Vanguard’s New UK Product Launch Could Trigger Price Wars

US based Vanguard, the world’s second-largest fund company recently announced that it has launched an innovative product targeting the UK market which will have charges that are less than half of current average costs in the country. Vanguard is the pioneer of index investing and is owned by John Bogle.

So far the company has worked with stockbrokers and financial advisers in the UK, dealing directly with individuals only when they have at least £100,000 to invest. But Vanguard will now sell its index funds directly to individuals with charges starting at just 0.23 percent a year as compared to the 0.5 percent to 1 percent charged by rivals such as Hargreaves Lansdown or Fidelity Funds Network.

Vanguard’s new service offers its own funds for investment while brokers and financial advisors offer a range of products from different companies. Vanguard’s online service will charge 0.15 percent a year as account fee, with a cap of £375, plus an extra fee applicable per fund, which is an average of 0.14 percent.

Vanguard

Once Vanguard made the announcement, it impacted a number of its competitors. UK’s top online personal investment firm Hargreaves Lansdown saw its share prices drop by nearly 8 percent. Vanguard appeals to do-it- yourself investors who use its low cost index tracker offerings to invest into the stock market. Vanguard has been consistently slashing its charges as it expands.

The financial giant currently has over $4.3 trillion of assets under its global management. As it is client-owned, it doesn’t pay out dividends to any shareholders. The firm entered the UK in 2010 and has so far built up a fund size of $ 72 billion . Vanguard has highlighted that its new product would address the complaints raised by UK’s regulator, the Financial Conduct Authority (FCA) which stated that fees in UK’s investment industry were too high.

In a statement, Sean Hagerty of Vanguard said

Our new online investment service is designed to help simplify and lower the cost of investing in the UK. Only recently, the FCA's interim asset management market study report stressed asset managers' obligation to act in the best interests of investors. It also highlighted that fees have not decreased enough based on the economies of scale achieved by the industry. Vanguard agrees with these conclusions

Industry observers expect the launch to push downs costs of funds and investing platforms in the UK. Mike van Dulken, head of research at Accendo Markets noted that Vanguard’s new model which offers low-cost and direct access to its funds could result in a price war that could hurt both brokers and fund managers.