Vanguard is one of the biggest providers of passive investment instruments. It has now launched a new cut-price product sold directly to the consumer, Vanguard Europe boss Sean Hagerty explained in an interview with finews.com.
Asset managers with an active portfolio management are struggling to cope with falling margins. Passive investment products are partly to blame for the decline in margins. Products such as exchange-traded funds (ETFs) are cheaper to administer and therefore cost less to buy.
U.S.-based Vanguard was one of the earliest providers of ETFs and now has bad news for European fund managers: it will start selling its products directly to the end-user.
«Shock Waves»
Vanguard in the U.K. recently has launched an online platform, where would-be investors can buy ETFs. The annual fee is 0.15 percent of the invested sum, or a maximum of £375 (470 Swiss francs). There is no fee for investments of more than £250,000.
Vanguard claims the platform is the cheapest investment solution available. The launch of the product has caused shock waves across the industry, a report by the «Financial Times» suggested (behind paywall).
So far, only U.K.-based investors can use the service. «The U.K. is a test market. If it proves to be a success, a later rollout in continental Europe is an option,» said Sean Hagerty, head of Vanguard Europe, in an interview with finews.com.
The Sky's the Limit
The potential would appear to be vast for Vanguard. The company manages $144 billion in European assets from its base in Pennsylvania, which compares with $4.2 trillion in assets globally.
The new services will add to the pressure on retail banks and asset managers. Retail banks won’t benefit from transaction fees they charge for selling Vanguard products to their customers and asset managers in turn will be asked to further reduce their fees to remain competitive.
A Rival for Own Active Products
The cut-price offering is putting pressure on competitors, but also rivals the active funds sold by Vanguard itself. The asset manager founded in 1975 by Jack Bogle is managing about $1 trillion through its active funds.
«We also suffer, but less so than our competitors,» said Hagerty. Vanguard has received hardly any new money for its active funds in the past year, according to the head of Europe. Vanguard ETFs by contrast have added about $315 billion in 2016.
Vanguard nevertheless will continue to sell its active funds and has only just launched four new such instruments in the U.K. – in the same market where it has caused such an upheaval with its cut-price product.
