Vanguard last week made its widely-anticipated move into the UK platform market with its own D2C solution, offering investors access to its range of low-cost passive products.
With a platform fee of 15bps it is very, very cheap, while the cap to the total annual fee of £375 will appeal to those investors with more sizeable pots of money.
Much was made of the impact on rival D2C players (who currently offer a much wider array of fund solutions and wrappers than Vanguard), and indeed the market reaction was perhaps best exemplified by the sharp sell-off in Hargreaves Lansdown’s share price, which fell around 6% last week.
The new entrant’s aggressive pricing will impact different parts of the platform market in different ways, but certainly D2C is in the firing line.
David Ferguson, chief executive of adviser-owned platform Nucleus Financial, says the move puts pressure on legacy fund providers who still have direct client books, as well as on those platforms claiming they are low cost.
“This puts value for money in the spotlight. This is a new pricing benchmark, so 15bps is now the benchmark for what is a very simple platform providing access to passive solutions,” he says.
“It also highlights the cost of competitors and puts providers who are in the middle ground under a lot of pressure.”
Ferguson adds Vanguard’s move – which will see it able to offer a platform for 0.15% alongside a fund solution with an average price of 0.14% – could have significant implications for the wider industry.
“With this new baseline in terms of the price direct investors have to pay to get a platform solution and some market exposure, it means anyone – including advisers and fund managers – charging more will need to demonstrate the value add for clients. It therefore could be bad news for asset managers with direct books of business.”
Anthony Morrow, founder and chief executive of evestor, agrees this could put further pressure on asset managers in the long run.
“For too long investors have been paying over-the-odds for mediocre fund performance and Vanguard’s decision simply accelerates the pace at which this market is changing,” Morrow says.
However, Morrow points out Vanguard’s approach will not appeal to everyone. “We agree that lowering costs is the best way to boost your returns – but we also believe that customers still want to be told what to do with their money and that financial advice remains unnecessarily inaccessible and unaffordable for most people.
“For those who aren’t comfortable making investment decisions or simply want some reassurance there are still far too few places for them to go to get help at a fair price.”
There is also a wider issue facing Vanguard; apathy. It is all well and good to shave a few basis points off your annual fee (ok, lots of basis points in this case), but the truth is moving from one platform to another is a massive hassle, especially for direct investors. While apathy might not look good on a document outlining your business strategy, it is nonetheless one of the most powerful drivers of profitability in the financial services sector. And that’s before you even consider the fact that you can’t buy active funds from other providers via Vanguard’s platform, which will turn many investors away.
So will it do well? Almost certainly, especially with the resources Vanguard can throw at it. But is it the end of the road for every platform that has higher charges? Not a chance.