Vanguard’s low cost investing platform is gradually making inroads and while higher-charging competitors might publicly dismiss the service they will no doubt privately be taking note.
The platform now has about £250m under management in the UK. That may be small beer compared to some of the more established operations, but worldwide it has about $4trn (£3trn) under management and we are at very early days in its UK penetration.
For investors the proposition is compelling.
An investor with £1m in assets might pay £3,000 a year to Hargreaves Lansdown, but just £375 to VanguardAnnual fees on investments of up to £250,000 are just 0.15 per cent compared with the 0.45 per cent charged by Hargreaves Lansdown and 0.35 per cent by Fidelity Investing.
Above £250,000 it charges nothing.
An investor with £1m in assets might pay £3,000 a year to Hargreaves Lansdown, but just £375 to Vanguard Asset Management.
Its detractors point to Vanguard’s lack of fund choice. Here they have a point. It offers 66 funds, most of them trackers, whereas others offer upwards of 2,000.
However, for the majority of investors, a tracker on a low charging platform could well deliver better long-term returns than attempting to choose the right active fund with a higher charging operation.
Let’s face it, even those offering a wide range of funds admit that most are not worth a second look.
There is also no option for holding individual company shares.
Then there is also the lack of a pension proposition – surely something Vanguard would want to consider at some stage.
Vanguard is a vanilla ice cream service that lacks the Ben & Jerry’s options demanded by those with a more sophisticated palate. However, investors can adopt a mix and match approach.
Just as I go to Wilko for cleaning materials and Waitrose for charcuterie, investors could go to Vanguard for core investments and Hargreaves for more exotic options.
An investor who splits £1m 60:40 between Vanguard and Hargreaves could cut their annual charges by £1,125 a year.
I have tried to think of a compelling reason not to use Vanguard as the basis of an investment portfolio but, unless you have a loathing of trackers, I cannot think of a single one.
Woes of inheritance tax
Accountants like to describe inheritance tax as a voluntary tax. But, as with all of these nice little quotable phrases, the truth is much more complex.
Some never accumulate enough money to pay it, the very wealthy can afford to give money away, but the squeezed middle find it much more difficult to avoid.
Their wealth might be tied up with the home and they might feel they cannot afford to give away large sums while remaining secure and comfortable.
Between April and August £2.4bn has already been received in inheritance tax.
Sean McCann, a chartered financial planner at NFU Mutual, points out that this 18.7 per cent increase comes despite the introduction of the residents nil rate band in April; though some will be money collected on those who died before the introduction of the new band.
Last tax year saw a record £4.84bn taken. The amount collected has doubled in just seven years.
What option have they got? Trading down leads to other bills.
Someone who sold a £1m home in the south east and bought a £600,000 one would face a £20,000 stamp duty bill on top of estate agents and legal fees and moving costs.
Taxed if they do, taxed if they don’t – that seems to be the lot of middle Britain.
Credit card interest rates
John McDonnell, Labour’s Shadow Chancellor, made a worthy appeal on behalf of credit card borrowers at last week’s party conference.
No one should have to pay back more in interest than the sum they originally borrowed, he said.
His idea would be almost impossible to police given the nature of credit card borrowing. But it does highlight the need for a debate on credit card interest rates.
I recently received a letter from John Lewis Partnership card raising the rate by 2 percentage points from 16.9 per cent to 18.9 per cent.
This, at a time when base rates have not risen for 10 years and stand at 0.25 per cent.
Total credit card debt at the end of July stood at £68.7bn. Someone who paid the minimum each month on the average £2,536 debt would owe money for more than 26 years according to The Money Charity.
There was a degree of irony in McDonnell’s comments given that he had just pledged to borrow about £200bn on behalf of taxpayers in order to renationalise PFI contracts.
But that should not overshadow the fact that credit card interest rates are a scandal and source of considerable consumer detriment.
Tony Hazell writes for the Daily Mail's Money Mail section
