Hargreaves Lansdown "playing hardball"

jamesd · 18 January 2014 at 4:48PM

Blackdog wrote: »

What I have learned from the process of HL announcing these changes is that I have no idea what I am paying in charges at the moment

Send HL a message asking them to provide you with a Trail Commission Statement [STRIKE]Client Holdings Valuation report[/STRIKE]. That will list all funds you hold, the AMC, the commission, how much of that is paid to you in Loyalty Bonus and how much HL keeps. The commission part is in both percentages and Pounds. They post it out.

You can check the percentages by starting to place a deal. There will be a link to show commission and that produces a popup window with text like "HL currently receives renewal commission of 0.850% per annum, and pays clients a loyalty bonus of 0.250% per annum". In this example, commission is 0.85%, HL rebates 0.25% and keeps 0.60%.

Blackdog wrote: »

until the HL announcements start on 1 March of their discounted funds I couldn't even start to calculate the difference in cost even if I knew how to do it!

Right. And nobody knows that yet except HL.

Get the HL commission statement. I have a spreadsheet that calculates it for me but I don't want to offer to calculate it for everyone when it's really up to HL to say what they are being paid.

The spreadsheet isn't too hard, though:

column A: the amount in Pounds that you hold in the fund
column B: the renewal commission
column C: the loyalty bonus
column

column B - column C, heading HL % cut
column E: A * D / 100, HL cut in Pounds

Add a total at the end to get the sum of all column E values to get what you're currently paying HL. For example:

A 10000
B 0.85
C 0.25

0.85 - 0.25 = 0.6
E: 0.6 * £10000 / 100 = £60

ColdIron · 18 January 2014 at 4:51PM

That's as clear an explanation as I've read anywhere, cheers for that jamesd

Have you any information regarding the 0.06% Legal & General and Blackrock trackers they are introducing? Would they just be cheaper versions of the ones they already offer or new ones?

jamesd · 18 January 2014 at 4:56PM

I have no information about them. Glad you liked the description.

kidmugsy · 18 January 2014 at 5:01PM

zagfles wrote: »

The main risk I guess is not the platform going bust (presumably client assets are ringfenced), but the platform being hacked, possibly as an inside job, ...
Or is this scaremongering? Not sure what would actually happen in the above situation.

People always mock me when I say that we diversify our providers (and trustees, custodians, and whatnot) which of course encourages me to think I must be right. As Mr Rumsfeld so wisely observed, we must beware of the unknown unknowns.

I envy a friend who has three (three!) different final salary pensions, all of good size.

cepheus · 18 January 2014 at 5:14PM

Will these changes allow platforms to provide a wider range of funds? I performed a sweep last month using share-scope and identified a few low risk types, however any non of the non advisory brokers offered any of the funds I had identified.

but who is to say whether HL has better safeguards against fraud than Interactive Investor or Charles Stanley Direct.

I recall having this conversation with HL several years ago, and they take out insurance in addition to the ring fencing safeguard.

I notice II use a number of banks and insurance

Security Centre - protecting your money, your investments and your account
http://www.iii.co.uk/our_security

Your investments are held in a nominee account

All our clients’ investments are held within a nominee account, Investor Nominee Limited, which is a non-trading subsidiary of Interactive Investor. All your assets are held in your name within this nominee account and we have robust systems and controls to ensure that the nominee company is compliant with the relevant regulations and is managed appropriately.
Keeping client investments entirely separate within a nominee account ensures that in the unusual event of default on our part, 100% of your stocks and shares will be returned to you by the nominee company. Client assets ring fenced in this way would not be treated as a recoverable asset by creditors of Interactive Investor.

Q – What if you hold cash in multiple banks? Will I still receive just £85,000 in the event of default?
A – We diversify client money amongst a panel of up to 12 investment-grade banks. You can claim up to £85,000 per bank.

We hold additional, comprehensive insurance policies for further protection for our customers’ money and investments

Rollinghome · 18 January 2014 at 5:23PM

ColdIron wrote: »

Have you any information regarding the 0.06% Legal & General and Blackrock trackers they are introducing? Would they just be cheaper versions of the ones they already offer or new ones?

Only that the L&G one seems to be the FTSE 100, not the FTSE all share tracker most people would buy and, as HL keep seem to be now only quoting AMCs and removed the more important and now more widely used TER/OCF figures from their listings, the actual TER is likely to be higher.

I'd assume it will be the same as the old FTSE 100 tracker as a tracker is pretty much a tracker.

joerugby · 18 January 2014 at 6:13PM

jamesd wrote: »

There are two main ways in which HL charges you. The old way is the fund companies charging you more, paying HL much of that and then HL paying you a portion of what they get back. For example, here are the charges paid indirectly to HL that way for some funds in the Wealth 150 range:

1.01% Liontrust Macro Equity Income Class R Acc
0.99% Troy Trojan Income Class I Acc
0.95% Aberdeen Latin American Equity Class A Acc
0.95% PSigma Income Acc
0.90% Melchior Selected Trust European Absolute Return Class H GBP Acc

Those aren't the total annual management charge, they are just the commission paid to and kept by HL. Those aren't typical, I picked some of the highest. More normal is around 0.65%.

So say you held the Liontrust fund, the fund manager would charge you 1.5%, they would pay HL 1.01% of that and HL would pay you none of it, leaving HL to keep all of the 1.01%. For Troy Trojan the fund manager would charge you 1.5%, pay HL 0.99% and HL would pay you nothing and keep the 0.99%. For the Aberdeen fund the fund manager charges you 1.75%, pays HL 1.05%, HL pays you 0.1% in Loyalty Bonus and keeps 0.95% itself.

The second way is to charge fee, in HL's case a percentage of the total holding size. HL expects to do some of each for the older bundled/commission paying funds that people already own.

I've given some examples, but if you ask HL they can provide you with a Client Holdings Valuation report that will tell you for all of your funds in percentage and Pound terms how much the charges are, how much commission they get paid and how much of it they keep and pay on to you.

With £375,000 invested and their average percentage cut being around 0.65%, if you are paying that average, you're already indirectly paying them £2,438 a year via commission. So £1,650 would be a substantial cut compared to that, but they may still choose to keep some of the commission, they haven't said that they will start paying it all out, just some.

Now, your options. They start with asking for that report to find out what they are being paid now.

Next, at the start of March they will announce new unbundled funds, commonly called clean funds elsewhere. You will have the option to convert your existing funds to the clean version. This will eliminate all commission paid to HL for any funds you convert and your fund charges will decrease correspondingly, increasing your capital growth by about that 0.65% a year. To pay for the fee you should keep a moderate cash balance on your account by selling some fund units occasionally. Enough to cover the charges.

For the commission paying funds two different things will happen:

1. for funds purchased after April the commission will be rebated to you but must by FCA rules be used to buy more fund units. HL will default to buying more of your biggest holding but you can tell them to hold it on account for you to buy whatever you want. You can't cash it directly, you have to buy a fund first. Then you can sell what you just bought to get money to pay the charges.

2. For funds purchased before April the commission will continue to be paid to HL as now but they will start to rebate more of it to you in the form of generally higher Loyalty Bonus payments in cash added to your account. HL may still keep some of it.

Of these three options the best is probably going to be to convert and sell a bit from your higher capital growth. But in a few cases it might be cheaper to have the older funds that pay commission, because sometimes clean versions have higher prices than the commission paying ones after commission is rebated. Keeping the ones that pay commission in cash might be as cheap as the other ways but it'll probably be more expensive and the worst way. You won't know this until HL publish the new fund charges and commission rates in March.

However, it is clear that from the amount you have there you are in prime "much cheaper to move away from HL" territory. Just wait a couple of months for other places to announce their own new pricing so you can pick the best place to move to. HL's new pricing may well save you £800 a year (which you get in higher capital growth) but you can probably save another £800 plus by moving off HL.

Thank you James for that very thorough response, much appreciated.

I would very much like to stick with HL as I find their service first class. Their website does exactly what I need including ability to monitor capital and income across ISA and funds within mine and my wife's account in a seamless and intuitive manner.

Their telephone and email service has been first class too.

This afternoon I emailed to them the questions I posted above and they were on the phone within 15 mins doing their best to answer my questions. In particular they said they will look into first offsetting charges against accumulated loyalty bonuses rather than against other cash (such as dividends).

I suppose that whichever provider I settle for, in the medium term I'm going to have to get used to a new world of higher capital growth but lower net income. I'm not sure that was what RDR was intended to do to an income investor but c'est la vie!

As you suggest I'll wait to see the new deal in detail in early March and take it from there

Thanks again

jamesd · 19 January 2014 at 12:12AM

Yes, HL is very attentive on customer service except for price transparency. You're also in the group of larger customers so it's natural that they would be keen to try to keep your business. They will also know that you're in the group who can benefit from leaving. Please do get that report, then you'll be better placed to see what the changes bring.

Yes, HL will take charges from Loyalty Bonus first and you will have enough cto cover charges if you change nothing. The catch is, you'll end up paying more than you need to if you do nothing, so it is unlikely to be your best option. Best to post once the new charges are known and it'll then be possible to work out what's best and what the effect of each option is if you say roughly how much you have in each fund.

There's no need to accept a lower income because you can just know that previously you've been having 0.65%, or whatever the reports says it is, deducted from your capital growth and can do that yourself by selling from time to time.

With multiple accounts, there are some places that have a cap across all accounts an individual uses, SIPP and ISA and fund accounts, like TrustNet Direct, a new launch. Others consolidate annual charges across all accounts a family holds.

Ultimately even if you stick with HL, you'll probably have more income available if you just sell at the same rate as the charges you've been getting deducted from growth already. You'd end up getting the extra £800 or so a year that HL has been getting instead of you. Of course, you might not want to do that now you have a choice, but it's an option.

koru · 19 January 2014 at 11:11AM

jamesd wrote: »

Of these three options the best is probably going to be to convert and sell a bit from your higher capital growth. But in a few cases it might be cheaper to have the older funds that pay commission, because sometimes clean versions have higher prices than the commission paying ones after commission is rebated. Keeping the ones that pay commission in cash might be as cheap as the other ways but it'll probably be more expensive and the worst way. You won't know this until HL publish the new fund charges and commission rates in March.

Also, remember that the rebate is taxable income, so you lose 20% or 40% or 45% of it, depending on your tax rate.

ColdIron · 19 January 2014 at 11:23AM

koru wrote: »

Also, remember that the rebate is taxable income, so you lose 20% or 40% or 45% of it, depending on your tax rate.

This isn't settled yet, I believe HL are challenging HMRC's interpretation of the law on this point. I understand that they will pay rebates net of tax and return it to you if their challenge is successful

Hargreaves Lansdown "playing hardball"

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