Asset management giant Vanguard is eyeing pension switches as the next big opportunity for its UK investment platform amid a bumper year for growth.
“One of the big opportunities for us is pension consolidation,” Vanguard’s managing director for Europe Sean Hagerty told Financial News, referring to when investors bring several savings pots together in one place.
“Today a lot of asset transfers are painful. They take too long and there is too much friction,” he added.
The Pennsylvania-headquartered firm, which unveiled its UK direct-to-consumer platform to fanfare in 2017, has since amassed £13.6bn of assets and attracted 455,000 clients.
Vanguard has begun to nip at the heels of some established investment platforms, pulling in 99,000 new clients between January and September. Hagerty said the firm is on track to grow this number to 125,000 by the end of this year.
That compares to 61,000 new clients for the UK’s largest investment platform, Hargreaves Lansdown, during the first nine months of the year. Meanwhile, rival AJ Bell increased its direct platform customers by more than 14,000 between January and the end of September, bringing its total to approximately 280,000.
“Last year was a very high watermark for the industry in terms of new clients entering the market. This year we have had a falloff, but we’ll still have 125,000 new clients for the year — in excess of what we would have expected in the market environment,” said Hagerty.
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Around 80% of Vanguard’s platform investors are under the age of 45, with Isas being their most popular investments. Sipps are also growing in popularity — Vanguard added its Sipp in 2020 — and Hagerty said pensions represented potential opportunities for the business.
Vanguard, which manages some $7.5tn of assets globally, is among more than 60 platforms and pension providers that have signed up to Star — a cross-industry initiative working to set standards and protocols to make pension transfers easier.
Hagerty said he expects Vanguard to continue to grow assets as more investors look to move pensions to one platform.
“The only difference between us and [more established platforms] is average balances,” he said.
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“The reason we have low average balances is because we have so many new clients. New clients tend to start with smaller amounts, but then grow their balances very substantially over three to four years.”
He added: “If we stopped today and took no more new clients, our average balances would probably catch up with competitors as clients consolidated other accounts or just gave us new money into their Sipps and Isas.”
Mike Barrett, director at consultancy Lang Cat, said Vanguard’s “increasingly impressive” ability to quickly gather assets and new clients would not go unnoticed by established players.
“Almost £14bn after a relatively short period shows what you can do if you’ve got the brand, the price and the product that people want,” said Barrett.
“This is the disruption the established players would have feared, and was always more likely to come from a large brand such as Vanguard as opposed to the smaller start-up robo advisers.”
Unlike its retail investment platform in the US, which lists investments from other asset managers, Vanguard’s UK offering lists only its own funds and ETFs.
But Hagerty said Vanguard would not rule out offering products from other asset managers in future.
“It adds a lot of complexity and we would only do it when we feel good and ready,” said Hagerty. “We’ll contemplate it. You’re talking at least 18 to 24 months, but it’s not in the technology roadmap today.”
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