January’s news that Vanguard has been granted approval to provide investment advice in the UK not only grabbed headlines, it also resulted in shares in Hargreaves Lansdown, Rathbone Brothers and Brewin Dolphin taking a hit.
Why? The Vanguard advice model has already made its mark in the US, where its Personal Advisor Services has attracted over $150 billion of assets since it launched in 2015. Aimed at investors with over $50,000, its model combines robo-advice with human advisers and its main selling point is price…or rather how low they price.
We don’t know yet exactly what the UK Vanguard advice model will look like. In an article in FT Adviser, it’s claimed the new offering will be “bespoke to the UK” based on the needs and preferences of UK clients. What we can be fairly sure about though, is it will aim to undercut the costs of its competitors, and that includes all existing financial advisers that have investment at the heart of their service offering.
How can UK advisers meet the challenge? Competing on price is not the answer. Not only is it difficult to match the scale benefits that Vanguard enjoys, it’s a strategy that is almost certain to fail. Price wars will always be won by those with the biggest buying power. The big supermarkets are a prime example of this, with the likes of Tesco, Asda, Aldi and Lidl slugging it out to prove they can offer the best value for money. With so much of their marketing targeting this message, it’s a wonder any of the others survive.
What’s interesting is that other grocery brands, notably Marks and Spencer and Waitrose, thrive for other reasons: they focus on alternative selling points, such as quality, variety and innovation. They have segmented the market so they know who their customers are, what they want and how much they are prepared to pay for it.
Advisers who opt for a purely price-driven route will find it impossible to retrospectively convince clients of the importance of their own value add – and that means they don’t stand much chance of beating the likes of Vanguard at their own game.
The most successful advisers are trusted financial experts who know and understand their clients’ life goals. They are planners who offer multi-dimensional services that make a real difference in helping clients achieve these goals. Being able to look holistically at clients’ life events, ambitions and challenges is a unique position to be in and helping to guide them through the ups and downs is a skill that deserves to be highly valued.
