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Vanguard platform isn't the only cheap route to ETFs

Vanguard has launched a low-cost investment platform, but this isn't the only cost-effective option for ETF investors
May 25, 2017

Passive fund provider Vanguard has launched an online platform for UK self-directed investors that charges an account fee of just 0.15 per cent a year, undercutting established players such as Hargreaves Lansdown (HL.) and Bestinvest.co.uk.

You can hold investments on Vanguard's platform in an individual savings account (Isa), general trading account or Junior Isa, and need to invest a minimum of £500 if investing a lump sum or £100 if making monthly contributions.

But Vanguard's platform only offers 65 of its own funds, which include exchange traded funds (ETFs), open-ended tracker funds and target retirement funds. The established DIY investment platforms, by contrast, offer thousands of funds and listed investments from a wide range of providers.

Vanguard's platform also doesn't yet offer a self-invested personal pension (Sipp). "We think the reaction to Vanguard has been overhyped," says Holly Mackay, founder of Boring Money. "It doesn't offer Sipps and it won't help investors wanting a one-stop-shop for best-of-breed funds or listed securities."

However, Vanguard is planning to launch a Sipp and, with Vanguard's funds spanning a wide range of equity and bond sectors, some investors may be able to find most of the investments they need at lower cost.

And Ms Mackay adds: "What this launch does do is throw down a massive gauntlet to traditional wealth managers running large portfolios at a cost of more than 2 per cent. Defensive banging on about how price does not equal value is not a good enough response."

Some commentators think Vanguard's launch could start a price war among investment platforms, and online discretionary brokers such as Nutmeg, which offer managed ETF portfolios, could also feel the pinch.

But Jason Hollands, managing director at Tilney Group, says: "I would have thought the real competition here will be between Vanguard's Life Strategy funds (a group of low-cost multi-asset funds) and the ever-expanding number of robo-advisers who offer passive-only portfolios. But a provider offering only its own funds at low cost isn't the same thing as an open architecture investment supermarket such as Bestinvest or our direct competitors, which is all about providing investors with choice and flexibility."

 

Low-cost options for ETF investors

While at first glance Vanguard's platform looks far cheaper than the established ones, if you only want to hold ETFs listed on the UK stock market many investment platforms offer them at prices close to Vanguard's - and from a wide range of providers.

You pay a yearly account fee of 0.15 per cent of the value of the investments you hold on Vanguard's platform, which is capped at £375. And although you pay the ongoing charges of the Vanguard funds and ETFs you hold on top of this, these are only 0.14 per cent on average.

This is substantially cheaper than platforms such as Hargreaves Lansdown, which charges an annual administration fee of 0.45 per cent of the value of the ETFs you hold in an Isa on its platform, capped at £45 a year. It also charges you to trade listed securities such as ETFs, whereas Vanguard doesn't charge you to trade.

But for ETF-only investors, other platforms could come in at a similar price tag or be even cheaper.

For example, IG's investment platform works out £14 cheaper per year for investors putting a full Isa allowance (£20,000 in the 2017-18 tax year) into Vanguard FTSE 250 UCITS ETF (VMID) and Vanguard S&P 500 UCITS ETF (VUSA). Investors would pay £33 per year in total for that portfolio assuming they made two deals, compared with £47 using Vanguard's platform.

IG does not charge annual platform fees and charges £8 per trade to investors who have placed fewer than 10 trades in the previous month. It does not offer funds, although it does offer over 9,000 stocks and ETFs.

A number of platforms can prove to be very low-cost for investors wanting only to buy ETFs and shares, because they charge differently for open-ended funds and listed securities. For example, if you put your £20,000 annual Isa allowance into Vanguard FTSE 250 UCITS ETF and Vanguard S&P 500 ETF via AJ Bell Youinvest you would pay £66.90 a year, which is not much more than the £47 Vanguard charges.

This is because AJ Bell caps its annual administration fee for investors holding ETFs, stocks and shares at £30. The platform charges a tiered percentage-based fee on assets held in funds, starting at 0.25 per cent, which is more expensive than Vanguard's 0.15 per cent charge. But for ETF investors it is a compelling option.

Several large platforms, including AJ Bell Youinvest, Trustnet Direct, Interactive Investor and Hargreaves Lansdown, cap their annual fees or charge flat fees for investors only holding ETFs and stocks and shares in their Isas. So many of these large platforms may be less expensive than you think if you only want to hold listed investments.

For example, investors pay £74 a year via AJ Bell Youinvest to hold a £30,000 Isa portfolio in one Vanguard open-ended tracker fund and two ETFs, with dealing costs not taken into account. With Vanguard it would cost £69. But you would also have to pay £9.95 per trade with AJ Bell, whereas Vanguard doesn't charge to trade.

A flat fee model means investors with very large portfolios could easily pay more in annual platform charges with Vanguard's platform than with, for example, AJ Bell or Hargreaves Lansdown. An investor who had built up a £50,000 portfolio of listed securities such as ETFs in a Vanguard Isa would pay platform fees of £75. The same portfolio would cost £30 in annual platform fees on AJ Bell's platform and £45 with Hargreaves Lansdown. Interactive Investor charges a flat fee of £20 per quarter in platform fees, bringing its annual charge to £80, which includes two trades per quarter.

David Jeal, head of investment products at Interactive Investor, says: "The devil is in the detail, which makes it vital that investors do their homework before choosing a platform for their investments.

"The benefit of a low-cost fund can easily be negated by a platform that charges investors a percentage of the fund's value, in contrast to a flat fee provider such as Interactive Investor. Charges will increase as the value of an investor's holding rises, and there is no predictability as to what the cost will be."

 

Cost comparison for a £20,000 Isa portfolio

Vanguard

Vanguard FTSE 250 UCITS ETF (VMID) (£10,000 lump sum)0.1% ongoing charge (£10)
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Annual administration fee 0.15% (£30)
No dealing fees £0
Annual cost £47

 

IG

Vanguard FTSE 250 UCITS ETF (VMID) (£10,000 lump sum)0.1% ongoing charge (£10)
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
No platform fee£0
Dealing fees x 2£16.00
Annual cost £33.00

 

AJ Bell

Vanguard FTSE 250 UCITS ETF (VMID) (£10,000 lump sum)0.1% ongoing charge (£10)
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Annual administration fee0.25% capped at £30 per year
Dealing fees x 2£19.90
Annual cost £66.90

 

Hargreaves Lansdown

Vanguard FTSE 250 UCITS ETF (VMID) (£10,000 lump sum)0.1% ongoing charge (£10)
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Annual administration fee 0.45% (capped at £45 per year)
Dealing fees x 2£23.90
Annual cost £85.90

Source: Investors Chronicle Research & platform providers

 

Charles Stanley Direct

Vanguard FTSE 250 UCITS ETF (VMID) (£10,000 lump sum)0.1% ongoing charge (£10)
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Annual administration fee 0.25% fee (waived if more than one trade per month)
Dealing fees x 2£23.00
Annual cost £93.00

Source: Charles Stanley Direct & Investors Chronicle

 

Cost comparison for £30,000 passive portfolios

Vanguard

Vanguard FTSE UK All Share index fund (£10,000 lump sum) 0.08% ongoing charge (£8) 
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Vanguard FTSE 100 UCITS ETF (VUKE) (£10,000 lump sum) 0.09% ongoing charge (£9) 
15% annual account fee£45
Annual charge £69

Source: Investors Chronicle & Vanguard

 

AJ Bell

Vanguard FTSE UK All Share index fund (£10,000 lump sum) 0.08% ongoing charge (£8) 
0.25% fee on funds£25
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Vanguard FTSE 100 UCITS ETF (VUKE) (£10,000 lump sum) 0.09% ongoing charge (£9) 
0.25% fee (capped at £30 per year for ETFs)£30
Annual charge (excluding dealing fees)£74

Source: Investors Chronicle & AJ Bell

 

Trustnet Direct

Vanguard FTSE UK All Share index fund (£10,000 lump sum) 0.08% ongoing charge (£8) 
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Vanguard FTSE 100 UCITS ETF (VUKE) (£10,000 lump sum) 0.09% ongoing charge (£9) 
0.25% fee (capped at £200 per year)£75
Annual charge (excluding dealing fees)£99

Source: Investors Chronicle & Trustnet Direct

 

Charles Stanley Direct

Vanguard FTSE UK All Share index fund (£10,000 lump sum) 0.08% ongoing charge (£8) 
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Vanguard FTSE 100 UCITS ETF (VUKE) (£10,000 lump sum) 0.09% ongoing charge (£9) 
0.25% fee (waived if more than one trade a month)£75
Annual charge (excluding dealing fees)£99

Source: Investors Chronicle & Charles Stanley Direct

 

Interactive Investor

Vanguard FTSE UK All Share index fund (£10,000 lump sum) 0.08% ongoing charge (£8) 
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Vanguard FTSE 100 UCITS ETF (VUKE) (£10,000 lump sum) 0.09% ongoing charge (£9) 
£80 flat fee £80
Annual charge (excluding dealing fees)£104

Source: Investors Chronicle & Interactive Investor

 

Bestinvest

Vanguard FTSE UK All Share index fund (£10,000 lump sum) 0.08% ongoing charge (£8) 
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Vanguard FTSE 100 UCITS ETF (VUKE) (£10,000 lump sum) 0.09% ongoing charge (£9) 
0.4% fee £120
Annual charge (excluding dealing fees)£144

Source: Investors Chronicle & Bestinvest

 

Hargreaves Lansdown

Vanguard FTSE UK All Share index fund (£10,000 lump sum) 0.08% ongoing charge (£8) 
0.45% fee on funds £45
Vanguard S&P 500 UCITS ETF (VUSA) (£10,000 lump sum) 0.07% ongoing charge (£7)
Vanguard FTSE 100 UCITS ETF (VUKE) (£10,000 lump sum) 0.09% ongoing charge (£9) 
0.45% fee (capped at £45 per year for ETFs)£45
Annual charge (excluding dealing fees)£114

Source: Investors Chronicle & Hargreaves Lansdown

 

Platforms with capped or flat ETF charges

AJ Bell Unit trusts/ oeics ETFs
Annual admin/custody fees   

First £0-£250k - 0.25%

Next £250k-£1m - 0.10%

Next £1m-£2m - 0.05%

Value over £2m - no charge

0.25% capped at £30 per year 
Annual fund charges As per fund ongoing charge As per fund ongoing charge 
Dealing fees £1.50 per deal online£9.95 per deal online (if no more than 10 trades in previous month) 

Source: AJ Bell & Investors Chronicle research

 

Charles Stanley Direct Unit trusts/ oeics ETFs
Annual admin/custody fees 

First £250k - 0.25% per year

Next £250k-£500k - 0.20%

Next £500k-£1m - 0.15%

0.25% capped at £240 per year. No charge if more than 1 trade a month
Annual fund charges Fund ongoing charge Fund ongoing charge 
Dealing fees No charge £11.50 per trade 

Source: Charles Stanley Direct & Investors Chronicle research

 

Hargreaves LansdownUnit trusts/ oeics ETFs
Annual admin/custody fees   

First £0-£250k - 0.45%

Next £250k-£1m - 0.25%

Next £1m-£2m - 0.1%

Value over £2m - no charge

0.45% capped at £45 per year 
Annual fund charges As per fund ongoing charge As per fund ongoing charge 
Dealing fees No charge£11.95 per deal online (0-9 deals p. month)

Source: Hargreaves Lansdown & Investors Chronicle research

 

FidelityUnit trusts/ oeics ETFs
Annual admin/custody fees 

£0- £7,499.99 - £45

£7,500-£249,999.99 - all assets charged at 0.35%

£250k to £1m - all assets charged at 0.20% (capped at £1m)

£0- £7,499.99 - £45

£7,500-£249,999.99 - all assets charged at 0.35% (Capped at £45)

£250k to £1m - all assets charged at 0.20% (Capped at £45)

Annual fund charges As per fund ongoing charge As per fund ongoing charge 
Dealing fees No charge0.10% dealing charge

Source: Fidelity & Investors Chronicle research

 

The Share Centre Unit trusts/ oeics ETFs
Annual admin/custody fees £44 per year £44 per year 
Annual fund charges Fund ongoing charge Fund ongoing charge 
Dealing fees £7.50 for deals below £750£7.50 for deals below £750

Source: The Share Centre & Investors Chronicle Research

 

Interactive InvestorUnit trusts/ oeics ETFs
Annual admin/custody fees £80 per year (covers two trades p. quarter) £80 per year (covers two trades p. quarter) 
Annual fund charges Fund ongoing charge Fund ongoing charge 
Dealing fees £10 per trade£10 per trade 

Source: Interactive Investor & Investors Chronicle research

 

Vanguard is generally cheaper than the major platforms if you want to hold open-ended funds, although it only offers its own tracker and target retirement funds. According to research company Platforum, Vanguard would charge just £23 a year to hold Vanguard FTSE UK All Share Index Trust (GB00BPN5P907) on its platform, compared with £49.58 per year for the average platform, not counting dealing fees.

An investor wishing to invest £10,000 in a globally diversified equity fund would pay just £37 a year to hold Vanguard LifeStrategy 100% Equity Fund (GB00B41XG308). Investing in this fund on other direct platforms would cost £63.58 on average, according to Platforum, which surveyed 19 major online investing services, or as much as £142 via the most expensive platform.

 

Other annual fee cost comparisons

Bestinvest Unit trusts/ oeics ETFs
Annual admin/custody fees 

First £0-£250k - 0.4%

Next £250k-£1m - 0.2%

Value over £1m - no charge

First £0-£250k - 0.4%

Next £250k-£1m - 0.2%

Value over £1m - no charge

 
Annual fund charges Fund ongoing charge Fund ongoing charge 
Dealing fees No charge £7.50 per deal online 

Source: Bestinvest & Investors Chronicle research