VanguardJan 30 2020

Vanguard claims it is 73% cheaper than market

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Vanguard claims it is 73% cheaper than market

Fund giant Vanguard has claimed its funds are 73 per cent cheaper than their UK counterparts in its first assessment of value report.

In the report, published today (January 30), Vanguard’s chair of the board James Norris said the ongoing charges for its UK funds were 73 per cent cheaper than the average in their respective sectors in terms of Morningstar categories.

Vanguard also found that over the 12 months to the end of September, 93 per cent of its funds had outperformed their peers (according to Morningstar data).

The report said over three years, five years and 10 years, 96 per cent, 92 per cent and 75 per cent of Vanguard’s funds had done the same.

Vanguard’s assessment of value report is the first to be published by the asset manager since the new Financial Conduct Authority rules mandating the reports have been implemented.

As part of the regulator’s asset management review, fund houses are now required to carry out an annual assessment of whether the firm provides value for their clients.

The assessment criteria set out by the FCA include performance, general costs, economies of scale, comparable market rates, comparable services and share classes.

At what point asset managers are required to publish their own reports depends on their financial reporting dates, but most will be publishing their first assessment review throughout 2020.

In the report, Vanguard said it was able to “benefit from global relationships” with service providers in terms of using its economies of scale to help investors.

The report stated: “In many instances, the fee scales and structures are negotiated based on our global assets under management and are therefore significantly lower than the UK business would be able to negotiate as a stand-alone entity.”

It also found Vanguard had performed well in terms of share classes as it does not hold any legacy share classes that pay commission and such such its fees are lower.

The UK investment industry has a legacy of share classes with higher fees which pay commission.

These share classes are ‘pre-RDR’ (Retail Distribution Review) as the review put an end to investment commission, but nearly a quarter of assets are still held in such classes.

Just last week the FCA sent a Dear CEO letter to asset managers, saying poor product assessment and conflicts of interest meant fund managers were not consistently delivering good value to retail investors.

Matt Piro, head of the portfolio review department, said there would be a big focus on these reports and the regulator would commit to this concept of value for money.

He said: “There will be a significant amount of focus on these reports and this area in general — costs, performance, fairness. These reports will result in a shift of what people think about value for money. 

“It forces you to take a step back and assess. It will lead to difficult conversations and lead to more questions for investors and advisers.”

Mr Piro added there would be “more action”, such as a continued downward move in terms of pricing structures or continued migration in terms of share class structure — which was “good for all investors”.

Meanwhile Vanguard announced earlier this month (January 9) it had received regulatory permission to set up an advice service in the UK. There is currently no timescale for the venture but Vanguard said the service would be "bespoke" to the UK.

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