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Vanguard: Platform frustration drove pricing model change

Coins-Money-Currency-Calculator-Finance-Business-700.jpgVanguard says platforms frustrated by its dilution levies were a driving force behind its switch to swing pricing, while it argues investors should see total expense ratios come down from the move.

The change came into place across its UK and Dublin-domiciled funds this month, but will not apply on ETFs.

Marketing head Nick Blake says platforms had operational difficulties with the dilution levies that Vanguard previously used.

“Swing pricing is the norm in the UK and Europe so most platforms weren’t set up to deal with paying an additional dilution levy and reflecting that in contract notes.”

Blake adds there was a perception problem with dilution levies.

“Unfortunately some people often thought that was a charge that we were collecting as Vanguard the management company. We had to keep reminding people that it went back into the fund.”

Swing pricing also directs money back into the fund to offset costs, although Blake notes it too has viewed negatively in the past.

“There was a time many years ago when people worried about the opaqueness of swing pricing, but with all the transparency we’ve got coming now with costs and charges we’re comfortable clients can see the full effect of these dilution approaches.”

Blake stresses intermediaries and investors will not be impacted by the change.

“If you do have someone who chooses to come in and out of the fund fairly regularly that’s fine. They’ll now be enjoying the swing price – the entry or exit NAV on those days,” says Blake.

“The key thing is there are no residual costs that are being borne by the ongoing investors in the fund.”

In fact, information sent to investors about Vanguard’s changes says total expense ratios should go down.

Vanguard told investors the switch could attract more inflows as the model is preferred over other available methods.

L&G, Fidelity, JPMorgan Asset Management and Goldman Sachs Asset Management already adopt the swing pricing model and Jupiter will introduce it to their unit trust range in January 2018.

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