Hargreaves Lansdown price changes – winners and losers

There’s a good chance you use Hargreaves Lansdown when you invest in shares and investment funds. That’s because Hargreaves is by far the largest player in this market.

So when the company announces a new pricing structure, it’s worth taking a look. Prices are lower for most unit trusts and OEICs, but the deals on investment trusts aren’t so attractive.

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Hi. In this video I'm going to look at the new pricing structure from Hargreaves Lansdown. I know a lot of private investors buy their shares through Hargreaves, and also invest in funds, so I think it's well worth devoting a video to this topic.

Hargreaves has been forced to launch a new pricing structure by new rules from the regulator known as ‘RDR 2’. (You can find out more about RDR 2 in my video Why passive funds are going to be more expensive.)

Put very simply, these new rules are affecting all of the investment platforms out there. So that's people like Hargreaves Lansdown, Bestinvest, Cavendish Online, and loads of others. These companies are known as ‘investment platforms’, or sometimes as ‘fund supermarkets’.

Focusing on Hargreaves Lansdown, I think the big winners from the new pricing structure are people who invest in actively-managed unit trusts and OEICs. Those are funds where you've got an expensive fund manager, or team of fund managers. They're picking their favourite stocks and shares, and hoping to deliver a really strong fund performance as a result.

Currently, if you invest in an active fund through Hargreaves Lansdown you'll be paying 0.5% a year to Hargreaves and 0.75% a year to the fund management company - people like Jupiter, Invesco, and Perpetual. At the moment, these charges are actually bundled together. You won't see them separated out.

In the future, under the new prices, you'll pay 0.45% to Hargreaves Lansdown. For most funds you'll carry on paying the 0.75% too, but Hargreaves has used its market muscle to persuade some fund managers to lower their charges exclusively for Hargreaves Lansdown to 0.65% on some funds, and on a small number, as low as 0.54%.

The big winners are people who invest in actively-managed unit trusts and OEICs

So if you invest in a fund at 0.65% and you add on Hargreaves’ 0.45%, you'll be paying 1.1% a year, which is quite a bit less than what you'd be paying now.

I should also add that if you're a really big investor, and you've got a portfolio bigger than £1/4m, Hargreaves will actually cut that 0.45%. They’ll cut it even further if you're up to £1m or £2m. So you can save even more money on active funds if you've got one of those big portfolios.

There are also losers with the new Hargreaves pricing structure. And the first set of losers are a lot of the people who invest in passive funds - eg index trackers and ETFs - trying to replicate the performance of an index like the FTSE 100.

So currently, for most passive funds, Hargreaves charges £2 a month. That's going to go, and Hargreaves is going to charge that same 0.45% a year that's it's going to charge for active funds. And, of course, the nice thing about many passive funds is that the fund management company charges less than they would for an active fund.

It's not true of all passive funds - some are as high as 1% a year. But Vanguard, for instance, charges 0.17% a year on a couple of funds. So if you add those two together you pay 0.62%.

Hargreaves has used its muscle to persuade Legal & General and Blackrock to launch really low charges for passive funds of 0.05% on a couple of FTSE 100 trackers. That's an incredibly low fee, and very exciting.

People who invest in investment trusts or individual shares are going to lose out

Currently, if you're a small, passive investor with Hargreaves that £2 a month charge is quite painful, because it's a big percentage of your total investment. So if you have 0.45% plus 0.05%, 0.5%, you'll save money. If you're a big passive investor, obviously that £2 a month charge is quite small as a total percentage, so switching to 0.5% will actually become more expensive.

And I'm also in no doubt that quite a lot of Hargreaves rivals will charge less than 0.45%, so you will be able to invest in a passive fund cheaper elsewhere. Many current passive investors at Hargreaves are going to lose out from the new prices.

And they're not the only losers. I think people who invest in investment trusts or individual shares are also going to lose out.

Right now, if you're investing in an investment trust, you pay 0.5% a year, and that's capped at £45 a year. That applies to individual shares as well. Say you invest £30,000 in ISAs across the board, in shares and investment trusts. If it was just that 0.5%, you'd pay £150 a year, but it's capped at £45 a year.

That 0.5% charge is being cut to 0.45%, so that's nice for people in trust and shares, but the caps are being split up. So if you've got £15,000 in investment trusts and £15,000 in shares, you'll end up paying £90 pounds here because the cap is now being split between the two pots - the investment trust pot and the shares pot.

So you're going to lose out, I'm afraid.

And I think that touches on another issue. For many people, the fact that Hargreaves does these percentage ‘ad valorem’ charges is an expensive way of doing things. It doesn't cost that much more to manage a portfolio worth £200,000 compared to a portfolio worth £20,000.

There's potential for some of Hargreaves’ rivals to go with more of a flat-fee pricing structure, which will work out much cheaper. And I'm also in absolutely no doubt that a lot of the rival platforms to Hargreaves Lansdown will be cheaper.

Hargreaves has never been a cheap platform. It's become the dominant player in the market through good customer service, good IT, and very good marketing. I'm sure it will carry on being the dominant player in the market, but it won't be the cheapest.

So as more of the rival platforms announce their pricing plans, we'll look at some of those rival plans. But if you want to stick with Hargreaves because you like the customer service and you invest in actively-managed funds, this is a good time for you as your charges are going to be lower.

So that's a quick round-up on Hargreaves Lansdown. I'll be back with another video next week. Until then, good luck with your investing.

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  • Gordon Gekko

    The HL website says that ETFs will not attract the 0.45% blanket charge in a Fund and Share Account, so index tracker funds currently in a HL Fund and Share Account could be swapped for ETF trackers (if you can find ETFs close enough in structure to your current tracker funds) to dodge the new charge, although most ETFs are a bit more expensive than the cheapest tracker funds. The 0.45% does apply to ETFs in an ISA (£45 cap) and in a SIPP (£200 cap). The £2 per month charge was definitely better for big passive holdings. Capital Gains Tax could be a problem for some that do switch to ETFs.