Vanguard Lays Down Marker With Launch Of The UK’s Cheapest Ever SIPP
Vanguard has announced the launch of the UK’s cheapest SIPP product. The fund manager was set up by the late Jack Bogle in an effort to revolutionise the investment landscape for small individual investors by introducing cheap index-tracking funds to the retail sector.
It took years for retail investors to be convinced that index trackers offered a cheaper alternative to actively managed funds, without compromising returns – in fact in recent history they’ve performed considerably better. But many investors have now started to shun actively managed funds, few of which actually consistently beat their benchmark indices, and are reallocating capital to passive index trackers.
The SIPP will mainly offered passive index trackers, with only a limited selection of actively managed funds available. However, given the level of disillusionment many investors currently have with active fund managers, the Vanguard SIPP is expected to attract significant flows of capital.
Holly Mackay, founder of the Boring Money blog and comparison website for small UK investors, recently told The Times newspaper that many of the investors she and her team talk to have indicated they intend to move to the new Vanguard product from their current platform:
“In the past they may have been deterred by inertia and a dislike of the extra admin involved [in moving platforms].”
“But I think this time the good reputation of Vanguard, the very low fees and the fact that the market leader among platforms is now walking-wounded, courtesy of [the disgraced fund manager Neil] Woodford, will mean that we see a significant shift of assets into Vanguard at the expense of all the major DIY fund platforms, but notably Hargreaves Lansdown.”
The new Vanguard SIPP will be accessible with either an initial £500 lump sum investment or by account holders committing to a monthly investment starting from £100. The SIPP will offer access to 77 funds, with the selection dominated by low-fee index trackers and ETFs. There will also be a limited selection of actively managed funds, including the Vanguard Target Retirement and Life Strategy funds.
However, many of the wide selection of investment and unit trusts on the UK market available through more expensive platforms will not be available. This means that the Vanguard SIPP will not be suited to every kind of investor – specifically those who demand a wider selection. However, Vanguard is confident that the selection it will offer will meet the needs of a majority of retail investors for whom simplicity and low fees are a priority.
The lowest fees possible through the new SIPP would be a combination of Vanguard’s annual 0.15% platform charge and the 0.06% annual charge attached to its cheapest tracker funds, including the Vanguard FTSE 100 Index fund. That adds up to rock bottom 0.21% overall, which is less than most rival investment platforms charge for platform use before fund charges come on top.
Research Vanguard commissioned from independent research company Platforum, compared the cost of the new SIPP with others offered by 14 other platforms. The research indicated that £40,000 held in the Vanguard Target Retirement fund would be subject to an annual charge of £172. That compares to an average of £283 to hold £40,000 in the same fund on another platform. The most expensive alternative would charge an annual fee of £396.
Coincidentally, Platforum was also founded by Mackay in 2008 before she sold the business to Centaur Media in 2011. She set up Boring Money after leaving her former company in 2014.
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