Why you can stay with Hargreaves Lansdown after all. Probably

Some good news: it may be that MoneyWeek readers with Hargreaves Lansdown (HL) accounts don’t have to move after all.

We weren’t that impressed with the new charging structure for a few simple reasons. First, we figured it all came out a bit expensive, even after taking into account the great service you get at HL and their very good website.

Second, because we deeply resented the invention of a special class of fee for investment trusts. Shares in trusts are just the same as shares in any other company, so treating them differently – for the very dodgy reason that some people think of them as funds – seemed rather gouging.

Good news then than HL’s impressively slick PR department has realised its mistake and reversed course. A press release out this morning announces that “we have listened to our clients”. The result is that “clients will pay no more to hold investment trusts in future than they do today…in fact many will pay less and will be better off”. Trusts will be put back where they belong with all other shares, VCTs, ETFs and the like.

That means a single annual charge in an Isa of 0.45% of assets, capped at £45. For a Sipp, it is 0.45%, capped at £200. I’m pleased – regular readers will know that, cost-crossness aside, I’m an HL fan.

But you might be asking why this change has been made. After all, there are other charges people are cross about – exit charges, probate charges and so on.

I suspect it is about the nature of investment trust investors (such as us..). They tend to be more sophisticated, more engaged with active investing and more aware of the effects of costs on investing – that’s why they bought investment trusts in the first place. I don’t know, but I’d also guess they have larger than average accounts. All this makes them worth HL both listening to and pandering to – even if it means losing a little margin along the way.

So, now we find that it actually works what shall we complain about next? After all HL margins are very high. Answers below please.

PS In the post below I mention that the closing of discounts has been a big part of the out performance of investment trusts. One of the reasons for that closing may be that the advent of the Retail Distrbution Review, which outlawed commission kickbacks on fund sales, has made advisers keener on investment trusts. That is unlikely to reverse as they become more mainstream investments.

Reasons to think that will happen: the last bit of the HL press release, which says this “There will also be improvements to our investment trust service.  Shortly after 1 March 2014 we will offer better online factsheets for investment trusts, with more data, information and research support together with a dedicated investment trust area of our website providing enhanced information.”

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15 Responses

  1. 05/02/2014, Anon wrote

    what shall we complain about next? – The £200 SIPP cap. This also feels like gouging. The figure, I believe, should be much closer to the £45 limit for ISAs.

  2. 05/02/2014, Man Friday wrote

    Is the HLAM Vantage ISA cap based on a max charge per stock held that exceeds £10K in value? Therefore for a portfolio of 5 investment trusts, 2 ETFs and 3 shares each valued at £10.10K (say) – the monthly management charge would be (10 x £45 = £450 divided by 12) = £37.50. This would be approx. 10 times the current charging rate!
    Man Friday

    • 06/02/2014, Basil Brush wrote

      No, the cap is applied to the total value of holdings, so the maximum annual fee for their ISA will be 0.45% of £10,000 = £45.

      • 06/02/2014, Man Friday wrote

        Basil, It is my understanding at the moment, that the HLAM charges will be 0.45 pc of each stock (IT, ETF, share VCT etc.,) held in the ISA portfolio, capped in each case at £45. So in the example given for a diverse portfolio valued in total at £101,000.00 the annual charges would be £450.00. I have put this point directly to HLAM and await their reply. I shall of course be more than delighted if they write back stating that I am mistaken and would only pay £45.00 per annum – (which would be equivalent to current charges). Their communications thus far have been very tardy and less than helpful, as they are overwhelmed with queries from concerned clients!
        Man Friday

        • 07/02/2014, Man Friday wrote

          Wonderful! Within hours of posting the comment I was telephoned by a very helpful HLAM helpdesk advisor who clarified the new charges and looking specifically at my ISA portfolio confirmed that as the total value of my holdings in ITs and shares exceeded £10,000.00 the annual charge would be capped at £45! There would be an additional charge for any OEIC funds also held within the ISA. The precise per cent charge is not that clear to me at this time (0.45 to 0.65 pc).

          The key phrase is ‘the total value…of Investment Trusts and Shares’ for the cap and this is very welcome news. The charges on the ISA in my case will now roughly equate to the current level.

          As for SIPPs there is going to be a significant uplift in charges and this is a concern. We should consider other platforms and also lobby for this to be reduced .

          Man Friday

  3. 05/02/2014, Jed wrote

    What shall we complain about next- 0.45% fee with no cap for index trackers in a SIPP. Unusual situation where the platform charges more for admin on the SIPP than the fund providers make on providing the fund.

  4. 06/02/2014, Greta wrote

    How about complaining about “Automated sales to cover charges (selling fund units or shares to meet fees) at £1.50 per deal”?

    I believe, a lot of HL’s clients will be caught out by this charge – if in the past they didn’t need to keep any cash in their account if they only invested in funds, now there will new charges to pay. If there is no cash in the account, HL will sell some fund units and charge £1.50 per each sale, while there is no charge if you sell it manually. I believe, these £1.50 charges can quickly mount.

    I can accept the £1.50 for automated selling of shares, but HL also applies the same charge to selling fund units, and that’s very annoying.

  5. 06/02/2014, Geo wrote

    I agree with Greta about having to have ‘cash on account’ to pay fees is really bad and the fact that otherwise ‘we will sell a fund at a charge to get our money’.

    What’s is so difficult with Direct Debit? Millions of companies use this reliable method of regularly taking payment. And it can be varied too.

    If you have a SIPP and don’t regularly contribute, you would have to add £500 to your account just to pay fees, as that is their minimum lump sump contribution.

    Stupid?

  6. 06/02/2014, Basil Brush wrote

    Hargreaves’ FX charges are pretty shocking – for a bargain of up to £10,000, they charge 1.7% to FX sterling to dollars (or any other currency) – then when you come to sell, they charge another 1.7% to switch back (there is option of retaining foreign currency). Thus a round trip of nearly 3.5%, in addition to the normal dealing charges and spread. Interestingly, I’ve seen very little publicity about these charges in print.

    As a result, and although I don’t deal in a lot of overseas shares, I have opened a brokerage account in the US, which allows me to sit on dollars and charges me less than £9 per trade.

  7. 07/02/2014, Carol wrote

    What shall we complain about next? – the biggy for me is that HL charges 0.45% for funds up to £250,000 in EACH account rather than across ALL accounts (eg SIPP, ISA, Dealing A/C). The next slug after £250k is at 0.25%. HL competitors mostly combine the accounts. Fidelity applies it’s lower charge (0.2%) to the entire amount, not just the bit above £250k. That’s smart.

  8. 07/02/2014, Mark Bruce wrote

    I have to agree about the monthly charge I do not want to leave “larger” sums of money wasting away on the account or having to check my account every month to top each one up to avoid a forced sale of my units. It would not be so bad if the charge was quarterly/ annually but monthly is to much.

    The other gripe with this is they take the money first from where the charge arose, why not just take it from the fund account (like Interactive Investor does).

    I also just set up a standing order with III which HL do not allow HL charges are variable so a dd would be ideal.

    I use HL just to diversify my holdings but III are far ahead of HL in terms of cost at just £20 a quarter per household yes per household so husband wife and anyone else just pays £20 including two free trades per quarter. The share trades are 20% cheaper but they do charge for ut trades unlike HL.

  9. 10/02/2014, NickB wrote

    I sold two IT’s for 50k before they reversed course, but I wont be coming back. I am also in the process of transferring 5 oeics worth 113k to Halifax Sharedealing. At HL I would pay £508 pa in charges. At Halifax I pay no ad-valorem or fixed fee, and I still get the clean units. Even paying the (shocking) £25 per stock transfer fee it’s worth moving. Fund dealing is free at HL and £12.50 at Halifax, but you’d need a lot of deals to make up the difference!

  10. 23/02/2014, Gordon Gekko wrote

    Having uncapped charges at 0.45% on top of the TER on index tracker funds in a Fund and Share Account will not be good. I have the HSBC FTSE250 index tracker which has a TER of 0.25% and now it will cost me 0.25% + 0.45% = 0.7%. Also Vanguard FTSE World ex UK has a TER of 0.30 % and now it will cost me 0.75%. ETFs here I come!

  11. 24/02/2014, mikeT wrote

    Basil – I agree entirely that FX fees are scandalous. I would guess that this is justified because the broker has to transact a “non-standard” amount. I smell BS on 2 counts. Firstly, the FX market is so huge and liquid that it can absorb even tinyl amounts without fuss or premium. Secondly, many brokers have parent banks and will transact (probably at mid-market) with the vast parent Treasury. Their costs are minimal.
    If MW, and Merryn Somerset Webb in particular, could question this practice, and expose what really happens (above)…..

  12. 13/03/2014, CKP wrote

    I am grateful to HL for introducing me to ISAs SIPPs VCTs and IPOs. But as a listed company they have a duty to their shareholders to defend their profit margins. Now I invest with AJ Bell and avoid fund platform charges entirely by choosing ETFs and individual stocks. The admin charges are lower too.

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