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Holly's View: Vanguard ends its reign as the lowest-cost option for smaller DIY investors
By Holly Mackay, Founder & CEO
13 Dec, 2024
Our Founder & CEO Holly Mackay responds to a recent question about Vanguard's announcement to introduce a minimum fee for UK investors from January 2025.
Having been a Vanguard fanboy for a while, I’m disappointed to see their charges increase - this will affect smaller investors disproportionately. I’m not affected but it has changed my view significantly (I have recommended countless people to start investing even small amounts with Vanguard). I’m currently now actively looking at splitting holdings out of Vanguard and would value a BM review of different providers in light of the new charges. I also feel that if they have increased charges now to the smallest investors, what’s stopping them increasing again?
Vanguard has announced moves to implement a minimum fee for DIY investors in the UK from January 2025. This will apply to all investors on Vanguard’s platform except for those who select either a managed ISA or pension product, or people with a Junior ISA.
Vanguard gives people 2 choices. You either:
Self-select. So pick and choose from a range of their low-cost tracker funds or ETFs.
Or you shrug and say, “I can't be bothered/I can’t get my head around this so YOU manage it all for me please". And choose their Managed ISA or Managed pension option. You answer a few questions and then the boffins blend and manage the mix of investments for you.
For those who have gone down the self-select route, the new minimum fee will be £48 every year which effectively makes the service more expensive for anyone who has less than £32,000 invested on the platform. The 0.15% administration fee remains unchanged. On top of this, you will pay the fee for the funds and the ETFs – as these are passive options the typical cost would be about 0.1% up to about 0.3%.
For those who go down the Managed route, the costs have fallen to an all-in 0.51% a year.
As at Q3 24, the average customer balance with Vanguard was £38,100. This move will impact a significant proportion of their customers, who are typically younger and have slightly lower balances held with Vanguard than the average platform customer.
This table shows how the new charges stack up when compared against some mainstream competitors. We have assumed this includes both the ISA administration fee and also the cost of a ‘ready-made’ investment solution from the provider. So it’s a total all-in cost and you can see which investment solutions we have modelled in the notes below.
All-in annual costs for a ready-made ISA
Provider | £1,000 | £5,000 | £10,000 | £20,000 | £50,000 | £100,000 | £300,000 |
Vanguard - OLD Self Select | £4.20 | £21.00 | £42.00 | £84.00 | £210.00 | £420.00 | £1,185.00 |
Vanguard - NEW Managed ISA | £5.10 | £25.50 | £51.00 | £102.00 | £255.00 | £510.00 | £1,530.00 |
Dodl | £15.70 | £30.50 | £52.00 | £104.00 | £260.00 | £520.00 | £1,560.00 |
Monzo | £5.90 | £29.50 | £59.00 | £118.00 | £295.00 | £590.00 | £1,770.00 |
AJ Bell | £6.20 | £31.00 | £62.00 | £124.00 | £310.00 | £620.00 | £1,785.00 |
Nutmeg | £6.60 | £33.00 | £66.00 | £132.00 | £330.00 | £660.00 | £1,580.00 |
Moneybox | £18.20 | £43.00 | £74.00 | £136.00 | £322.00 | £632.00 | £1,872.00 |
Vanguard - NEW Self Select | £50.70 | £61.50 | £75.00 | £102.00 | £210.00 | £420.00 | £1,185.00 |
Barclays | £8.10 | £40.50 | £81.00 | £162.00 | £405.00 | £810.00 | £2,230.00 |
interactive investor | £65.77 | £73.37 | £86.86 | £105.86 | £238.88 | £333.88 | £713.88 |
Hargreaves Lansdown | £8.80 | £44.00 | £88.00 | £176.00 | £440.00 | £880.00 | £2,540.00 |
Fidelity | £91.00 | £95.00 | £100.00 | £110.00 | £225.00 | £450.00 | £900.00 |
*See below for notes and assumptions
In the old structure, a £10,000 DIY portfolio invested solely in a Vanguard LifeStrategy fund would cost £42 a year, the cheapest option available in the table above. The changes will increase the annual costs to £75 a year, making Vanguard notably less competitive for those who want the freedom to pick and choose.
On the other hand, with no minimum fee applied to this path and a reduction in fees, the Managed ISA becomes a more compelling route for those with less confidence or less money in their account.
Vanguard has been the fastest-growing platform by assets in the past year. Looking over a longer 5-year period, the platform has seen a remarkable rise in assets, increasing by circa 13 times to current figures of £25.5bn. But of course, businesses will also look at the bottom line, not just popularity metrics, and this fee increase has been attributed to the growing costs of looking after investors. We’ve heard grumbles in the past about the lack of an app (now rectified) and long wait for customer service support.
Vanguard’s USP has always been about cost. Not service. This move has a subtle impact. It removes them from being an option where no-one needed to worry about cost, to an option where people need to do the Maths. So, on some grounds, they are not the slam dunk they once were. If you want choice, and you want to pick and choose, and you have less than £32,000, then providers like AJ Bell start to look more appealing.
Considering moving money out of Vanguard?
The first and increasingly important question we all really need to ask when choosing a place to invest is how much choice we want to have. Here's a multi-choice approach to help you work out what's best for you:
I want minimal involvement. I'd rather not spend time managing investments and prefer a very hands-off approach.
I'm interested in a straightforward investment strategy. I want to choose some low-cost index funds or ETFs to spread my investments across broad market indexes, potentially including global markets, emerging markets, and a few targeted sector opportunities.
I want a comprehensive approach. I'm looking to create a diverse investment mix that includes shares and funds from a selection of the world's leading fund managers.
If you picked 1) and just want someone to do it for you, Vanguard’s Managed ISA remains a good option. I also think that Monzo and Nutmeg are worth a look, particularly for accounts with less than £30,000.
If you’re 2) and want to pick a blend of low-cost tracker funds and ETFs, and have a smaller portfolio, then AJ Bell and Barclays are low-cost choices. InvestEngine are worth a look for ETF fans as they don’t charge core admin fees for these. Also – to be clear – if you have more than £32,000 invested with Vanguard, there is no cost reason to change.
And for beginner investors, or those with smaller accounts, who want some choice from a range of managers (not too much) and low fees, have a look at AJ Bell’s Dodl. Those with larger accounts (£100k +) who want to trade ETFs will still find InvestEngine, Trading212, iWeb, Freetrade and Halifax low-cost options and then chuck interactive investor into this mix if you want funds and decent research too, or Saxo if you want the trader experience.
Notes for table:
Portfolio assumptions:
Boring Money have selected a balanced option from the cheapest or most popular range of in-house ready-made investments where available
Transaction costs have been included where stated or publicly available
List of funds and price used per provider:
AJ Bell: AJ Bell Balanced fund – 0.37%
Fidelity: Fidelity World Index fund – 0.10%
HL: HL Multi-Index Balanced fund – 0.43%
ii: Managed ISA Balanced Index portfolio – 0.19%
Moneybox: Moneybox Balanced – 0.17%
Monzo: BlackRock MyMap 5 Select ESG – 0.14%
Nutmeg: Fixed Allocation Portfolio 3/5 – 0.21%
Vanguard: Vanguard LifeStrategy60 – 0.27%
Barclays: Barclays Wealth Global Markets 3 - 0.56%
Dodl: AJ Bell Balanced fund - 0.37%
Boring Money have assumed 1 trade per year for portfolios between £1k-£5k, 2 trades per year for portfolios between £10k - £20k, 4 trades per year for a £50k portfolio, 6 trades per year for a £100k portfolio, and 8 trades per year for a £300k portfolio. All trades are assumed to be into the funds referenced above.
Individual provider assumptions and notes:
For Fidelity, no regular savings plan have been assumed for portfolios under £25k, therefore customers are assumed to incur the full £90 annual charge on their portfolios
For interactive investor, the investor essentials plan has been assumed for portfolios under £50k, switching to the investor plan on amounts over £50k
