Pensions and investment platform Vanguard has launched a financial advice service in the UK, with a 0.79% all-inclusive charge, and a £50,000 minimum investment requirement.
The overall cost for its new advice service includes its annual admin charges, ongoing fund charges, transaction costs (expenses incurred when buying or selling investments) and an advice fee.
Here, Which? looks at what the service offers, and how it compares with others in the market.
How does Vanguard’s financial advice service work?
Advised investment platforms allow you to buy, sell and hold investments with the support of a financial adviser.
Vanguard’s financial advice service provides investors saving for retirement with a tailored financial plan for their chosen retirement date, desired retirement income, and attitude to risk.
The company will focus on providing restricted advice to those saving for retirement, though its emphasis will remain on investment advice rather than areas such as protection or full-scale tax planning.
Vanguard will then recommend a tailored investment portfolio made up of various funds such as equities, and manage these investments on your behalf. It will rebalance the portfolio ‘as appropriate’, reduce your level of risk as you approach retirement, and will review and update the plan annually ‘to keep it on track’.
Vanguard told Which? it will ensure that its clients are maximising their pensions through a workplace scheme (if they already have one) before opening a Vanguard account. Then, it will concentrate on how to fund it through a combination of its Sipp, stocks and shares Isa (which has a £20,000 tax-free wrapper) and general investment account (for those who wish to invest more money once they’ve used up their Isa limit for the tax year), to boost tax efficiency.
Vanguard will charge a single all-inclusive cost of 0.79% of the value of your investments.
This comprises an advice fee (0.50%) that includes VAT where applicable, ongoing fund charges (0.12%), transaction costs (0.02%), and platform fee (0.15%, capped at a maximum of £375 a year).
There are no entry or exit charges.
The advice process
Vanguard is offering tiered support service levels based on the size of your portfolio.
The illustration below should give you an idea of how the service works based on how much you’ve invested.
This service is directed at providing financial planning for a single investor. Functionality for couples’ retirement planning will be added in due course, as will support for planning towards additional investment goals, Vanguard says.
- Find out more: how investment platforms work
How do the charges compare with other providers?
Charges are extremely important to consider when choosing where to invest your future pension income.
Traditional financial advisers charge an initial fee of 2.4%, followed by 1.9% a year in fund and advice costs on average, according to the Financial Conduct Authority (FCA).
Investing via a platform like Vanguard is often cheaper, especially when you have a transparent, all-inclusive cost.
St James’s Place, Britain’s largest advice platform, charges an initial fee of 4.5%, and then 0.5% for ongoing costs. There will also be an initial product charge of 1.5%, and an annual product management charge of 1% (though this will be waved in the first six years for each investment). These charges don’t include fees for managing and maintaining underlying investments, or transaction costs.
Hargreaves Lansdown charges an initial 1% on the first £1m you invest, with a minimum charge of £495 if you receive telephone advice. Ongoing financial advice costs 0.365% annually. The fees are separate from any fund charges (which Vanguard doesn’t impose).
How fees can impact your pot
Fees can have a massive impact on the value of your pot over time. The table below shows how much you could have in your pot after 30 years in different charging scenarios.
|Fees||£50,000 starting account value||£100,000 starting account value||£250,000 starting account value||£500,000 starting account value||£750,000 starting account value||£1m starting account value|
Source: Vanguard; assumes a gross annual return of 5% over 30 years.
Someone with a £50,000 pot going with a provider that charges 2.5% can expect to have £68,341 less in their pot over 30 years, compared to Vanguard’s platform.
Who is Vanguard’s advice service good for?
Generally, pension and investment platforms are suited to those who don’t already have a workplace pension, such as the self-employed, or those who have a chunk of extra income they want to invest to maximise retirement savings.
Vanguard’s advice service is suited to those who want a low-cost, goal-based service, that focuses on pension wealth accumulation.
But there are a range of other things to consider before deciding where to park your cash.
DIY pensions vs advice-based pensions
Advice-based pension and investment products work slightly differently to DIY investing, which is typically a cheaper option.
Vanguard charges just 0.15% for its DIY investment products, including its Sipp. Other DIY product costs vary depending on the provider, but you’ll either be charged a percentage of your pot, or a fixed fee no matter how much you invest.
You don’t necessarily need to be an experienced investor to go down this route; some providers such as Vanguard have ready-made portfolios, even for their DIY investment options. But if you can afford financial advice and are willing to pay it’s worth taking up to make sure you’re making the most out of your money.
The advice Vanguard is offering is limited to its own 13 funds.
Other providers with similar products may provide a broader range of investments. The Aegon advised retirement service, for instance, includes 4,900 investment options, including investment trusts.
However, fewer investments to choose from doesn’t mean your investments won’t perform as well – the trick to investing is to have a diversified portfolio, based on your attitude to risk.
Bear in mind that advice-based platforms work differently from each other, so you need to be looking at the service they offer before making a decision to invest.
Vanguard will not provide what’s known as ‘holistic advice’, which includes estate planning, life insurance, and tax mitigation. Although, it’s told Which? it will ‘continue to evolve offers depending on needs and preferences of investors’.
If you’re looking for such services, and are willing to pay more, consider platforms like St. James’ Place which can give you advice in these areas.
- Find out more: best and worst investment platforms
Where to find help planning your retirement
From how much state pension you’ll get to how to get the best income from your private pension, our expert guides can help you plan your retirement.
Use the links below to help you get started on your retirement savings journey.
Remember if you’re over 50 years old you can also get free pension advice provided you have a personal or workplace pension, via the government-backed service from Pension Wise.