Vanguard eyes ‘no-frills’ advice

Vanguard eyes ‘no-frills’ advice

In early January, Vanguard made a major announcement that got the market talking; not an usual thing for the disrupter.

This time it is planning to enter the advice market and people are wondering what it will mean for the sector.

Confirming its plans, Vanguard said it had recently received the necessary regulatory permissions from the Financial Conduct Authority to provide retail advice in the UK, and is in the early stages of developing a proposition. 

But it currently does not have a timeline to bring a proposition to market. 

Kenneth Lamont, senior passive fund research analyst at Morningstar, says: “Following the launch of the European fund business in 2012, and then the [direct-to-consumer] platform in 2017, the move into the pensions and advice space is a logical step for Vanguard.

“Margins in the wealth management space remain bloated and appear ready for disruption. Compared with the US, fees and the cost of advice in Europe are higher, particularly for new savers.”

Filling the advice gap

Vanguard is expected to try to fill the ‘advice gap’, targeting the lower end of the financial advice spectrum. 

In the US, its hybrid robo-advice/human adviser Vanguard Personal Advisor Service is offered to those with assets of more than $50,000 (£38,100) and is charged at a percentage of assets rather than at a fixed fee, which favours those customers with a lower net worth – good news for customers who may be in a position to afford quality financial advice for the first time. 

Even those that do not choose to take up the service will benefit from the increased competition as rivals are forced to justify their fees, Mr Lamont adds.

Key Points

  • Vanguard is getting into the financial advice arena in the UK
  • The service is likely to be targeted towards the mass affluent market
  • Robo-advisers have not been successful in the UK

Ian McKenna, director of the Financial Technology Research Centre, says: “You will get more consumers looking at what they are paying for their financial advice.”

Echoing his thoughts, Paul Stocks, financial services director at Dobson & Hodge, comments: “The beauty of Vanguard is it is already an asset manager. The platform it is talking about will probably add downward pressure on fees.” 

Mr Lamont believes the rationale behind Vanguard’s plans is that the UK market – home to Vanguard’s European headquarters – is the natural launch point, particularly given the success of the D2C platform over here. 

He also expects advisory services to be rolled out across Europe in the coming years.

“One thing we know is that Vanguard won’t be rushed,” he adds. “The company has a history of taking its time when launching new products and services. This is typified by the delay in launching the much-anticipated [self-invested personal pension] product in the UK, which is now expected to launch later this year.

“The bad news for incumbents is that Vanguard tends to become a disrupter in every market it enters, with its no-frills, transparent, low-cost approach to financial solutions.”

But it is not bad news for advisers. In fact, it presents an opportunity for IFAs to show their value, as Mr Lamont says the “good news” for rivals is that any wealth management offering will focus on the underserved mass market segment, leaving plenty of room for more bespoke offerings.