Vanguard unveiled its first foray into financial advice in the UK — Vanguard Personal Financial Planning. The service is unique because for an all-in competitive fee of 0.79%, investors get the platform, advice and investment selection — a knock-out advice service that’s pretty hard to beat.
Discretionary service at advisory prices
Vanguard’s advice service costs 0.5% a year, but what you get for that depends on how much you’ve got to invest. The basic service is for people with between £50,00 and £100,000. This gets you a financial plan and discretionary investment management — discretionary means Vanguard monitors your investments on a daily basis and re-balances them for you without you needing you to confirm the changes.
Most advisers operate on an advisory basis. That means they recommend how you should invest, but you make the final decision. Some advisers offer a discretionary service where they make the decisions for you (ether in-house or outsourced) but it comes at an additional price. As a result, the Vanguard solution is an absolute steal for investors whose financial affairs aren’t too complicated and don’t want the hassle of making investment decisions.
The bigger, the better
If you have a bigger portfolio, Vanguard gives you a more personalised service for the same price. If you’ve got more than £100,000 in investable assets, you might be wondering if it’s time to get advice — £100k gets you telephone or zoom-type access to Vanguard’s financial planners for the same 0.50% fee. You also receive an annual review from a financial planner. Finally, those with over £750,000 can take advantage of face-to-face advice with a dedicated financial planner for no extra cost.
It might seem a bit odd that it’s the size of the portfolio that determines the level of service, but remember that your money will only be invested in Vanguard funds. Funds have annual management charges that are charged on a percentage basis — therefore the more you invest, the more Vanguard makes. That’s how all funds charge so there’s nothing to worry about in that respect, the only difference is that in this case Vanguard is both the adviser and the fund manager and will only be recommending its own funds.
Remember that its funds are low cost — the most striking information in Vanguard’s announcement was the impact of charges. It found that over 30 years, a £250,000 investment growing at 5% a year would be £250,000 better off with fees of 0.79% compared to an investment with 2% charges a year. That assumes, of course, that investments are going to perform at roughly the same rate, but as Vanguard’s funds are predominantly passive index-trackers and ETFs, performance should be on a par with market indices.
Paying for advice
Vanguard’s new service helps to fill an increasingly large advice gap in the UK. It’s been eight years since the government introduced regulation that meant that advice has to be paid for separately (the Retail Distribution Review or RDR). Before that a percentage-based commission was charged, so if you only had a small amount invested, you only paid a small amount.
But now customers with modest assets pay disproportionately higher prices. That’s because a detailed fact-find and preparing a financial plan involves the same amount of work regardless of the size of assets; customers with modest means end up paying more as a proportion of the overall investment.
Lots of advisers were uncomfortable charging higher prices to modest investors, so many withdrew from the market altogether, making it difficult for investors with less than £30-£50,000 to access advice.
Recent research from the International Longevity Centre (ILC) found that on average those who get financial advice are £47,000 better off, but also found that advice was out of the reach of ordinary people. Vanguard’s new service is cheap, fills the advice gap and is likely to leave investors better off in the long run — what’s not to like?