Vanguard is closing its UK financial planning arm less than two years after its launch in April 2021 after a disappointing number of customers signed up to a new low-cost retirement advice service designed to appeal to millions of savers.
The US-based company believed it could start a price war in the UK pensions advice market when it launched a personalised retirement saving advice service to investors with a minimum of £50,000 in their portfolio for an all-in annual cost of 0.79 per cent, which included fund fees, transaction and platform charges.
But now the world’s second-largest asset manager faces the embarrassment of refunding all financial planning fees that clients have paid for the service since they joined.
The company has refused to disclose how much money will be repaid or how many of the 485,000 customers that signed up to the Vanguard personal investor platform will be affected by the withdrawal of the financial planning service which will close on May 31.
Investors who still want pensions advice will have to transfer their business to another provider or will have the option of managing their funds on Vanguard’s self-directed platform.
“Vanguard didn’t achieve the traction which it hoped for. The £50,000 investment minimum was quite a steep barrier for an online service which was only able to hold Vanguard funds but it would have delivered pretty good outcomes for most people,” said Holly Mackay, chief executive of Boring Money, a financial website for consumers.
Vanguard said its UK clients were looking for “more adaptable forms of financial planning” because many of these investors were still relatively young. Around a third of the 485,000 customers on Vanguard’s personal investor platform are aged under 30.
The company said it was still “committed to the development of further financial guidance and advice services to give investors the best chance of investment success”.
However, no date has been set for when any new UK financial planning service might become available.
The UK closure, which was first reported by Citywire, throws into uncertainty Vanguard’s plans to roll out similar pension advice services in Germany and other European markets. It will also trigger more questions about the ambitions of chief executive Tim Buckley to revolutionise the advice market by using the same aggressive competition on fees which has helped the fund manager to grow its assets to $7.2tn.
Hargreaves Lansdown, the UK’s biggest funds supermarket, last year also announced plans for a new low-cost advice service in an effort to prevent customers approaching retirement from moving to rival providers offering personalised pension services. Just 10,000 of Hargreaves 1.7mn clients receive personalised financial advice — whether in person, over the phone or online.
But the plan was blasted as “completely unnecessary” by Peter Hargreaves, the co-founder and largest shareholder in the Bristol-based company. He warned that an automated advice service could direct customers into investments that were riskier than they wanted or needed.
The UK financial regulator is concerned that millions of British consumers are sitting on significant amounts of excess cash and damaging their long-term financial security because they lack access to affordable investment advice. About 4.2mn UK consumers hold more than £10,000 in cash and are open to investing some of this money, according to the Financial Conduct Authority (FCA).
The regulator in November proposed sweeping changes that would allow individuals with “straightforward financial needs” to take advice from less-qualified experts which would be cheaper than services provided by traditional investment advisers.
Companies would be directed to simplify advice and reduce paperwork for small investors under the new regime proposed by the FCA which would cover only “mainstream investment products” such as stocks and shares Isas.
The watchdog also wants consumers to be able to spread account set-up fees over a longer period, so the initial costs of investing are not prohibitive. At present, an investor can pay a fee of up to 3 per cent per investment for advice.
Mackay said the investment advice gap in the UK affected 13.2mn people.
“This is where the battleground will be for the next wave of online investors. People want someone they trust to tell them they are not doing anything daft. But Vanguard’s withdrawal reminds us that working out how to do this well, at scale and profitably, will not be an easy job for anyone,” she said.