The first thing to note is that Vanguard is not actually a platform. A moot technical point perhaps, but it does highlight that a direct comparison between it and the existing direct platform market is a not as simple as comparing price. Most existing platforms offer a wide range of funds and access to a Sipp wrapper. Vanguard currently offers neither of these.
If, or when, this changes, the comparisons with existing platforms become more valid, but for now you need to be comfortable with these constraints if you choose to become a Vanguard customer. For many, the ability to invest in a wider range of funds and wrappers will continue to be attractive.
Equally so, Hargreaves Lansdown has almost conclusively proved that the platform market is not price sensitive. It has been 10 to 20 basis points more expensive than its main rivals for a long time, yet is still the biggest platform by miles. This was demonstrated in its latest trading update, issued two days after the Vanguard launch, where it reported 56,000 new customers acquired, with net flows of £3.3bn, so far this year (£1bn above last year). If Vanguard is going to “eat its lunch” there is plenty to go around.
Much of the market commentary has been about the impact on the direct market, yet the advised market could actually be where the biggest changes occur. The combination of the 15bps product fee and the £375 price cap is a real killer and in pure price terms way below every advised platform bar fixed fee offerings. For an advised client the limitations of the current Vanguard offering (no Sipp, constrained fund range) are probably even more of an issue, but if a client is happily invested in, say, LifeStrategy and nothing else, then the cost savings could be huge.
For example, for a £1m client, the market average for advised platforms is 22bps (for Isa), therefore creating an annual platform charge of £2,200. Or put it another way, an annual saving of £1,825 if you transfer to Vanguard Direct.
For £500,000 it is a similar picture. Advised market average is 26bps, so an annual saving of £908 if you move. Vanguard might be aiming this launch at the direct investor, but the advised market can not ignore it. Platforms with large books of Vanguard business will doubtless be keeping a close eye on net and gross flows over the coming months.
Vanguard has already confirmed that a Sipp will be “added in due course”, and when it does, it will become even more difficult for advisers to ignore. The LifeStrategy range is already popular with advisers, and if this continues then we could see advisers starting to come to the conclusion that a “platform” offering custody for 15bps is the best recommendation to be made.
