The big news this week was that American behemoth Vanguard will be setting up shop in Canada. For those that don’t know, Vanguard manages almost $2 trillion in assets and is known for having rock bottom costs, owing to it’s unique structure whereby the unit holders own the fund. I wrote about them, and even commented on their Canadian launch in 2009. I was off by about a year! :)
So a press release was sent out and the overall response from journalists and bloggers was that they were frustrated that specifics weren’t detailed. We don’t know what products or services will come, and the company has indicated that they won’t release that information until the regulatory filings for said products are made later in the summer. They did hint that they would focus on products for use in the advisory channel which has some people guessing that it will be a mutual fund launch to start.
I have no inside information, but given the hint about advisor based distribution to start, I thought I would take a look at the Vanguard United Kingdom launch to perhaps figure out their modus operandi for launching into a new country with an advisor focus. With some exceptions, if expansion into a new territory works, you just wash, rinse and repeat.
Take a look, from the Vanguard United Kingdom website:
Vanguard in the UK
Vanguard aims to offer the highest value investment products and services in the UK, just as we do in other parts of the world. In line with this mission, we launched our initial line up of index funds in June 2009. We have a range of other more diverse investment products in the pipeline, but the Vanguard Group’s long history of success with index funds makes them the most logical first step in the UK.
Low cost and transparent
In order to keep costs low and transparency high, we don’t pay commission. Instead, we work with fee-based investment professionals who appreciate Vanguard’s cost-based investment approach.
Our product offering
Our initial offering in the UK consists of a range of index-tracking mutual funds that are distributed primarily through platforms used by fee-based advisers. This means we work with the increasing number of IFAs (Independent Financial Advisers) who are moving away from a commission-based to a fee-based model. We also work with wealth managers, family offices and institutions.
Vanguard has had considerable success in this sector in recent years in the US as the demand for fee-based advice grows. We believe a similar trend is emerging in the UK driven by both regulatory action and customer demand.
Investing in our funds
Retail investors can access our funds using fund supermarkets, which sell our products alongside other providers. We do accept direct investments with a minimum investment of £100,000 per fund – a limit which does not apply when investing via fund supermarkets. We do not offer investments advice so if you need help making your investment decision or if you are unsure if our products or services are suitable or appropriate for you, you should contact a financial adviser.
Vanguard launched locally domiciled ETFs in Australia in May of 2009, while their fund offering had been there for many years prior. I’m not suggesting a Canadian based ETF offering is years away though. The world has changed quite a bit and ETFs are de rigueur.
Interesting stuff, Preet. But what’s a fund supermarket? Is that equivalent to an online discount brokerage? If so, do you think Canadian DIY investors might have access to Vanguard index funds in D-class versions that don’t tack on a trailer?
If I remember correctly, a fund supermarket is essentially an online brokerage for mutual funds (open ended, and unit trusts), and a discount brokerage (in the UK) is for exchange listed securities like stocks and ETFs.
The problem for DIY Canadians looking for funds that don’t pay trailers is that the brokerages don’t offer them because they have no way to earn revenue. Some have tried with a monthly fee, but I’m not aware of any that have really put a mark on the map.
You may want to read this: http://bondsareforlosers.com/growing-active-etf-market-means-mutual-funds-should-consider-allowing-f-class-units-for-sale-through-discount-brokerages/
It sounds like they won’t be paying any commissions and will be going for the fee-based advisors and likely institutional money as well. I’m assuming this means the products will be available to the general public as well.
I suspect they will eventually have the exact same model as in the US – individual investors can open up self-directed accounts directly with them and they will work with non-commissioned advisors.
That’s my guess. :)
Fee based adviser/advisor is way better then SF/DSC AI if you don’t have the time to DIY. P.S. Preet I’m looking forward to your updated CYA pfd.
I personally think Vanguard will give retail investors some low fee mutual funds and ETF flavours to canadian but overhaul canadian Mutual funds feeand expenses are very higher compare to other part of world.
I am in strong favour of indvidual stocks and few good ETF’s to investmy own. BTW, I like your article “investment policy statement (IPS)’. I wrote my IPS 10 years ago and strictly following with some upgrate.
Cheers!
Thanks Hardesh!
I’m guessing mutual funds to start, don’t know how imminent an ETF launch would be, but again, just guessing.
Anything that encourages more fee-based investment advice is a good thing. When someone is being paid a commission to sell something, they become salespeople, not advisors. Not that is anything wrong with being a salesperson, I just think they should label themselves as such and not as advisors.
I agree money. Plus if they are running off of commission its rare that the consumer with get a good rate. The price always gets jacked up!
Some great tips here thanks for the info
Great tips thanks for the info.
Nice post.
It’s going to be interesting to see what Vanguard rolls out in Canada. I’m curious as to what ETFs they will offer and what the management fees will be despite their reputation for low costs.
Keep us posted on any news Preet!
Just curious, when an investment vehicle like Vanguard claims it has “low costs”, would a seasoned and savvy investor regard that as a good sign, or does that set off warning bells?
I think a seasoned investor would look at more than just cost, so I would say it means little in and of itself. Vanguard however, has a stellar reputation and this is pretty good news. The impact to the Canadian marketplace might be more muted than some might expect. While those who read the business news and participate in the blogosphere have their opinions, they represent the minority of investors.