Vanguard claims it can help you build the pot you need for your planned lifestyle in retirement at a far lower cost than traditional pension advisors. But would you trust the famously no-frills firm with your life savings?
Getting our finances prepared for retirement is hugely important.
After all, no one wants to have to scrimp by, counting the pennies after we pack in work.
Yet as a nation we aren’t that good at doing it.
For example, the Government introduced the workplace pension scheme as a way of nudging us into actually putting aside some money from retirement, ensuring that it’s removed directly from our paychecks rather than relying on us to actively choose to save.
Recent research has also suggested that we both underestimate how long we are likely to live in retirement and overestimate the size of the State Pension, which is a pretty dangerous combination.
A useful solution to this current state of semi-organised chaos would be if more of us got independent advice on how to go about investing for retirement, and how to then handle our money as we near finishing work.
However, very few of us do so. Indeed a recent report from the Financial Conduct Authority suggested that more than 90% of us don’t take advice over our investing and retirement plans, with the perceived cost often cited as the big barrier.
Which is why it’s so notable that Vanguard, a business renowned for its low-cost services, is moving into the advice market with a new financial planning service.
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Who can use Vanguard’s financial planning service?
First up, it’s worth flagging up that in order to qualify for Vanguard’s personal financial planning service you’ll need to have at least £50,000 invested on Vanguard’s platform, which you are prepared to allocate as being invested for retirement.
Given that you need to have a pretty sizeable sum built up already, it's a shame that those with smaller pots – those who arguably need a low-cost option more than anyone – will be excluded.
What’s more, the planning service is designed for single investors for now. The firm intends to expand it to cover couples, as well as planning towards additional investment goals, in the future.
The tiers
Investors will provide their proposed retirement date, what income they would like in retirement, and details on their attitude to risk.
In exchange, Vanguard then builds up a tailored investment portfolio bringing together its various funds.
Vanguard manages that portfolio on the investor’s behalf, rebalancing when it believes necessary, and dropping the level of risk as the investor starts to near their planned retirement age.
There are three tiers to the service, and what you get will vary depending on how much you’ve got invested through the platform.
If you have between £50,000 and £100,000, then you get a digital financial planning experience.
That means a personal financial plan that is managed by Vanguard and reviewed on an annual basis. You can also get admin support from the Vanguard service team
The tier above this is for those with over £100,000 invested.
Here you get access to a team of financial planners, who can provide telephone or video-based planning support. There’s an annual review from a planner, but you can arrange additional reviews if you experience a change in circumstances.
Finally, the top tier is for those with more than £750,000 invested.
These people will get a dedicated financial planner who can provide face-to-face support via video or in-person at Vanguard’s London offices.
What will it cost?
Vanguard’s appeal has always come from the fact that it is incredibly competitive on price, and the financial planning service is now different.
Overall the service will cost 0.79%. That encompasses an advice fee of 0.5%, ongoing fund changes of 0.12%, transaction costs of 0.02% and a platform fee of 0.15%.
All aboard the Vanguard train?
OK, cards on the table time.
I’m a big fan of the way Vanguard go about things and have invested in a series of the firm’s funds through my SIPP, precisely because of the competitive pricing.
The reality is that, while the performance of your investments will always be the biggest driver of the size of your pot at retirement, the fees you pay for those investments can make a significant difference and that’s a big selling point to me.
Seeing Vanguard take that same low-cost approach into financial advice – an area that quite honestly far more of us need to embrace – is really encouraging.
There will inevitably still be a perception issue.
For some, the reason they don’t get advice later in life is that they don’t think it’s the sort of thing people ‘like them’ do as if financial advice is the preserve of the super-rich and lottery winners.
But having a low-cost option from a respected name could be a real step towards breaking down that particular barrier and ensure that far more people benefit from a little personalised guidance right when they need it the most.
What's been said about Vanguard's new service?
Anthony Morrow, co-founder of financial advice service OpenMoney, said: “It’s great to see a well-known brand like Vanguard launching a personal financial planning service in the UK, to help bring financial advice to a broader range of people.
"However, £50,000 is a large amount to accumulate in order to use the service and you need £100,000 before you can access Vanguard’s qualified, regulated planners. We want financial advice to be available to everyone, regardless of how much money they have.
"We hope that Vanguard entering the UK market will encourage more providers to find effective ways to deliver low-cost financial advice and investment services to people with smaller amounts of money, who can arguably benefit the most from professional support.”
Holly Mackay, CEO of Boring Money, said: “This launch is genuinely disruptive, in a positive sense. The UK’s Advice Gap remains substantial – only 9% of UK adults see a financial adviser and investor confidence shrank to all-time lows during the pandemic.
“We think this service offers those people with relatively simple financial affairs, in their late 20s to mid-50s, who just want to save up for retirement with minimum fuss and low fees, a really interesting new option.
At 0.79% a year all-in, to have a discretionary managed account, a service which maximises your tax allowances, does the juggling between ISAs and pensions for you, keeps an eye on future nasties such as the Lifetime Allowance, and provides regular access to people on the phone if you have more than £100k invested – that’s interesting.
“Existing Vanguard customers are pretty happy with the core investment service – 86% say they would recommend it. It will be interesting to see if the advice service gets such strong user feedback."