UK Edition
Vanguard and Hargreaves Lansdown are two of the biggest investment platforms, sometimes called fund shops or stockbrokers, in the UK.
Hargreaves Lansdown has more than 1.8 million customers investing over £149bn. Vanguard has around 635,000 British customers with around £24bn of savings – and millions more customers around the world.
They are both well-known names for DIY investors – but what’s the difference and which one is right for you?
You might wonder why we are comparing two such different propositions. After all, Hargreaves has many other rivals offering similar stockbroking services. But Vanguard’s increasingly dominant position as a fund manager (its LifeStrategy range of funds is a firm favourite of financial advisers) and incredibly low fees mean more investors are thinking about moving their Isas and pensions to its platform.
Key differences
The main difference between Hargreaves and Vanguard is the contrasting approaches to investing. Hargreaves offers a huge range of investments aimed at giving investors options across the board from a massive range of managed and “passive” investment funds to individual company shares, bonds and other asset classes.
Vanguard’s focus is far more geared towards low-cost investing, offering passive or index funds and exchange-traded funds (ETFs) that track market performance. Index funds and ETFs are largely run by algorithms. This helps keep fees down compared to actively managed funds which are more expensive to run. Active funds must cover the costs of the fund manager and their team of analysts who hand-pick each investment. Performance fees may also eat into returns.
Vanguard was founded by John Bogle, a legendary American investor who pioneered index investing. His argument was that the chances of picking the right shares, or fund managers, to invest in were slim and that it made more sense to simply buy the whole market. A line from his book, the Little Book of Common Sense Investing, sums up his philosophy: “Don’t look for the needle in the haystack. Just buy the haystack.” He was also concerned with driving down fees for small investors.
Vanguard made its name for its range of funds, whereas Hargreaves is better known as a shop, or platform, for buying funds run by other companies, though it does also have its own funds.
Pros and cons
Range of financial products
Hargreaves offers a broad range of ways to invest or save your money. It offers Isas, junior Isas, self-invested personal pensions (Sipps), Lifetime Isas, international shares from the US, Canada and Europe, as well as its own multi-manager and ready-made funds and a dedicated cash-saving platform (which helps you get a better rate on your savings) and a cash Isa.
At Vanguard you can choose from an Isa, general investment account, junior Isa, Sipp and a managed stocks and shares Isa. For those without the time, willingness or experience to select their own investments, there’s a range of ready-made portfolios and a managed service where Vanguard will choose and run investments for your Isa or pension on your behalf.
Range of investments
Investors at Hargreaves can buy “open ended” funds, investment trusts (funds listed on the stock market), shares, tracker funds, Exchange Traded Funds (ETFs) and ready-made portfolios for those who want to leave it to the experts to decide on the mix of investments.
In total Hargreaves offers access to over 14,000 funds, UK and overseas shares, bonds, gilts, investment trusts and ETFs.
Hargreaves’ range of ready-made funds are aimed at investors who decide they would prefer an expert to put together a blend of investments. There’s an all-in-one investment option via HL Multi-Index Funds or HL Portfolio Funds where your money goes into a balanced portfolio. Or you can build your own portfolio using Portfolio Building Blocks, or add to an existing portfolio with HL Select funds.
Customers can access a full range of retirement options, including Sipps and Lifetime Isas to build a decent pension pot, and “income drawdown” – where you can start taking money out of your pension after the age of 55, but leave the remainder of your pension invested to carry on growing.
Vanguard offers a wide range of funds that track global markets. There are 75 index funds and ETFs to choose from, all of which Vanguard funds.
You can also buy actively managed funds at Vanguard, though the choice is narrow. There are 11 to choose from, which includes two active bond funds and a money market fund – a type of fund which mainly invests in cash or low risk bonds.
The other eight funds are active equity funds, where Vanguard employs other investment companies to manage them. For example, the Vanguard Active Global Emerging Markets Fund is managed by a combination of three other brands: Baillie Gifford, Oaktree and Pzena.
The multi-asset LifeStrategy range – a ready-made portfolio – contains a selection of index funds, giving access to thousands of shares and bonds in a single investment. Each LifeStrategy fund has a different mix of shares and bonds. Those with a higher allocation to bonds are at the more cautious end of the scale, where those with more shares will be higher up the risk scale.
Three of the riskiest LifeStrategy funds are in the top five most popular funds bought on the Vanguard platform. The top two spots are taken by Vanguard LifeStrategy 100pc Equity and Vanguard LifeStrategy 80pc Equity, with Vanguard LifeStrategy 60pc Equity in fourth place.
There is also the choice of Vanguard’s managed service if you can’t decide what your Isa or Sipp should be invested in. You go through a risk questionnaire that helps match you with one of five portfolios that Vanguard then manages on your behalf.
Range of services
Hargreaves provides guidance and research to support investing decisions including a Wealth Shortlist which is a pared-down list of funds to help investors build well-balanced and diversified portfolios.
There’s a host of research tools and analysis as well as a mobile app.
Hargreaves also has a deserved reputation for offering top-notch customer service with a UK-based help desk where you can speak to client support experts if you have any questions. The average waiting time to speak to a customer service team member is 25 seconds.
You can also opt for full financial advice with Hargreaves, from a regulated adviser.
Hargreaves’ Active Savings option has grown in popularity as interest rates have risen. In the past, people who wanted savings accounts rather than investment options would have gone elsewhere.
Vanguard provides plenty of information on its investing education section of the website and in a monthly newsletter.
Previously there was a retirement planning service but this is no longer offered. Instead investors can use the “managed service” for its pension product where instead of selecting the investments yourself you let someone at Vanguard do it.
Fees comparison
Hargreaves tends to be more expensive than its main competitors in most cases. How much you pay depends on how much money you have, how often you trade and what type of investments you hold. Remember, Hargreaves will charge a fee to buy and hold your investments and a fund manager will apply another fee on top.
For a stocks and shares Isa, the first £250,000 you have invested in funds is charged at 0.45pc a year. The value of your investments between £250,000 and £1m costs 0.25pc and between £1m and £2m costs 0.1pc. Any assets you hold over £2m go free.
But note that any money you have in shares, investment trusts, ETFs, venture capital trusts, gilts or bonds are charged separately – you pay 0.45pc, capped at £45 a year. This makes Hargreaves very competitive if you limit yourself to these assets.
The same charging structure is true for a self-invested personal pension (Sipp), but the fee for shares is capped at £200 a year instead.
For a Fund and Share account – a DIY investment account without the Isa or Sipp wrapper – you will pay between £5.95 and £11.95 per UK trade online.
For funds, there’s no dealing charges and the annual charge is tiered like those for the Isa, with a maximum annual charge of 0.45 pc.
For Junior Isas, Hargreaves waives the platform fee and so you only pay fund charges and trading fees.
Its stocks and shares Lifetime Isa is competitive with a platform fee of 0.25pc and there are no fund trading fees – the cheapest in the market at the time of writing. For shares charges are 0.25pc capped at £45 plus trading fees.
Vanguard aims to have the lowest fees for investors. Its annual platform fees of 0.15 pc are very competitive. If the value of your investments is more than £250,000 charges are capped at £375 per year.
Average annual fees on investments are 0.2pc, though can range from 0.06pc to 0.79pc. For its managed investment Isa and Sipp, it charges 0.45pc which is all-in – it includes the platform fee of 0.15pc. There will be fund charges on top.
As a comparative example, if you have a £100,000 Isa invested in 10 funds and do five trades a year, you will pay £329.75 at Hargreaves Lansdown (0.45 pc platform fee for funds at £225, 0.45pc platform fee for shares at £45 and five trades at £11.95 each totalling £59.75). Should you do 10 trades, the overall cost would be £389.50 for the year.
With Vanguard, if you have £100,000 invested in its LifeStrategy funds, you will pay £370 in total for the year (0.15 pc platform fee at £150 plus 0.22 pc fund fee at £220).
Vanguard and Hargreaves are not the only investment platforms available. You can compare the cheapest Isas across the market here.
Long-term investing strategy
Hargreaves is suited to the type of investor who wants to take an active role in the management of their Isas, pensions and investments over the long term.
Hargreaves’ Danny Cox said: “Our clients tell us they value highly the security of a trusted brand, easy and intuitive online experiences, the breadth of proposition and wide range of savings and investment choices, alongside the ability to speak to someone if they need more help.
“Whether a cash saver, seasoned investor or just starting out, people should choose a savings and investment provider which offers the breadth of cash and investment options to suit their circumstances.”
Vanguard suits long-term investors who like to buy and hold (in other words, decide on an investment and stick with it rather than chopping and changing) index funds rather than opting for active funds.
A Vanguard spokesman said: “A very typical Vanguard customer is a saver with a long-term goal, such as funding a comfortable retirement or a house deposit, making regular monthly contributions into an Isa or Sipp, and then leaving well alone.
“Our clients are remarkably well-disciplined when it comes to tuning out the noise and avoiding trading in response to short-term market movements.
“We deliberately do not offer thousands of funds to investors as most underperform their benchmark and it adds to investor cost and complexity.”
The verdict
Despite the fierce competition in the platform space, Hargreaves Lansdown remains relatively expensive. However, you get what you pay for, and Hargreaves provides a wide variety of investment options, guidance and stand-out customer service. So if you have the time and inclination to spend on choosing investments – and trading – and want all the bells and whistles, Hargreaves could be right for you.
If you favour a passive investing approach focused on long-term returns, however, Vanguard has a clear advantage, with the widest range of passive index funds that track global markets – at ultra low prices.
Hargreaves does offer index funds (including Vanguard’s) but its pricing model means it is more expensive than Vanguard. However, there are some instances where it could be cheaper to hold Vanguard ETFs with Hargreaves as with an HL Fund & Share Account you can buy and hold the ETF without any platform charge. Make sure you do the sums before making a decision.
Remember, you don’t have to pick just one brand to run your money – you can use Hargreaves and Vanguard for different things. You might want to choose Hargreaves for your Isa and Sipp, and then open a general investing account with Vanguard if you prefer their charging structure.
Alternatively, you can hold your “core” portfolio at low-cost Vanguard and use Hargreaves for more exotic, “satellite” investments, although this does mean paying two sets of fees. Remember too that money held outside of an Isa, pension or other tax-free wrappers will attract tax on returns.
While charges may look small, fees could have a huge impact on your future wealth. Over the long term, through the effects of compounding, fees can eat into your returns. Lower fees mean you keep more of your money.