While Vanguard is an investment platform that offers its own funds, Nutmeg is sometimes called a ‘robo-adviser’ because it harnesses technology to select a portfolio of suitable investments for you. They charge differently, but as the product and investment choices, tools and guidance differ, your choice may not simply come down to the costs of investing.
What is Vanguard?
Vanguard’s US founder John C. Bogle was a pioneer of index funds in the US and a proponent of low-cost investing by individuals. Index funds, also known as passive funds, don’t pick individual shares or bonds to beat the market, they track the average performance of the entire market. In 2009 Vanguard opened its UK office. However, by only offering investments in Vanguard funds, the platform is a reduced product offering compared to other UK fund platforms, which offer wider ranges of funds from different providers. Nevertheless, in March 2023 Vanguard passed the milestone of 500,000 UK customers, with £16 billion in assets on the platform.
What is Nutmeg?
Nutmeg is an online discretionary investment management company that was founded in April 2011 by Nick Hungerford and William Todd. ‘Discretionary’ means that it makes investment decisions on behalf of its customers, building and managing diversified portfolios for them, rather than providing a platform for people to buy and sell investments. Nutmeg claims to set up your portfolio in under 10 minutes, and uses technology to keep charges low and show where you’re invested. Nutmeg portfolios are almost entirely made up of low-cost exchange traded funds. The company was bought by US bank JP Morgan Chase in 2021 in a deal valuing it at £700 million. It now has over £5 billion in assets under management on behalf of 230,000 investors.
Vanguard v Nutmeg – product on offer
With both firms you can invest using a broad range of different accounts, from taxable General Accounts, to tax efficient wrappers such as Individual Savings Accounts (ISA), Junior Individual Savings Accounts (JISA) and Pension. Nutmeg also offers a Lifetime ISA, which allows you to save for a first home or retirement, which may give it the edge if you’re aged 18–39 and therefore eligible to open one.
Both firms let you get started with a minimum lump sum investment of £500. Nutmeg lowers this to £100 for Lifetime ISAs and Junior ISAs, which you may find helpful if you’re under 40 or a parent. While Vanguard also allows monthly investments, starting at £100 per month.
The investment range is one of the biggest differences between the firms.
Vanguard gives access to a limited range of own-branded investments. This comprises 84 Vanguard funds, including index and active funds and Exchange Traded Funds (ETFs). ETFs are a type of investment fund, listed on stock exchanges, which replicate the performance of a pool of investments or an index. The Vanguard Funds are low cost, charging 0.20% on average.
Vanguard also offers the popular LifeStrategy and Target Retirement Fund (TRF) ranges, which are like ready-made portfolios. The LifeStrategy funds come with 5 different risk levels, while the firm also has a tool to select across its range from 7 risk levels, supported by another tool to help you understand your risk appetite.
The Target Retirement funds start switching you out of higher-risk, higher-reward investments and into more stable ones as you get closer to retirement. You can choose from 10 retirement dates.
With Nutmeg you choose your investments from a limited range. The firm admits that the “robo” bit in it’s usual descripto as robo-adviser refers to the technology it has built to trade and manage the investments in your portfolios. The firm’s investment team selects and manage your chosen portfolio using Exchange Traded Funds (ETFs) as low-cost building blocks. Nutmeg selects from a universe of more than 1,000 ETFs, using a range of different external investment firms rather than using in-house funds.
Nutmeg’s investment range is based on five investment styles, that also use ETFs to diversify across stocks, bonds, industries and countries. But you have to choose the style by yourself.
There are five styles to choose from. Nutmeg’s Fully Managed and Socially Responsible portfolios are monitored on a daily basis, while its cheaper Fixed Allocation portfolios are designed to perform without the intervention of Nutmeg’s investment team. Nutmeg’s more recent launches are Smart Alpha portfolios, managed by parent company JP Morgan Asset Management using a unique set of ETFs, and Thematic investments, targeting the growing trends shaping our future.
Within each style you also have to choose the risk level. Within the Fully Managed and Socially Responsible options you choose between 10 risk levels. Thematic investing is only available for risk level 5 and above. Fixed Allocation and Smart Alpha both offer 5 risk levels.
Nutmeg offers a 10-page detailed pdf guide to explain how to choose between all of this but, even so, you might find it difficult to choose if you’re an absolute beginner and lacking confidence. Even the Nutmeg guide states: “We know this is a lot of information to digest.”
It’s also important to compare charges. With both firms you’ll pay a management or custody fee based on the total value of your investments.
Vanguard charges a platform custody fee of 0.15% per year (£150 on an investment of £100,000). It caps this fee at £375 per year for accounts with investments over £250,000.
Vanguard doesn’t charge extra for its ISA or, perhaps more importantly, its pension. However, Vanguard also offers a Managed ISA with ‘guidance from real human experts’ for investors who don’t want to make their own decisions. This charges a total of 0.60% a year.
Nutmeg’s management fee is more expensive at 0.75% on investments up to £100k, so £750 on a portfolio of £100,000. This reduces to 0.35% on the portion beyond £100k. But if you choose its Fixed allocation investment style, the management fee starts at 0.45% on the first £100k and is 25% on the portion beyond.
On top of these management fees, you have to pay the ongoing fees attached to the funds. The fees vary depending on the investments you choose, with Vanguard’s averaging 0.20% and Nutmeg’s starting at 0.21% for Fixed Allocation, rising to 0.36% for Smart Alpha.
Frequent traders should note that Vanguard has no dealing charges for buying or selling funds.
It’s difficult to compare investment performance exactly, because it depends which investments you choose. However, both firms show investment track records for specific investments on their websites.
For investors choosing similar average risk level investment options, it feels appropriate to compare Nutmeg Fully Managed portfolio 6 with Vanguard’s Lifestrategy 60% equity fund, as they have similar levels of equity exposure. The costs of these investments are both 0.22%.
In calendar year 2023, Nutmeg 6 delivered 9.7%, just under the 10.14% return from Vanguard Lifestrategy 60% over the same period. However, in 2022, both had negative performance, with Nutmeg 6 delivering -12.6% v Vanguard at -11.2%. Performance in 2021 and 2020 saw Nutmeg at 9.9% and 6.2% v Vanguard at 9.93% and 7.84%. Overall, on this specific comparison, Vanguard has slightly better performance.
Investors who need help might be attracted to Nutmeg’s financial advice service. For a one-off fee of £575 (including VAT), Nutmeg will create a financial plan to help meet your goals. This is ‘Restricted Advice’ on its own range of portfolio services and investment and pension products, rather than ‘full advice’ that looks across the whole investment market. Nutmeg’s financial advice service is designed to identify which Nutmeg products and investments might be appropriate for you given your financial circumstances and goals. You can also book a free 30 minute call with an expert before you sign up for this.
Vanguard also offers a Managed ISA and a Managed Pension with ‘guidance from real human experts’ for investors who don’t want to make their own decisions. These charge 0.30% on top of the Vanguard platform custody fee.
Vanguard v Nutmeg – research, tools and features
Vanguard offers daily market insights and investment education, plus guidance to help investors narrow down their investment choices. It has a tool to help you choose funds, which starts by asking 6 questions to help us understand your attitude to risk. Plus the fund selection tool allows you to filter funds by seven risk levels. Vanguard also has a good pension calculator to help you find out if you’re on target for the retirement you want.
Nutmeg has a very active blog covering a range of economic and financial topics, and including guides for beginners. However, compared to Vanguard, it has a broader range of tools and calculators that allow you to calculate compound investment returns, plus returns from ISAs and pensions, and see how tax affects your investments.
Vanguard v Nutmeg- user experience
Vanguard has a TrustScore from consumer website Trustpilot of 4.2 out of 5 (based on just under 3,000 reviews), while Nutmeg has a score of 3.9 (based on just under 2,000 reviews).
Note that Trustpilot states it has no recent records of Vanguard or Nutmeg asking their customers to review them. Overall, businesses that regularly invite their customers to write reviews tend to have a higher TrustScore than businesses that don’t. As the platforms have no difference on this factor, the scores indicate that Vanguard has better customer service.
However, if a decent app is important to you, Nutmeg has the edge because Vanguard doesn’t yet have an app available to UK investors.
Plus, Nutmeg’s app customers have praised it for responding to calls for better user experience and functionality. As a result, the Nutmeg app has an impressive 4.8 out of 5 rating on the app store (based on more than 16,000 ratings),
Vanguard v Nutmeg – quickfire advantages & disadvantages
Vanguard advantages
- Lower-cost fees
- Tools to help investors choose funds
- Target retirement date funds
- Offers Managed ISA and Pension
Vanguard disadvantages
- No app for UK customers
- Only offers Vanguard funds
- No access to financial advice
Nutmeg advantages
- App with high rating
- Access to restricted financial advice
- Lifetime ISA
- Up to 10 risk levels
Nutmeg disadvantages
- Higher fees
- Lower customer service score with Trustpilot
Our conclusion
Both firms have a good product range and plenty of investment options to suit beginners to more confident investors. If you specifically want a Lifetime ISA, portfolios that select funds from a range of providers, or an investment app, then you’ll be drawn to Nutmeg. Others may be attracted to Vanguard’s Lifestrategy funds, which have delivered good performance, or its Target Date retirement funds which tie in with a specific retirement date.
If you’re undecided between the product and investment ranges, a fees comparison should swing your choice in favour of Vanguard, which has a significantly cheaper custody fee, plus low-cost funds.
Over many years the compounding of relatively small differences in fees and charges over several decades can amount to life-changing sums. If you invested £100,000 over 10 years and got an average annual growth of 6 per cent from the investments, with Vanguard’s 0.15% charge your fund would grow to £176,566. But Nutmeg’s 0.75 per cent charge would reduce the end sum to £166,811. You lose £9,755 to Nutmeg’s additional platform fees. With larger amounts and longer time scales the amount lost will magnify due to the effects of compounding. Use Compare and Invest to find out what you’d potentially be charged for investing with each of these firms before making your final decision.
