Hargreaves Lansdown "playing hardball"

Rollinghome · 24 November 2013 at 8:16PM

FT article today here :
"Fund groups told to slash fees or lose business.... Hargreaves Lansdown, the online supermarket for funds and shares, is playing hardball on pricing with asset managers that want their products included on its influential buy list. Hargreaves, the third-largest UK fund platform, with assets of £37bn, is demanding asset managers cut their fees for products that might feature in an updated version of its widely followed Wealth 150 list."

Should be fascinating to see what unfolds. With higher costs than their competitors, HL clearly need something of this kind after RDR2 kicks in to look competitive on price, especially for larger investors. At the moment HL keep an average of about 75% of trail commission and 100% of the platform fee [TEXT DELETED BY FORUM TEAM] to give them an average of around 0.80% p.a. of investments. In contrast, customers of competitors such as Cavendishonline, using the Fidelity platform, can currently pay just a 0.25% platform charge on clean funds.

The article asks some of the questions around what the other parties would make of it? Will competing platforms insist on the same terms and, if not, how likely is that IFAs will be content to tell their clients that they can't access funds on the same terms they could get from HL? Would the FCA would see it as a level playing field in the spirit of RDR?

I'd assume that fund managers would be wary of openly giving advantageous terms to HL if they're then shunned by other platformsand so made more dependent on a single outlet. (HL though well-known to DIY investors is said to remain only the third largest.) Didn't work out well for suppliers who became overly dependent on M&S when the wind changed.

So could we perhaps see "exclusive" products just for the HL platform, like those undersized packets of Polos and choccy bars produced for sale in the pound shops or something of the kind?

This is clearly a spot of news managment by HL as time runs out before they have to anounce their new fee structure but, nonetheless, interesting times for investors. The new HL 150 list is expected next month; what will we see?

Glen_Clark · 24 November 2013 at 9:49PM

Why not just tell HL where to put their Commission 150 funds?
I pay 0.1% on Vanguard ETFs with X-O.

Lokolo · 24 November 2013 at 10:01PM

http://forums.moneysavingexpert.com/showthread.php?t=4577383

Try and keep it all in one place

just saves having people confused by the 2 threads.

It was announced a while back that HL would try and get "better" deals from certain asset managers to get them on their list, which really does prove that it is a sales list (not that anyone thought otherwise).

I think if anything, HL trying to force asset managers to bring out lower costs will inevitably help the investors, driving down price. I think RDR is going to bring in a lot of competition to fund supermarkets, but its a shame it costs so much and takes so long to switch providers.

They should be releasing their fee structure any day now (given previous articles stated it would be released end of November).

jimjames · 24 November 2013 at 10:14PM

Rollinghome wrote: »

Hargreaves, the third-largest UK fund platform, with assets of £37bn, is demanding asset managers cut their fees for products that might feature in an updated version of its widely followed Wealth 150 list."[/I]

Puts their Wealth 150 into true perspective if fund managers will only be included if they cut prices to HL. Hardly makes it the unbiased list of the best funds that they try to claim that it is.

dunstonh · 24 November 2013 at 11:12PM

how likely is that IFAs will be content to tell their clients that they can't access funds on the same terms they could get from HL?

You may have noticed that the article says HL is the third largest. The other two bigger are used by IFAs. IFA platforms are running between a third to a half of the cost of HL.

Would the FCA would see it as a level playing field in the spirit of RDR?

I'm not sure anyone is really clear what the FCA thinks about much at the moment.

So could we perhaps see "exclusive" products just for the HL platform, like those undersized packets of Polos and choccy bars produced for sale in the pound shops or something of the kind?

There are some platforms that are already lining up superclean pricing. They are still making the clean share class available to others but will have superclean exclusively with one or a handful of platforms. There is also the longer term possibility of multiple share classes across multiple platforms.

HL is expensive now compared to other platforms. It is stuck between reducing costs to make it competitive and retaining as much profit as possible. It will no doubt get some deals but it will be interesting to see what the larger two platforms get as well as what the "net" costs will be.

Archi_Bald · 25 November 2013 at 12:12AM

dunstonh wrote: »

You may have noticed that the article says HL is the third largest. The other two bigger are used by IFAs. IFA platforms are running between a third to a half of the cost of HL.

Who are the two bigger ones?

Rollinghome · 25 November 2013 at 1:21AM

jimjames wrote: »

Puts their Wealth 150 into true perspective if fund managers will only be included if they cut prices to HL. Hardly makes it the unbiased list of the best funds that they try to claim that it is.

I'm looking forward to seeing the wording of their explanation.

If it's just a crusade for lower fund management prices I'm all for that as we in the UK pay among the highest fees in the world. I'm left wondering if HL's new interest in lower management fees will make them late converts to tracker funds. Somehow I doubt it.

dunstonh wrote: »

You may have noticed that the article says HL is the third largest. The other two bigger are used by IFAs. IFA platforms are running between a third to a half of the cost of HL.

I did. Which was why I said: "HL though well-known to DIY investors is said to remain only the third largest."

And it's an interesting point. If HL were to obtain a deal to allow them to offer a fund for a lower charge than on platforms used by IFAs then I'd assume many IFAs would reluctant to recommend it - with consequences for the fund. If on the other hand, the fund managers widely offer the fund at the lower price to several platforms then HL's objective of offering funds at the same total cost as cheaper platforms while retaining their present margins by requiring managers to offer them lower management fees seems problematic.

If only platforms offering a DIY service similar to that of HL were excluded from the lower AMCs that would raise competition issues.

I've always assumed it's the intention to have multiple share classes as it's the only way I could see of doing it but would be interested to hear the alternatives.

Lokolo wrote: »

Try and keep it all in one place just saves having people confused by the 2 threads.

Obviously sorry if a few people like yourself find it confusing but, c'mon, I expect most will somehow manage. You could always explain your difficulty to a mod and ask them to merge this with the thread started in May you refer to but if there was just a single thread for every subject discussed on this board we could end up with just nine or ten very, very, very long threads.

It's also possible not everyone will have as much time on their hands as you either to search for ancient threads or to read through 142 posts. My attention span wouldn't be nearly long enough.

BTW, I've run a fairly well-know message board for 13 years and tend to encourage people to keep threads short and not reincarnate old ones as many people find that confusing and irritating. I know a few boards that enforce that by locking old threads (perhaps a tad ott).

planteria · 25 November 2013 at 2:01AM

i will be following this matter with interest, as an HL customer, with both ISA and SIPP.

jamesd · 25 November 2013 at 2:03AM

Rollinghome wrote: »

Hargreaves, the third-largest UK fund platform, with assets of £37bn, is demanding asset managers cut their fees for products that might feature in an updated version of its widely followed Wealth 150 list."

What will be really interesting is how HL responds to invitations by customers to offer a discount on their published pricing to remain with them or move more funds to their platform after their pricing is known. Instead of not moving the funds to them and/or moving away.

It isn't only HL that can play hardball with providers. Platforms are a provider for consumers and consumers should be doing the same to platforms as HL is doing to fund management groups.

grey_gym_sock · 25 November 2013 at 5:55AM

AFAICR, HL's last results suggested their margin on funds is c. 0.6% (that's after deducting rebates, a.k.a. "loyalty bonus").

they also implied that they have these improved prices agreed with fund managers; and are only delaying announcing their new pricing structure because they think that whoever announces first will be heavily criticized (as interactive investor were - especially here on MSE - last year).

perhaps this has changed, but HL were talking about not reducing the size of the "wealth 150" (which is already down to only about 100 funds!), but giving more prominent highlighting to some of the cut-price funds within it.

nothing wrong with highlighting cheaper funds, IMHO. but why do they never highlight tracker funds?

i doubt that HL will get big enough price cuts from fund managers to compensate for their own relatively high charges, but we'll see.

my reading of the FCA documents (earlier this year) was that they didn't object to different platform negotiating different prices. it could be different fund classes. it could be rebates in the form of extra units. it can't be cash rebates (except for minimal amounts). it can't involve any kickback to the platform.

the idea is mostly to make it clear what platforms are charging and what fund managers are charging.

if we do go down the road of multiple fund classes, a major issue is how that will work when transferring between platforms. which many ppl are likely to want to do when all of the new pricing is known.

Rollinghome · 25 November 2013 at 2:18PM

jamesd wrote: »

Platforms are a provider for consumers and consumers should be doing the same to platforms as HL is doing to fund management groups.

Would be good to see that happen but Ian Gorham has stated that their services aren't price sensitive and I'd reluctantly concede that he may be right. Often surprises me that people will jump through hoops for an extra tenner p.a. from a cash "saver" account but happily pay hundreds a year more to a fund supermarket than they could pay elsewhere. More will take notice when we have the greater transparencey of RDR2 with any luck.

grey_gym_sock wrote: »

i doubt that HL will get big enough price cuts from fund managers to compensate for their own relatively high charges, but we'll see.

Find it hard to see how they could get close.

I gather the Wealth 150 now has just 93 funds and they've been talking about a new "wealth 150" of just 30ish funds that they hope will agree to a lower AMC. If we take the figure of 0.6% as what they need that's along way from the circa 0.25% of some of their competitors.

What we don't know are the terms and kickbacks currently given but even if they were able to get the AMCs of all 30 of those on the list reduced by as much as 0.25%, which seems optimistic, and if someone selected half their funds from the list that only helps them by 0.125% and leaves their package costing almost double that of the cheapest.

That further assumes that their competitors will happily accept higher charges than made available to HL. Another factor is that several of the rival platforms are owned by fund management groups who won't want to see margins fall for either fund management or platforms.

Hargreaves Lansdown "playing hardball"

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