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Can Vanguard topple Hargreaves Lansdown?

US tracker fund giant Vanguard is muscling into the UK platform market, but faces a struggle to challenge Hargreaves Lansdown.

 
Can Vanguard topple Hargreaves Lansdown?

US tracker fund giant Vanguard is to enter the UK investment platform market, but can anyone dislodge Hargreaves Lansdown (HRGV) as the dominant leader?

Hargreaves Lansdown shareholders clearly have some worries: the online stock broker's shares fell by more than 8% on the day of Vanguard's announcement, and have so far clawed back only half that loss.

The move sparked talk of a price war in the platform world with deep-pocketed Vanguard capping its account fee at just 0.15% on the first £250,000 invested.

The platform fee will not apply to amounts over £250,000 meaning the charge is effectively capped at £375.

On top of this, investors will pay an average annual ongoing charge figure (OCF) of 0.14% for Vanguard's tracker funds, taking all-in costs to around 0.29%.

This undercuts Hargreaves Lansdown, which despite offering thousands of funds, investment trusts and shares, looks expensive with its Vantage platform charging 0.45% a year for the first £250,000 invested in funds. However, holdings in other investments like shares, investment trusts and ETFs do not carry an account fee for its fund and share account, and are capped at £45 in its ISA and £200 in its Sipp.

Whether Vanguard can make inroads into Hargreaves’ market share where other cheaper entrants have failed over the years remains to be seen, but for Jefferies analyst Phil Dobbin, the key question to ask is: ‘Does Vanguard actually change the dynamic [of the market]?.

‘The interesting thing is to look at the fact that there are actually already a lot of cheaper platforms out there,’ said Dobbin.

‘Yet Hargreaves has demonstrated market share gains almost every single year, so it already has been gaining market share against cheaper competition and that has been its history.’

Hargreaves’ trading update just two days after Vanguard's announcement underlined this. The broker reported net inflows of £3.3 billion in the first four months of the year, pushing assets under administration up by 17% to £77 billion.

Peel Hunt analyst Stuart Duncan also struggles to see Vanguard’s new offering making much of a dent in Hargreaves Lansdown’s market share. The latest data from consultancy The Platforum revealed that Hargreaves’ share of the platform market rose to 37.8% by the end of September, up from 35.9% the previous year.

‘Hargreaves Lansdown has built a monopoly in effect.’ said Duncan. ‘It has got a lot of assets, a lot of power, the right level of distribution and it has the ability to spend quite a lot on marketing and advertising.’

He argued that Vanguard was comparatively little-known among the UK investing public. This, coupled with Hargreaves' loyal following and general consumer inertia, shored up the platform's dominance.

‘If you look at its net promoter score [a gauge of consumer satisfaction] it is 50% and that’s pretty unique in financial services,' said Dobbin. 'People hate banks, people hate their insurance company, but people that use [Hargreaves] like it.

‘The [number of people] switching away from it is phenomenally low. If you look at client retention, it’s 94%. People just don’t leave unless they die.’

Dobbin also highlighted the more limited Vanguard proposition, which only provides access to its in-house tracker and exchange-traded funds, and does not offer share dealing.

Duncan agreed. ‘The reality of it is if you look at the Hargreaves customer base, the amount that they hold in passively managed funds is relatively modest in the scheme of things,' he said.

Vanguard does have size on its side. With assets under management of over $4 trillion (£3 trillion), the fund group's scale dwarfs that of the other low-cost rivals to Hargreaves in the UK platform market.

But Duncan argued it would still face a challenge to build a UK platform business as big as Hargreaves'. ‘The reality of it is if you wanted to come in from North America and you have got a lot of capital and you’ve got that capital at a relatively low cost, it probably makes more sense to try and buy Hargreaves rather than reinvent the wheel,' he said.

42 comments so far. Why not have your say?

Mickey

May 30, 2017 at 12:24

I wouldn't underestimate Vanguard who have taken their time to launch this direct customer service. I expect them to take a sizeable share of the market once advisors start putting their clients onto the new platform.

The HL charges are reported incorrectly in this article, yes they are high but they are tiered for funds and capped if holding IT's, ETF's etc at £45 for an ISA and £0 for a share account.

We are staying with HL as our 4 accounts cost us £90 per year and we get excellent service and reporting, should we decide to switch to trackers etc then Vanguard would definitely be worth checking out.

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PaulSh

May 30, 2017 at 13:09

Of course the Vanguard offering will appeal to some investors, but they will still need to keep their eyes open as the "one stop shopping" lifestyling funds such as the LifeStrategy and Target Retirement ranges have very heavy foreign currency exposure.

And btw the HL charge cap for IT's, ETF's etc. held in a SIPP is £200, but that will still only work out at a tiny fraction of a percent for most investors if they avoid funds.

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Daniel Grote - Citywire

May 30, 2017 at 14:37

Mickey and PaulSh - I've updated the piece to add in the HL caps on non-fund investments.

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thinblackduke

May 30, 2017 at 15:02

There is no comparison to be had between Vanguard and Hargreaves, other than if you want to buy Vanguard funds. It's the same as if Hovis decided to sell loaves of bread direct to consumers at a discount price. If the savings are sufficient, you might go to Hovis but you still need to go to Tesco to buy everything else you want! Not worth the hassle of driving around!

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john_r

May 30, 2017 at 15:05

....... or IWEB with no annual charges for isa or standard dealing accounts ...... and a share / etf dealing charge of £5 - less than half of Hargreaves.

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RippedOff

May 30, 2017 at 15:21

Hargreaves is 21st highest cost for £100k portfolio in latest Money Observer platform comparison. Obviously, worst for higher values.

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stormdog

May 30, 2017 at 15:37

For some reason I have never felt attracted to H.L. and very much welcome Vanguard setting up here in Britain. Most certainly I would be far more comfortable using them.

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andy mac

May 30, 2017 at 16:23

so I have an ISA earning next next to nothing in FD

The vanguard ISA is flexible so I am running it up the life strategy mast and lets see if it flies

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Suresh

May 30, 2017 at 16:45

Second recommendation for Iweb, especially now they've reduced their opening account fee from £200 to £25 again, great value stock broker.

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Mickey

May 30, 2017 at 16:54

@Daniel Grote - Citywire Thanks for updating the article.

As strange if not as daft as it seems, my concern about Vanguard etc is the lack of people they employ in the UK. Running funds in the US via computer models is a great way of cutting costs but for some daft reason I prefer to support a UK business employing people here, and lots of them. Now if HL etc can cut their costs to get nearer to Vanguard then I guess we'll all be winners.

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Codger

May 30, 2017 at 17:11

Over many years, the charges made by fund managers and investment supermarkets, or "platform drag", make a big difference. A total extra of just 1% pa means you lose over 25% over 30 years eg your pension might be less than £15k pa instead of £20k pa.

If you buy and hold a tracker or fairly basic fund for many years, vanguard has an attraction and like the "pound" shops might well build a presence in the U.K over the years. I will certainly be looking at what Vanguard offers.

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dd

May 30, 2017 at 17:16

There is much happiness with iweb in comments here and elsewhere but does anyone have a view on their costs in relation to a SIPP?

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dd

May 30, 2017 at 17:17

Interesting comment, Codger.

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andy mac

May 30, 2017 at 17:37

I now use Iweb for all trading etc. My HL accounts are parked there (ITs and ETFs) so will see what they have to say

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dd

May 30, 2017 at 18:07

Yes, I get that andy mac and I try to do the same. Park in HL, trade in iweb. I haven't used their SIPP yet, though.

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Franco

May 30, 2017 at 20:01

There is no comparison between HL and Vanguard on present offerings.

HL offers all the funds and a complete brokerage service for everything else. Vanguard only offers a few of their own index funds.

Hargreaves has a reputation for excellent service, Vanguard's service is completely unknown and if my experience with American behemoths is a guide, it will probably be terrible.

Apples and peanuts.

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john court

May 30, 2017 at 20:36

So what's wrong with H.L. - best thing that's ever happened in the industry !

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Jerry Grant

May 30, 2017 at 20:55

Used to be with HL and, whilst they provide an excellent service, I moved because their costs were far too high. Moved SIPP and funds to AJBell where costs are really low.

Moved equities ( inc in ISAS) into trading a/c to Barclays Stockbrokers because I like their interface and costs on equities are very reasonable.

Just opened a Vanguard account and will liquidate selected funds at AJBell to buy Vanguards passive funds.

Getting the lowest peetage fees is crucial if one is in for the long term.

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IanG

May 30, 2017 at 22:44

Had a quick look at iWeb. Don't they charge £5 per trade for funds. HL don't charge for trading funds.

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ynys

May 31, 2017 at 02:33

Are those investing in funds (oeics) through HL simply to naive to realise how much the high 0.45 percent charge is reducing the amount of money which could come to them?

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dd

May 31, 2017 at 07:25

I stick with ITs etc in HL, not UTs or OEICs.

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Mickey

May 31, 2017 at 08:06

Or we could go back to buying direct from the fund company, nice extra 5% they charged before the likes of HL etc came along and shook them up.

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Mickey

May 31, 2017 at 08:25

Vanguard Life Strategy funds all go GOLD at Morningstar

http://www.morningstar.co.uk/uk/news/158967/morningstar-fund-ratings-weekly-round-up.aspx

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RBNF

May 31, 2017 at 09:01

It isn't only about direct cost .

I have an HL drawdown pension account, ISA & vantage account & a number of my family are clients. Very rarely have I asked a question and failed to receive an informed answer. Their people are well trained consequently good. At a human interface level the company have got it right.

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thinblackduke

May 31, 2017 at 09:29

Quite right RBFN. HL are a very high quality company to deal with. If price was the only thing that mattered we'd all drive Hyundai and shop at ALDI!

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RippedOff

May 31, 2017 at 13:46

Codger:

By using the cheapest platform (compared to Hargreaves) in the Observer Money article, with £100k portfolio an annual saving of £387pa would be made. At an annual (compound) interest/growth of say 5% pa (modest), what would the loss be after 30 years? And larger investment would make this more. Boy, am I glad I (we) left HL some years ago!

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thinblackduke

May 31, 2017 at 15:00

If you carry out an absolute like for like, comparing the exact same fund invested via HL versus another platform, with the fund already purchased, with no further dealings and at current charging rates and in the same type of account, the cost can be compared fairly. Otherwise, you have to factor in all sorts of charges for management costs, dealing fees, rebates, ISA/SIPP etc etc. Plus there are funds that you can purchase via HL that aren't even available on the cheaper platforms. Go back five years and if it wasn't for HL, you'd still be paying 5% just to buy a fund and 2%+ management fees! Boy, am I glad that HL came along and saved me a fortune in truly excessive fees!

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RippedOff

May 31, 2017 at 17:05

thinblackduke:

I think you will find that the elements you mention are also mentioned in the article. Remember, the saving in not using HL increases above £100k.

I can go back more than 20yrs when there were a number of execution only brokers eg Elson. With the 5% initial charge fully rebated and the major share of annual charges was also rebated.

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thinblackduke

May 31, 2017 at 17:31

I fully concur that 0.15% is less than 0.45%, so if you buy and hold a Vanguard fund, you will save money using Vanguard over HL. Several other platforms charge less than 0.45% too. And the equivalent of less than 0.15% depending on your level of investment.

If you want something other than Vanguard - or other than funds - HL are perfectly viable, depending on your overall requirements.

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RippedOff

Jun 02, 2017 at 12:50

An annual saving of £387, by not using HL for 30 yrs, would give a capital of £11,610. At 5% growth I make the total over £28,000. At 10% this is nearly £76,000. And the lowest cost platform offers all the main categories of investments.

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thinblackduke

Jun 03, 2017 at 00:31

Five years might be a more realistic comparison i.e. how long each government gets to tamper with our finances! Who knows how the various platforms are going to be working in 30 years time - and which are still around in 30 years time - I might not be! Charging structures are constantly adapting to customer requirements and can't stand still if they aren't competitive.

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Jet Set Willy

Jun 03, 2017 at 09:52

Have sold all the funds I held with HL and am off to iWeb. Will be saving £400 a year!

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Dr. Meldrew

Jun 03, 2017 at 10:41

Isn't Vanguard pursuing a "camel's nose" strategy? Don't get me wrong, I'm a happy HL customer. But right now I'm thinking of moving trackers into a Vanguard account purely to save money (I don't think there is any fundamental law of physics that stops me being a customer of both) ... then I'll wait and see how Vanguard and HL evolve their strategy in coming years.

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FarmerDoc

Jun 03, 2017 at 11:20

Those with large portfolios on flat rate platforms such as Alliance Trust Savings may find that investing in Vanguard ETFs through such platforms will be cheaper than going directly to Vanguard.

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Johan Carstens

Jun 03, 2017 at 13:39

I have recently opened an account with Halifax, because I buy and hold and their buying prices are fairly similar to Hargreaves Lansdown's, but their holding costs are nil, as compared to in excess of £50 per month at Hargreaves. My wife is in a similar position to me, so we are looking at saving in excess of £100 per month.

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Sinic

Jun 03, 2017 at 14:41

Since I have a mixture of ITs, Shares, ETFs, UTFs with HL I am paying 0.1984% in charges across my wife and my porfolios.

For the level of service, the comprehensive range and depth of products on offer and the professionalism demonstrated this represents outstanding value.

If you are a small investor and happy to invest all your savings in Vanguard products by all means do so and you may save a few pounds, but if you have a wide range of investments then you simply can't do better than HL. I have been with them for well over twenty years without complaint.

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Trevor Brierley

Jun 03, 2017 at 16:09

I switched our ISAs to Interactive Investor several years ago despite being offered a lower 0.25% rate by HL.

Our platform fees work out at 0.04%.

My research and information is gained from a variety of sources and I do occasionally use HL's site which is freely available like many others. I don't feel we've lost anything by leaving HL and certainly don't miss their ridiculous Wealth 150 recommendations!

Cash saving is substantial over the years. It does depend on how much is in ITs as opposed to funds but there really is no contest.

I agree with earlier comments about Vanguard being a different animal, but I do think using them would be a good choice for inexperienced investors.

But, you have to hand it to HL - they've really cashed in on inertia and blind loyalty. Maybe I'll buy some shares in the dip, as I suspect they will continue to do well.

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mc2

Jun 03, 2017 at 23:34

Trevor Brierley... well done... It seems I've got to do something similar

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RippedOff

Jun 04, 2017 at 15:16

Sinic, You obviously dont believe the analysis by Observer Money that HL are 21st from the cheapest for £100k investment?

PS I am not connected with any platform or investment business.

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Trev DIYer

Jun 04, 2017 at 15:25

On Friday, Hargreaves Lansdown PLC (HL.:LSE) closed at 1,416.00, -2.61% below its 52-week high of 1,454.00, set on May 12, 2017.

Needs to go lower before I'm tempted to buy. Not holding my breath though!

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Peter Coffey

Oct 30, 2017 at 10:42

Noted comments on Vanguard and HL.

I find HL very efficient and staff helpful . Site provides the services I require and very helpful advice on Funds which I use. For all this I pay a reasonable charge for the quality of service which I am happy to do.Dangerous to compare simply by price

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B B

Nov 07, 2017 at 21:07

100k @ 7% p/yr return over 5 years less 0.45% p/yr via HL net £137127

100k @ 7% p/yr return over 5 years less 0.20% p/yr via Fid* net £138858

*250k fees 0.2%

difference £1730

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