Robo-Advisors 6 — Vanguard and Comparators

Today’s post is our sixth look at robo-advisors and ready-made portfolios. Today we’re going to look at the new offering from Vanguard, and what it should be compared to.

This post is part of a series of articles on Robo Advisors and Ready-Made Portfolios. You can find links to all of the articles — plus a live spreadsheet summarising our findings — here.


Most of you will have heard by now that Vanguard has launched its direct platform in the UK.

  • This was announced last year but is finally here.
  • You can find the new platform here.

A similar platform existed previously with a minimum contribution level of £100K, but the new minimum is £500.

  • There’s also a monthly option which starts at £100 per lunar cycle.

The direct platform has been running in the US for some time, and has stolen a lot of market share.

Over in the states it’s free, but here there’s an annual charge of 0.15% pa on the first £250K.

  • That means that the “platform” fees (( It’s not really a platform because you can only buy Vanguard funds on it )) are capped at £375K.

Fund fees are extra:

  • Popular Vanguard funds cost between 0.08% pa and 0.22% pa.
  • Vanguard quote an average fee of 0.14%, giving a total cost of 0.29% (on the first £250K).
  • There are no dealing charges for funds but ETFs costs £7.50.

Interestingly, the 0.29% fee puts them just below the NEST pension platform (for transfers) which we discussed here.

The service is ISA only at the moment, but a SIPP offering is expected later this year.

  • It seems that transfers in from ISAs opened in previous years will be allowed.

Hargreaves Lansdown

The immediate industry reaction was that the new platform would eat into the market share of leaders like Hargreaves Lansdown.

  • The HL platform charge for funds is 0.45%, which is triple the Vanguard fee.

The HL share price was down 8% yesterday

  • that translates to a likely 5% loss of assets, and perhaps 8% of profits

In a rational world, that might be expected to be the case, but cheaper options have been available for some years now.

I was at a focus group for an investment firm last night, and most of the other eight investors around the table brought up HL unprompted at every stage of the discussion.

  • they have first mover advantage, and people like their newsletters, website and telephone service
  • more worryingly, most investors can’t be persuaded that HL are that expensive, or even that costs matter too much in the long run

True comparators

The real comparators for the new Vanguard service are those ISAs and SIPPs that allow access to ETFs (and investment trusts, but they are more expensive) for a fixed annual fee.

Over the various articles we’ve run on platform costs, three platforms have stood out:

  1. iWeb
  2. AJ Bell YouInvest
  3. Fidelity

We’ll need to include HL as well, as their popularity makes them an industry standard for charges.

The core 7 Circles diversified ETF portfolio includes 15 ETFs with a weighted average charge of 0.21%.

  • You can find it here.

1 — iWeb charge nothing for an ISA, and £180 on a SIPP.

  • dealing charges are £5, and it costs £25 to open an account
  • so the year 1 costs are £100 for an ISA and £320 for a SIPP

2 — YouInvest charge £30 for an ISA and £100 for a SIPP

  • dealing charges are £10
  • so yr 1 costs are £180 for an ISA and £250 for a SIPP

3 — Fidelity charge £36 for an ISA or a SIPP

  • dealing costs are 0.1%, so they will vary with portfolio size
  • a £250K portfolio will cost £286 but a £100K portfolio only £136
  • Note that Fidelity offers a (somewhat) restricted list of ETFs (and ITs)

4 — HL charge £45 for an ISA and £200 for a SIPP

  • dealing costs are £12
  • so an ISA will cost £225 pa and a SIPP will cost £380 pa

True comparators

The table above summarises these numbers.

The options we need to take forward are:

  1. iWeb ISA
  2. YouInvest SIPP
  3. Fidelity ISA / SIPP

I will also take this opportunity to add the NEST pension platform to the table.

The results

The key point is that these five offerings (iWeb, YouInvest, Fidelity, Vanguard and NEST) make up the Premier League of platforms on which to invest your money.

  • They all beat all of the “proper” Robo-Advisors

It will be interesting to see how long this situation persists.

The key part of the robo-advisor table is shown below:

Premier league
  1. The Vanguard ISA does well across the board, since its average fund charge is 0.14% — You would need to verify that you could build a portfolio you were happy with for that charge
  2. The iWeb ISA is best around the £250K mark, but competitive from £100K upwards
  3. YouInvest is the best SIPP from £250K upwards
  4. Fidelity is competitive across the board, but never best — You would also need to check that you are happy with their restricted list of ETFs
  5. NEST (transfers) are the best workplace pension available, and cheaper than a YouInvest SIPP up to £250K

Here’s the full table:

RoboAdvisors 170517

You can find the live table — and links to all of the review articles — here.

Until next time.

Originally published at 7 Circles.

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