What the Hargreaves Lansdown price cuts mean for you

Hargeaves Lansdown offices © Hargreaves Lansdown
Hargeaves Lansdown: flexing its muscles

Hargreaves Lansdown has used its market muscle to pressure some fund managers to cut their charges.

Hargreaves is also cutting its own charges for some customers. We can now expect to see a flurry of price cuts from the investment platform’s rivals. (Platforms are also known as fund supermarkets.)

New regulations – known as RDR2 – have forced Hargreaves to launch a new pricing structure. Under the current rules, Hargreaves typically charges 1.5% a year for an actively-managed unit trust or OEIC..

From that original charge, Hargreaves typically rebates 0.17% to the customer, so the effective charge is 1.33% a year.  The fund management company then typically receives an 0.75% annual management charge (AMC) from that 1.33% fee.

Under its new pricing structure, Hargreaves has ensured that the average AMC on its Wealth 150 platform will fall from 0.75% to 0.65%. What’s more 27 ‘core’ funds will charge as little as 0.54%.

It’s worth noting that the Wealth 150 supposedly comprises the best funds on the market as chosen by Hargreaves Lansdown.  Yet 70% of these top funds are cutting their AMC.

It will be interesting to see if any funds outside the Wealth 150 cut their AMC. As Justin Modray of Candid Money points out, if no fund outside the 150 cuts its AMC, it would “suggest the Wealth 150 list is more a commercial negotiating tool than a serious research process”.

In other words, don’t assume that any fund in the Wealth 150 is definitely one of the best funds on the market.

On top of the AMC, most customers will pay a 0.45% fee to Hargreaves. However, wealthy customers will pay less in a tiered structure:

Fund Investments

Tiered Fee (per account)

 

Up to £250,000 0.45% p.a.
From £250,000 to £1m 0.25% p.a.
From £1m to £2m 0.1% p.a.
From £2m No charge

 

Hargreaves charges no trading fee when you buy or sell a fund. (Trading fees still apply for shares and ETFs.)

Hargreaves Lansdown is also increasing the ‘loyalty bonus’ for existing funds on its investment platform to 0.75%.

So it’s pretty clear that RDR 2 is good news for investors in actively managed funds. However, the new rules aren’t so good for many investors in passive funds – where a fund replicates an index such as the FTSE 100.

That’s because passive investors on most platforms have been able to benefit from very low AMCs – sometimes as low as 0.2% – and they haven’t had to pay any fee to the platform/fund supermarket. (Hargreaves has been the exception and charged a £2 monthly fee for passive funds.)

Thanks to RDR, all platforms are now obliged to charge the same platform fee for passive and active funds, which will make passive investing more expensive.

However, Hargreaves has persuaded Legal & General and BlackRock to launch passive funds on its platform where the AMC is just 0.06% a year. That’s an astonishingly low charge.  Hargreaves is also dropping its £2 monthly charge for passive funds.

Investment trusts

Hargreaves Lansdown customers who use investment trusts will also lose out from the new prices.
Under the current rules, investors pay a 0.5% annual charge on any holdings they have in shares or investment trusts. These charges are capped at £45 a year across your total holding in shares and investment trusts.

Going forward, the annual charge is being cut from 0.5% to 0.45% but there will now be separate caps for investment trusts and shares. In other words, you could end up paying a £90 charge rather than the current £45. So good news for small investors, but bad news for folk with larger holdings.
In personal pensions or Sipps, the maximum charge for both investment trusts and shares is £200 a year. So some Sipp investors could end up paying a £400 annual charge.

So what is the competition doing?

So far, Hargreaves is the only platform that has been able to secure AMC discounts from the fund managers. (These discounted units are known as ‘super-clean shares.)

Well, Barclays Stockbrokers and Fidelity haven’t yet announced their post-RDR pricing structures. They’ve probably been waiting for Hargreaves to make the first move.

However, Alliance Trust Savings and Charles Stanley Direct have revealed their hands.

Alliance Trust Savings isn’t charging a percentage fee, just a £90 annual charge for all portfolios on its platform. It also charges a £12.50 fee every time you trade a fund. So clearly Alliance Trust is most attractive for investors with relatively large portfolios who don’t trade very often.

Charles Stanley has a platform charge of 0.25% with no dealing charges so it should work out cheaper than Hargreaves Lansdown with the exception of a small number of funds where Hargreaves has secured an especially large AMC discount from the fund management company.

What we’ve learned today is that Hargreaves is cutting its existing charges and has secured some AMC discounts. But it’s pretty clear that it’s not going to be the cheapest player in the platform market.

That’s not a surprise. Hargeaves Lansdown has never really competed on price, it’s secured a market-leading position through excellent customer service and effective marketing.

What really interests me is to see whether any rival platform can secure AMC discounts from the fund managers. If that happens, competition should really hot up.

• This article was amended on 16 January to include details about investment trusts.

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14 Responses

  1. 15/01/2014, Angela wrote

    I am a bit troubled by HLs treatment of Investment Trusts. A 0.45% charge for simply providing a wrapper?
    I have a very small drawdown SIPP entirely invested in a couple of ITs, that provides an income of £2700 a year. HLs charge is £200 a year, that is, 7.5% of the pension income. A little excessive I feel.
    Further, they charge seperately for each account. So that’s the ISA, the Share account, and the SIPP account, for two people (I am married) that is six lots of maximum charges (£580).
    All this for actually doing nothing except holding my records on a computer!

  2. 15/01/2014, Clive wrote

    Couple of points

    1) “Under the current rules, Hargreaves typically charges 1.5% a year for an actively-managed fund”. Thought it was the fund manager that charges the 1.5%, not HL.

    2) “Fidelity haven’t yet announced their post-RDR pricing structures”. But they have moved to clean funds only and an explicit platform charge (from Dec 2013, I believe)

  3. 15/01/2014, 711paul wrote

    Hargreaves Lansdown is now charging 0.45% to hold shares in Investment Trusts in their simple Vantage Trading account (as well as ISA and SIPPs) but no charge for other shares. This is an unjustifiable disgrace as they offer no service, no analysis, no advice, no recommendation on ITs – in fact Invetsemnt Trusts seem to be an information free zone in Hargeaves Lansdown. All part of a long term strategy to steer clients to more costly and often poorer performing OEICs which have paid commission (or its new equivalent). I for one will look to move to my other broker where there are no such charges for ITs, which raises the issue of HL’s exit or transfer charges for each line item. Is it fair or reasonable to impose a new charge and then ‘screw’ its clients if they decline to accept the new terms and wish to move elsewhere before the deadline? I’m afraid Hargreaves Lansdown has called this badly . . . . .

    • 15/01/2014, Angela wrote

      I see HL’s shares fell by nearly 4% today. Presumably we were not the only unimpressed customers. Obviously HL has achieved market leadership and believes that the time has come to start milking the situation.
      I too have noticed that in the somewhat cynical HL universe Funds appear to be the sole means of collective investment. Investment Trusts are simply ignored.

  4. 16/01/2014, Dissatisfied wrote

    I entirely agree with the comments. Hargreaves Lansdown need to do some serious thinking and address the IT issue. Suicidal madness on their part and not good business acumen!

  5. 16/01/2014, Alastair1 wrote

    I also agree with all the above comments. I largely hold individual shares in my SIPP but also a few investment trusts. I have up until now split my SIPP between Hargreaves Lansdown and Alliance Trust, just in case the unthinkable might happen to one of the providers (being an ex Equitable Lifer). I now plan to move my HL SIPP to Alliance Trust and save £400 per year, a sum which will compound up to provide a few extra meals out and holidays in my retirement. The current transfer cost is £75.00 until the new fees come in on 2nd June 2014.

  6. 16/01/2014, Orb wrote

    I agree with Angela above: I was astonished at just how much they were charging just to hold certificates (of shares, funds… anything!) “for actually doing nothing except holding my records on a computer!”

    Some research showed Sippdeal (AJ Bell Youinvest) has always been a much better option, so I switched. Even the trading costs are lower (and the holding fees non-existent!)

  7. 16/01/2014, Orb wrote

    (Sorry, ISA ‘Administration’ fees are non-existent; ‘Custody charge’ on funds is 0.2%/annum)

  8. 16/01/2014, nibs1510 wrote

    Thank you for article and comments.
    ? Could MW produce an updated SIPP/ISA cost comparison table ASAP.

    Like Angela, as a family we hold a total of 8 SIPPS and ISA’s with HL.
    The portfolios typically include a couple of funds (HL wealth 150) but mainly IT’s and ETF’s, from IC 100 top and MW IT’s lists.
    I phoned HL earlier querying the new and separate charges on the IT’s and was told it was to help with future IT analysis.
    Service over the years has been excellent, one of the rare companies answering phone calls promptly and knowledgeably.

  9. 18/01/2014, urologist wrote

    I have done some rough calculations on available figures that suggest each active investor in HL is also paying £280 in dividends for their shareholders …… this is an average figure so larger investors, often the loyal ones who have been with HL for a long time, will be in effect paying much more!

  10. 18/01/2014, beejaysee wrote

    nibs1510
    Why don’t you switch all your accounts to Interactive Investor as a family account. I don’t know whether you have to pay for each Sipp but for our family we have one Sipp and all the Isa’s go free. And presently at least all commission rebates are refunded. And dealing charges are fixed at £10 irrespective of the size of the transaction

  11. 18/01/2014, beejaysee wrote

    Angela,
    I should have included you in the comments above to nibs1510. I would be interested to hear from both of you as to whether you followed up my suggestion and made the change. Or if you didn’t why not as I might have missed a trick somewhere. I am certainly going to move our remaining Isas across to Interactive.
    Presently we have one sipp and four family Isas with ii and all for one Sipp payment of £120 per year.

    • 19/01/2014, urologist wrote

      beejaysee
      I presume from your comments you are happy with the quality of Interactive Investor’s administration. I am reluctantly looking towards moving my family’s ISAs and SIPPs away from HL probably to Alliance Trust, where I already have an account, or Interactive where I have no experience! Have been with HL over 30 years but as usual little or no reward for loyalty!!

  12. 19/01/2014, beejaysee wrote

    urologist
    Yes very happy. Many years ago when it was good not to put all your eggs in one basket I used to put our Isas with a different provider each year. Over the years I have reduced by transfer to now only 3 and shortly, post HL, will be two. They have a useful website with good articles and will deal in shares, ITs, ETFs and thousands of UTs.

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