Vanguard and Hargreaves Lansdown (HL) are two of the biggest investment platforms in the UK.
But what exactly are the differences between them, and which one is better for your investing needs?
This guide examines the key distinctions between Vanguard and HL to help you decide which platform to choose.
Vanguard focuses on low-cost passive index funds.
Hargreaves Lansdown offers active and passive investments
Fees are considerably lower at Vanguard
HL provides more investment options and guidance
Vanguard suits passive, long-term investors
HL suits active investors who change investments more frequently
What is the difference between Vanguard and Hargreaves Lansdown?
The core difference between Vanguard and HL is their underlying philosophies.
Vanguard is dedicated to the principles of passive investing and keeping costs low.
They focus more on offering index funds and exchange-traded funds (ETFs) that track market performance instead of trying to beat it.
This helps keep fees down compared to actively managed funds.
Meanwhile, Hargreaves Lansdown promotes an open architecture.
They offer a wider range of investment options, including active and passive funds, shares, ETFs and investment trusts. However, this flexibility typically comes with higher fees.
In a nutshell:
Vanguard: Focuses on passive investing and keeping costs low.
Hargreaves Lansdown: Wider range of investment options but higher fees.
Vanguard vs Hargreaves Lansdown: how do the fees compare?
Investing fees can eat into your long-term returns, so it's important to understand the pricing models at Vanguard and HL.
Vanguard aims to have the lowest fees in the industry.
Their pricing structure is simple:
0.15% account fee (capped at £375 annually for accounts of over £250,000).
No dealing fees on Vanguard funds.
£7.50 per ETF trade and one-off costs of between 0.02% and 0.46%.
Ongoing costs of between 0.06% and 0.8%.
Fund transaction costs of between 0.01% and 0.86%.
So, if you stick to Vanguard index funds and ETFs, your main cost will be the.15% account fee and minimal trading fees, so it keeps costs exceptionally low.
Hargreaves Lansdown fees
HL has a more complex fee structure with higher costs overall:
0.45% annual management charge fee (capped at £45 per year for a stocks and shares or lifetime ISA and capped at £200 annually for a self-invested personal pension.
£11.95 fee for fund/ETF/share dealing (this may decrease depending on the number of deals). Ongoing charge figure (OCF) on each fund
The 0.45% fee looks competitive, but the dealing fees per trade add up, especially if you invest small amounts regularly. The OCF on funds averages 0.81% but can be over 1% in many cases.
This means total investing costs are notably higher than Vanguard, sometimes exceeding 1% per year.
While HL does not charge a percentage platform fee on fund investments, the dealing charges make it an expensive option in the long term compared to Vanguard.
Is Vanguard or Hargreaves Lansdown better?
When it comes to fees, Vanguard clearly comes out on top due to its capped account fee and minimal trading costs.
However, there are a few other factors to consider when choosing between the two platforms:
Range of investments
HL has a broader range, including active funds, shares, investment trusts, while Vanguard mainly focuses on index funds and ETFs.
Research & guidance
HL provides research tools, fund shortlists and guidance. Vanguard offers less support so you must be confident choosing your own investments.
HL has over 40 years of experience in the industry. Vanguard is newer to the UK retail market, so it does not have the same reputation, although it is huge globally in the institutional space.
While Vanguard is the cheaper option, HL offers a wider service and may be worth the higher fees for some investors who want more guidance and investment choices.
It depends on your preferences and philosophy towards active and passive investing.
Can you open accounts with both Vanguard and HL?
You can certainly open an account with both Vanguard and HL if you wish.
Here are some reasons why holding accounts on both platforms may be beneficial:
You can access to a wider range of investments: For example, you can hold index funds at Vanguard and active funds or other assets at HL.
You can use HL for your ISA and Vanguard for general investing if you prefer their charging structure.
Alternatively, you can hold your core portfolio at low-cost Vanguard and use HL for satellite investments.
You can use HL for consolidated reporting if you have investments elsewhere.
Access to Vanguard exclusive funds and HL exclusive funds.
Compare both platforms and switch assets if you are dissatisfied.
The main drawback is you may incur multiple account fees by holding two accounts.
But if you have a large portfolio, the broader access and choice may justify it.
Which is better for passive, long-term investing?
If you favour a passive investing approach focused on long-term returns, Vanguard has a clear advantage.
The ultra-low fees compound over decades, saving you thousands in the long run compared to HL's charges.
Vanguard has the widest range of passive index funds that track global markets at low prices, which fits with a buy and hold strategy.
Meanwhile, HL offers some index funds, but their pricing model makes passive investing more expensive compared to Vanguard.
HL also focuses more on active pickers who want to beat the market.
So, in summary, Vanguard is preferable if you:
Prioritise minimising fees
Prefer a simple passive strategy
Are happy constructing your own portfolio of tracker funds
How do their investment philosophies differ?
The differing philosophies between the two platforms are the crucial point of distinction:
Passive investing beats active management over time.
Minimise costs and fees for investors.
Broadly diversify across markets.
Strategic long-term approach so there’s no need to constantly buy and sell.
Hargreaves Lansdown philosophy
Provides a wide choice of investments, including active and passive funds.
Offer tools to help investors pick winning investments.
Enable investors to take an active role in changing investments.
Provides guidance and research to support active decisions.
So, in essence:
Vanguard encourages long-term passive strategy with minimal intervention.
HL provides active investors with tools to beat the market.
Which approach you align with should guide your choice of platform. Passive investors fit best with Vanguard, while those who enjoy actively managing their portfolio may prefer HL.
Regarding investment outlook, Vanguard suits passive, long term investors compared to Hargreaves Lansdown’s model, which is better suited to those who change their investments more frequently.
You should weigh up these key differences to decide which platform fits your investment philosophy and needs.
You may even choose to open accounts with Vanguard and HL if you want access to the most options.
Want guidance before investing?
Unbiased can quickly connect you to a financial adviser regulated by the Financial Conduct Authority (FCA).
They can look at your circumstances and investment goals to help craft the best portfolio for you.