It wasn’t the bank rate; it wasn’t the tapering of quantitive easing from the Federal Reserve; and it wasn’t the latest Link dividend monitor.
It was the fact that, in the past quarter, Vanguard had taken on more new clients than Hargreaves Lansdown.
For financial advisers I think that is highly significant.
I like Vanguard, it’s cheap and cheerful. If you’re a new investor it is very easy to understand. With the market environment that has persisted for the past 14 years (even including the Covid dip) it has looked remarkably easy to make money by tracking a share index – even the FTSE.
Hargreaves is a different kettle of fish. It’s for more high-net-worth savers, has more sophisticated options and is far more expensive. It’s John Lewis, but with 10 times better profit margins.
Now let’s think about the average person, and for this I use myself, because I think my investing journey is not untypical.
When I was twenties and first started investing I just wanted something simple: a low-cost platform that allowed me to make regular smallish contributions. I certainly didn’t need, nor could afford a financial adviser, not least because my affairs and my needs were simple.
There was no Nutmeg or Vanguard in those days, so I ended up in a very straightforward Isa and overpaying in to my pension. Had those platforms been around I would have likely used them.
By my thirties things were getting more complicated, but I was more interested in money (not least because I actually started to have some) and in where I invested. So I moved to an investment platform, opened a self-invested personal pension and a stocks and shares Isa and started to choose funds. I made some mistakes, I got some things right.
Now I’m in my mid-forties, on a good wage, with a family and a large mortgage. Do I need a financial adviser now? Yes, probably one could help. But it seems like a large expense given how few actually investable assets I have in context – remember, I just bought a big house.
Anyway, why would I move given that all my investments are already in one place and, having learned from my earlier mistakes, I am now a much more confident investor?
So what now happens when I get to 55? Having looked after my investments all those years? I’m probably not going to want financial advice then either – certainly that is the reaction from many Times readers who are in this position.
The question is: with so many younger people now going it alone from an early age on platforms such as Vanguard, how can financial advisers ever win these customers?
Retention rates at most advice companies are in the high 90 per cents. The biggest source of customer loss is death.
Some of these businesses will be good, some bad, but the fact hardly anyone bothers to leave is a reflection of how difficult it is persuade an investor to move from one platform or advice business to another.
You can see from the IMA fund figures the declining amount of new money that is going into equities from intermediaries versus direct investments.
In reality this means that in the future if you want new clients, businesses will have to target people before they find Vanguard. But with current price models, convincing them that this is worth the cost is going to be a challenge.
It’s time to start thinking about how we solve this problem.
Jisas need reforming
There was a lot of jubilation around the 10th anniversary of the Junior Isa – a phoney celebration if ever there was one.
Certainly Junior Isas are a far better product than their predecessor, the child trust fund. The 1.5 per cent fee cap on these now looks like a relic of a bygone age.
But there is a still a problem with Jisas: about two-thirds of the money is in cash.
And now with inflation coming, we need to talk about this much more. Given you can’t touch the money in a Jisa for as long as 18 years, surely this ranks as one of the worst financial decisions you can make?
Pension contributions
If ever you want to know how little normal people understand about pensions then listen to the comments from members of public sector schemes (or the Universities Superannuation Scheme) when faced with changes.
'If I’m asked to contribute more, then I just won’t save into one,' they always say.
Please do.
James Coney is money editor of the Times and Sunday Times
@jimconey
