Vanguard Enter UK Market With Some Confusion

This week has seen the launch of Vanguard, a US fund manager, into the U.K. market. Their entry and the arrival of its tracker funds was hoped to have set a challenge to other fund managers to make their funds cheaper to invest in – as some of Vanguard’s tracker funds charge just 0.15% per year, whereas most other fund manager’s trackers charge considerably more, with none-tracker funds charging as much as 1.5% per annum.

I used to be pretty dismissive of tracker funds, as the are generally run by computers which follow a given index, and are not actively managed by an experienced fund manager or team of people. But more recently I’ve come to appreciate that they can perfrom pretty effectively, even compared to actively managed funds. And because tracker fund charges are generally cheaper, your investment doesn’t have to perform quite as hard to get the same performance as a managed fund.

Anyway, back to Vanguard. As we mentioned, their entry into the market should have helped to highlight the high charges on other funds, however, there seems to be some confusion on how you’ll be able to invest in their funds.

Ed Bowsher at Lovemoney suggests that they’ll only be available if you buy them via an IFA - who will charge you their own fees – rather than through execution-only brokers, who tend to offer funds far cheaper than IFAs (as you get no advice as to whether the funds are suitable for you).

However, Vanguard’s website suggests that their funds will be available on the popular fund platforms (such as FundsNetwork or Cofunds), although they’re yet to reveal which ones, and the FT reckons that they’re yet to sign up with any platform.

Also, Vanguard have put a minimum investment amount of £100,000 if you’re investing with them – which will exclude the vast majority of investors, and definitely isolate themselves from any ISA investments. Yet they’re suggesting that this restriction will not apply if you’re buying through a platform (you’ll have to invest the platform’s minimum amount) – but as they’re yet to sign up to any platforms, it’s pretty academic at the moment. I’m led  to believe that negotiations with platforms have fallen down because of the charges that a platform would make – these would either cost Vanguard more than they’re making on the funds, or would eat into the margins that Vanguard has over other manager’s charges.

All-in-all, it’s a disappointing start to something that could have sent some shockwaves through the fund management industry, but hopefully Vanguard can sort the distribution confusion out and we can all have access to some extremely cheap investment funds.

2 thoughts on “Vanguard Enter UK Market With Some Confusion

  1. I’m sure you realise this Rob, but just to clarify for the readers, tracker funds are managed by a computer, but they’re sort of benefiting from a wisdom of crowds type effect by following the index, which by definition changes as shares become more or less popular (expensive).

    Fund managers aren’t awful – the problem is their high charges. One to two per cent a year would be a great level of outperformance year on year, but it’s likely to be largely or entirely eaten up by fees. Ultimately, that’s why trackers tend to win out.

    You can always have a few side punts on funds (or even shares) alongside your trackers. I do! :)

  2. The Vanguard Uk website has this as its Investor Platform doesn’t it?

    I am pretty new to all this (i am only 21 and a first time investor) but have decided index trackers are worth investing into. I just wish there was a platform available which it was simple to buy Vanguard’s funds. The above link does contain a selection of funds but lacks the ability to buy monthly. I aim to invest monthly and achieve some sort of ‘cost averaging’ the fee of £12.95 per purchase on the above website doesn’t seem like a viable option if investing £50-100 a month. It doesn’t even seem like you can have a sum invested automatically monthly.

    I suppose I just need Halifax share-builder to have access to Vanguards fund selection so I can invest monthly at a low cost………

    I hope I can invest soon.
    joe x

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