Investment manager Vanguard slashes tracker fees as it launches a price war to cash in on Woodford scandal

One of the world's biggest investment managers has today launched a fund price war in the wake of the implosion of Neil Woodford's empire.

Vanguard, which manages £4.7trillion of assets, has slashed fees on 36 tracker funds to attract savers disillusioned by years of high charges and poor returns.

The investment giant is best known for pioneering low-cost passive funds which blindly track a stock market or asset, rather than employing highly paid fund managers. 

Vanguard, which manages £4.7trillion of assets, has slashed fees on 36 tracker funds to attract savers disillusioned by years of high charges and poor returns

Vanguard, which manages £4.7trillion of assets, has slashed fees on 36 tracker funds to attract savers disillusioned by years of high charges and poor returns

From today, savers in these 'robot' funds will pay an average annual management fee of 0.2 per cent of the amount they have saved – and as little as 0.06 per cent.

Many investors in Woodford's doomed flagship Equity Income fund had been paying 0.75 per cent until his empire collapsed last week.

Vanguard was planning to make its move before the Woodford debacle, in which thousands of investors have been denied access to their money since June while continuing to pay millions of pounds in management fees. 

But the American firm, which runs around £100billion in the UK, is hoping the negative publicity surrounding the downfall of Britain's most feted stockpicker may encourage more savers to switch to cheaper tracker funds.

Sean Hagerty, head of Vanguard for Europe, told the Mail: 'For too long, investors have been poorly served with high-cost, complex investments.

'There is still a misconception that the more you pay for an investment, the better it performs. In reality, costs really impact the returns investors make. Investors cannot control the markets, but they can control the fees they pay.'

The fund management industry has been fiercely criticised for overcharging, and not spelling out how much savers are paying. The City watchdog, the Financial Conduct Authority, has told firms to provide clearer information.

Consumer campaigners have long complained that while some active fund managers are worth paying extra for, many fail to beat a stock market tracker while charging a hefty premium for their services. 

The fee on Vanguard's UK's Equity Income Index fund is being cut from 0.22 per cent to 0.14 per cent.

An investment of £10,000 in Woodford's Equity Income fund when it launched in July 2014 would now be worth just £8,533. 

Over the same period, a £10,000 investment in Vanguard UK Equity Income Index would have grown in value to £12,043.

Charges might seem small but they have a huge impact in the long term. A £10,000 investment which grows 6 per cent a year would be worth £17,908 after ten years with no charges. 

But it would be worth £16,602 – £1,306 less – if a charge of 0.8 per cent is imposed.

Justin Modray of Candid Financial Advice said: 'Trust has been damaged by the Woodford fiasco and the best-buy lists offered by firms, including Hargreaves Lansdown. 

It's always welcome to see any fund manager cut charges. Trackers are a great idea but investors should not write off active managers, as they can provide better performance.

'If investors look carefully at what funds are holding, they should not be caught out by the likes of Woodford.'

Will investors benefit from axing Woodford and what happens next?

Neil Woodford's Equity Income Fund will never reopen and the star fund manager has seen his empire toppled.

Editor Simon Lambert, assistant editor Lee Boyce and host Georgie Frost, look at what's next for investors and how they will get their money back

On this podcast, they also discuss where it went wrong and what it could mean for the investment industry.

Press play above or listen (and please subscribe if you like the podcast) at Apple Podcasts, Acast, Spotify and Audioboom or visit our This is Money Podcast page.        

 

Vanguard launches price war to cash in on Woodford scandal 

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