Vanguard is eyeing your lunch

Vanguard is eyeing your lunch

Last month a fund group launched its own direct-to-consumer service.

As with most fund group direct services, you can only buy its funds and, as it stands, there is no advice or a pension wrapper. Normally this would not merit coverage in almost every national newspaper and on Sky News, but this is no normal fund manager. It is Vanguard, and it is coming to eat your breakfast, lunch and dinner.

For months the industry has been in a state of fevered anticipation, speculating about how and when Vanguard would enter the direct UK market. Its funds have, of course, been available via advised and direct platforms for several years, but unless you had more than £100,000 to invest you had to go via (and pay) a third party.

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The new direct offering changes this. Investors can invest with a minimum lump sum amount of £500 and/or a minimum monthly savings contribution of £100, and will only pay an account fee of 15bps (capped at £375 annually) plus the ongoing charge figure. This is seriously cheap. Anyone investing into Vanguard funds elsewhere is likely – although not certain – to be better off if they transfer. The Vanguard fanboys and girls have probably already invested, and clearly the weighty press and financial press campaign is being deployed to increase this reach further. Meanwhile, the current industry is, perhaps nervously, looking to see what happens next.

The asset management sector is already seeing a shift into passive solutions. Last month the Investment Association reported a record month of flows, with £4bn of new retail money invested. More than 40 per cent of this – £1.7bn – went into trackers.

Total assets under administration for trackers stands at 13.7 per cent of industry assets, so the current run rate is way above the absolute level of assets. The big question for many asset management groups is, what is behind this shift? Is it cost sensitivity, or a preference for a passive (as opposed to active) investment strategy?

It is, perhaps, most likely to be a combination of both. With the final paper from the FCA’s Asset Management Study due over the coming months, low-cost passive providers such as Vanguard might have picked the perfect time to launch. A combination of its own self-generated publicity and being the right side of the regulatory pressure directed at the incumbent providers could be a powerful force to contend with.

Over in platform land (worst theme park ever) the impact of the launch was instantly visible. Shares in Hargreaves Lansdown fell by more than 8 per cent on the day of launch. How directly correlated to Vanguard’s news only those trading the shares will know, but as the market leader by some distance in the direct space it is only natural that we should look here to consider what might happen to other direct platforms.