So Vanguard has closed its advice arm, much to the delight of the IFA community.
Back in April 2019, the service sounded ideal for the cost-conscious investor in need of help. Here’s FT Adviser’s report
Vanguard has launched its financial advice service in the UK, charging an ‘all-inclusive’ ongoing fee of 0.79 per cent.
The headline cost will incorporate annual platform charges of 0.15 per cent, ongoing fund charges of 0.12 per cent, transaction costs and an advice fee of 0.5 per cent.
What was more, the service was pitched at investors with relatively modest balances.
Vanguard’s service will see clients invested solely in its own funds and will operate on a tiered basis. Those holding pots between £50,000 and £99,999 receiving a digital service, with financial plans reviewed annually.
Those with assets between £100,000 and £749,999 will have access to a team of financial planners, who will provide telephone or video-based financial planning support.
Clients with £750,000 or more will have a dedicated financial planner and will receive support either via video or in person in Vanguard’s London office.
So what is Vanguard saying – went wrong?
A spokesperson for Vanguard said: “We launched the service for clients of our existing platform with specialised retirement needs.
“However, after careful consideration, we have concluded that our clients are looking for other, more adaptable forms of financial planning from Vanguard.
“We have therefore taken the difficult decision to close the retirement planning service.
“We are committed to the development of further financial guidance and advice services, to give investors the best chance of investment success.”
I have to say , this is as clear as mud but Money Marketing does provide some form of explanation.
Money Marketing understands that there was a mismatch between the anticipated and the eventual customer bases.
The average age of the client for this service was 38 years old. However, Money Marketing understands that Vanguard was expecting an older customer profile for its retirement advice service.
Vanguard Personal Financial Planning provided investors preparing for retirement with a financial plan tailored to their chosen retirement date.
So wrong kind of customers chasing the wrong kind of product.
So what was the product failure?
Jim Hennington, who provides help for Australian retirees, comments
The 2021 FT article points out
“The company is to focus on providing restricted advice to those saving for retirement, though its emphasis will remain on INVESTMENT advice rather than encompassing areas such as protection or full-scale tax planning.”
Perhaps a big issue is that: ‘investment’ advice is NOT ‘retirement’ advice.
A good retirement plan needs to consider:
– What lifestyle the person seeks to achieve in retirement: their needs and wants
– A projection of all significant assets, liabilities, incomes and spending at the household level (including social security pensions)
– The person’s ability to save for retirement while working, and an assessment of whether this will indeed be enough to cover their needs
– All issues that will have a material impact on future outcomes – to allow informed decisions to be made e.g. the person’s chosen retirement age
– The potential variability of future unknowns such as investment returns, inflation rates and the lifespan of each spouse
– The link between health, lifestyle factors and life expectancy.
The less well off rely on state pensions.
The very wealthy focus on investment performance and bequests
Those in between need some seriously hard modelling
If you are in the business of offering retirement advice, you know these things, if you are an investment business with a business plan, you guess at them.
The commercial explanation
It doesn’t take a genius to work out what was Vanguard’s financial motivation for targeting mature savers , Securing the retirement accounts of mature savers means maintaining funds with Vanguard for perhaps three decades and well beyond if retirement income did not deplete the pot and it became a bequest. And the assumption was that if you kept the funds, advice would be sticky.
All this sounds very good in the planning but executing these plans requires a degree of proactivity that is rarely found in employed advisers.
Every advisory model I have ever seen succeed required an entrepreneurial zeal to build and maintain a client base over which the adviser took ownership.
Successful advisors build their own client base through referrals and expect to be rewarded with a share of the annuity value of their book. The stickiness of the adviser is down to the trusted relationship built up on a person to person basis. This has little to do with investment and a lot to do with softer values – we might call empathy.
The restricted models that work see advisers as partners , often operating franchises where a product provider restricts advice to its product range; witness, SJP. This suggests that delivering financial advice is an entrepreneurial activity not a commoditised product.
Likewise, the IFA model has only ever achieved scale through networks of small businesses.
Vanguard failure proves once again, that you cannot create an advisory business based on an investment or banking proposition. The importance of the proactive and entrepreneurial adviser to customers cannot be underestimated.