Judging by the influence Vanguard has had on the investment industry, the company’s potential launch into financial advice could be the greatest shake-up of the sector since the Retail Distribution Review.
When it comes to passives, clearly there is a split in opinion among the adviser community. Based on my Twitter following, most financial advisers think the lovers of passive funds are blinded.
The view seems to be they have been lulled in to a sense of security by 12 years of rising markets and are now 100 per cent exposed when the market does fall – and it will.
It is hardly surprising that most financial advisers are active management advocates, with a belief that only a good manager can protect your returns from a storm.
I do find the industry complacent and unwilling to acknowledge its own failingsWhatever your position in the active versus passive debate, there is little argument over the downward pressure Vanguard has applied to fees.
Its greatest achievement is not in taking billions out of active and into passive management, but in forcing price changes across the industry.
I do not believe that this is for one minute the result of unbundling of charges or of Mifid.
As far as ordinary investors are concerned these changes have been meaningless.
For more than a decade before the onslaught of Vanguard the consumer press tried to argue for lower fund charges, pointing to the dramatic reduction in yield over time.
The argument back then was that ordinary consumers did not care.
But then came Vanguard and a voice from inside the industry that talked about costs and charges – and it practised what it preached.
And what do you know? Once consumers were able to get a grip on costs, it turned out they did care after all.
Financial advisers should take note of this pattern.
I am afraid to say that I do find the industry complacent and unwilling to acknowledge its own failings.
That is a generalisation, I know, and there are good individuals, but as a whole the industry is poor at analysing where it can improve, and too quick to reject criticism.
Should Vanguard come in with a low-cost, flat-fee advice model, as it has in the US, what would that mean for financial advice over here?
Last week, new entrant Bancroft Wealth announced a single-cost advice figure, and was met with large amounts of disdain from advisers (again, those that popped up on my Twitter feed).
I happen to agree with the assessment that there is no way a company can offer a low flat fee and whole-of-market advice and financial planning. The problem is that many companies are currently very bad at setting out the value from their current model. We have been here before.
If you do not know the true cost and do not fully understand the service you are getting, you cannot tell the value – and financial advice has a value problem. Vanguard has been very good at showing where it can add value in a market. When it arrives, shake-ups normally follow.
End of the peer
The peer-to-peer sector is having a torrid time at the moment.
A ropey stock-market float, rising defaults, plunging returns, contingency funds running dry and, most unnervingly, a torrent of complaints from unhappy savers.
These customers, the early adopters, should be the ones who are raving about P2P, but they have decided that uncertain returns of 2 per cent without the safety net of the Financial Services Compensation Scheme are not worth the risk. So they have gone back to the banks.
This is a legacy problem.
The media-friendly P2P bosses very much sold the industry as an alternative to the banks.
It was attractive to younger, more ambitious savers, and the bosses talked up the sector while trying to downplay as many of the risks as possible.
It was very much savings, not investments, we were told.
That is just not the case, and now customers are finding out to their cost.
Rush to judgment?
Clearly, judging fund management performance over one year is not ideal.
But it was worth checking to see how well funds in the Hargreaves Lansdown Wealth 50 had done since it was launched in January last year.
The outcome: 33 out of the original 61 have underperformed their index.
Hargreaves Lansdown says it is not fair to assess the results over such a short period.
Only, has it not done so itself?
The original 61 is now 56, having dumped funds such as M&G Recovery just months after including it in the new list because of the rigorous research the company had done.
What a stock-picking disaster.
James Coney is money editor of The Times and The Sunday Times
@jimconey
