The arrival of the Vanguard Direct to Consumer (D2C) platform has profound implications for transparency in the pricing of retail investment products (including DC workplace pensions).
The arrival of the Vanguard Direct to Consumer (D2C) platform has profound implications for transparency in the pricing of retail investment products (including DC workplace pensions).
Anyone with a head for numbers can see that there's a pricing mis-match between workplace pensions, typically delivered at 0.5%pa, and the same funds on retail investment platforms - delivered at double the price, at least.
Since the persistency with which investors hold funds in ISAs matches the duration of their retirement savings accounts, there is no obvious explanation for the disparity. The arrival of Vanguard with an all-in price of around 0.3% for investment management and administration has the impact of the child who pointed out that the Emperor was wearing no clothes!
Detractors will point out Vanguard D2C offers no choice, no advice and no active management. They are already labelling it a 'vanilla' product, (as if all we should buy is tutti-frutti).
I am glad that consumers now have the choice of paying less for less, especially if they can't see much value in paying more. Having a benchmark price for the plain product allows us to assess the value of the expensive product with some idea of the money it's costing.
I say "some" for it is not until we know the hidden 'transaction' costs of the vanilla and tutti-frutti approaches, that we can really understand value for money in an investment product. But the launch of Vanguard D2C is a big step on the road to fund transparency; a game changer perhaps.
Henry Tapper
17 May 2017
