A year ago I warned that the robots are coming to get IFAs, and now they have brought out their big guns.
US fund giant Vanguard, whose $4.2 trillion of assets under management puts it second only to BlackRock’s $5.4 trillion, has landed in force.
The Pennsylvania-based group, launched in 1974, has offered its low-cost exchange traded funds (ETFs) to UK investors for eight years, but with a minimum investment of £100,000 for direct buyers.
Vanguard also sells its funds through financial advisers and platforms, with its popular LifeStrategy range helping to attract £55 billion of funds.
Now it has unleashed a new direct-to-consumer investment platform, and it threatens to be a game changer.
Vanguard of change
Dominant player Hargreaves Lansdown quickly felt the heat. The company’s share price plunged on news that VanguardInvestor.co.uk would charge a flat administrative fee of just 0.15% capped at £375 a year.
That significantly undercuts Hargreaves Lansdown at 0.45% or fund supermarket Fidelity FundsNewtwork’s 0.35%.
Vanguard’s fund range also has low underlying charges averaging just 0.14 per cent.
Vanguard is client-owned, which means it does not pay dividends to shareholders, helping it to drive down rates.
So there are good reasons to be afraid.
This means war
Many see Vanguard as the latest stage in the unstoppable rise of the robo-adviser, which already boast more than £1 billion assets under management. Nutmeg, launched in 2012, has £850 million of that, according to figures from website Boring Money, which claims that the “old guard” is now under siege.
Moneyfarm, Scalable Capital, True Potential and Wealthify are also joining the robot wars, with a host of others tooling up, including Evest, IG Smart Portfolio, Investec Click & Invest, Moo.la and UBS SmartWealth.
So how afraid should advisers be?
Vanguard is attracting a lot of headlines, and will no doubt pick up a fair few customers, but it is hardly unbeatable.
Just like the Daleks famously couldn’t climb stairs, Vanguard also has its limitations. It only offers its own range of 65 ETFs. It does offer an Isa and Junior Isa, but crucially, it doesn’t sell pensions.
This means it falls wells short the fearsome array of stocks and shares, unit trusts, investment trusts, ETFs, Lifetime Isas and Sipps sold by a conventional fund platform.
Now that’s real firepower.
You’ve got the power
The robots have a long way to go. While £1 billion of assets under robotic management sounds a lot, Hargreaves Lansdown alone has more than £60 billion.
Some investors will sign up to the Vanguard platform alongside their existing one, but this rather defeats the point of a platform in the first place, which is to assemble all your investments in one place.
Finally, there is one thing robo-advisers will never be able to do, and that is supply fully-rounded financial, tax and wealth planning advice. For that, investors still need a real life IFA. People power still wins.