."

Vanguard's new online service will charge an account fee of 0.15% a year, capped at £375, plus an additional fee per fund, which would currently average 0.14%.

It will be offering only its own funds to general investors, unlike online stockbrokers and independent financial advisers (IFAs) who may offer a much wider range of investments such as individual shares, unit trusts and investment trusts.

Sean Hagerty of Vanguard said the firm was following the lead of the Financial Conduct Authority (FCA), which has complained that fees charged by the investment industry are too high.

"Our new online investment service is designed to help simplify and lower the cost of investing in the UK," he said.

"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.

"It also highlighted that fees have not decreased enough based on the economies of scale achieved by the industry. Vanguard agrees with these conclusions," Mr Hagerty added.

Vanguard was set up 43 years ago in the US, where it has seven million clients, and is now one of the world's biggest investment managers with £3.3 trillion under management.

Its pitch is that do-it-yourself investors should put their money into tracker funds.

Because these simply follow the rise and fall of indices such as the FTSE 100 index, these funds can be run very cheaply and thus charge very low fees.

The alternative is to pay much higher fees for so-called active management, whose returns may not be any greater.

In the UK, where it has be operating for just eight years, Vanguard has grown rapidly and it now invests £56bn for its clients.

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