Vanguard had 3.1 billion pounds in British mutual funds as of Sept. 30, according to Morningstar data.

That compares with about 40 billion pounds for Atlanta- based Invesco Ltd., 32 billion pounds for BlackRock and 28 billion pounds for New York-based Bank of New York Mellon Corp. The largest fund provider by assets is M&G Securities Ltd., the fund management unit of London-based Prudential Plc, which is the U.K.'s biggest insurer.

"The more savvy investment advisors have heard of Vanguard, but the majority of people still don't know the name," Norton said.

Lacking 'Advantage'

Vanguard's biggest British index fund, the 556 million pound Vanguard FTSE UK Equity Index Fund, ranks 22nd in size among the country's index funds, Morningstar data show.

Price competition has intensified because of Vanguard's entry into the market, said Christopher Traulsen, director of Morningstar's fund research in Europe. London-based HSBC Holdings Plc dropped the expenses on its index funds by as much 88 percent within a week after Vanguard's arrival in the country, Traulsen said in a June 2009 article headlined "The Vanguard Effect."

Vanguard now has a modest price edge over most peers, Traulsen said in a telephone interview. Its fund that tracks the FTSE Index charges 15 basis points, compared with 21 basis points for the larger BlackRock fund and 30 basis points for the Fidelity MoneyBuilder U.K. Index Fund, Bloomberg data show. The Royal London FTSE 350 Tracker Fund charges 12 basis points.

Distribution Deals

"Vanguard is lacking in competitive advantage," said Ben Yearsley, head of investment research for direct investing at Charles Stanley Group Plc, a London-based firm that oversees 15 billion pounds.

Vanguard's Rampulla isn't discouraged. He said the firm's unusual structure -- it is owned by the investors in its funds - - will resonate with the public.

Because the company refused to pay commissions, Vanguard products originally weren't offered by most advisors or platforms that distribute funds, Rampulla said. That's changing as commissions vanish.

"We are no longer going to be fishing in just a small part of the pond," he said.

Similar deals to the Cofunds distribution agreement may be announced before year-end, Rampulla said. As the rule change nears, the company is running an educational program for advisors that lets them know how their counterparts in the U.S. and Australia have coped with the transition to a world without commissions.