FAO Hargreaves Lansdown customers

greenwich

Something odd has come to my attention about Hargreaves Lansdown funds and I wanted to mention it here for HL customers, particularly anyone who might explain it.

As you know, HL are discount brokers and they offer some of the best discounts around, usually managing to bring the initial charge down from 5% to 0% for most funds. They also have their own in-house funds. The odd thing is that their own funds seem to have very high expenses. For example, their HL Multi-Manager Special Situations Fund has an annual charge of 1% and "other expenses" of over 1% on top. It's a similar situation with other HL funds, i.e. very high expenses.

By comparison, most other firms manage to keep their expenses well below 1%. E.g. the highly rated Marlborough Special Situations Fund has other expenses of only 0.08%.

Maybe HL are more honest than other firms about declaring their expenses openly. Or maybe because HL funds are small, their expenses are necessarily a higher percentage of the fund value. Or maybe HL make their money by giving big discounts on the initial and annual charges but grabbing more money on the expenses. Very curious.

flossy_splodge

Thought about phoning them and asking that very question?
Would love to hear the reply!!

dunstonh

I havent looked but it may be linked to the new rules on disclosure of the TER rather than just the AMC.

greenwich

dunstonh wrote:

I havent looked but it may be linked to the new rules on disclosure of the TER rather than just the AMC.

I took all my data from the HL website, i.e. I was doing a like for like comparison between their in-house funds and other firms' funds.

carnet

greenwich wrote:

Something odd has come to my attention about Hargreaves Lansdown funds and I wanted to mention it here for HL customers, particularly anyone who might explain it.

The three HL offerings are "Fund -of -funds" ie "all" that the manager, Lee Gardhouse, does is buy and sell other funds run by various management groups.

Therefore, investors not only have to pay HL's annual management charge of 0.85% (1% less 0.15% rebate - the 5% IC is fully discounted) but also have to bear the IC (if any) plus the AMC of the underlying funds (although these are heavily discounted through "bulk-buying").

All (unfettered) Funds-of-funds are subject to an element of double-charging and, consequently, have higher TER's than "ordinary" funds.

greenwich

You may well be right, Carnet. Looking at a few other multi-manager funds, they do seem to have higher TERs, though not as high as HL's, which may just reflect higher churning by HL. The annual charges of other managers won't show up in the TER though, only their initial charges.

dunstonh

In-house multi-manager funds need to have frequent research and documentation held. Someone has to pay for HL's research.

Darryl

Why pay for HL's research when you can get details of what their MM funds invest in for free, and simply invest directly in the funds yourself? (if you think their investment choices are good or right for you)

Cut out the middle man and save some cash.

Darryl.

carnet

Darryl wrote:

Why pay for HL's research when you can get details of what their MM funds invest in for free, and simply invest directly in the funds yourself? (if you think their investment choices are good or right for you)

Cut out the middle man and save some cash.

Equally, you could just obtain the latest Fund Manager's report for any fund and buy the individual shares/funds etc directly.

However, you would have to buy a lot of these to obtain the same diversification and dealing costs would be more than those obtained by the fund manager.

Also, would you have the expertise to know when to sell certain holdings and switch to others with better prospects ?

That's what investors in these funds are paying for.

Darryl

Carnet

I take your point about funds & individual shares. The dealing costs generally do outweigh this 'replicate' approach.

But, in my experience that's not the case when buying investment funds. My own fund investment choices have worked out well for me, for what amounts to just a few hours research every month or two. This gives me the information I need to make buy/sell/hold decisions. But given that fund investment is generally longer term, this is hardly a lot of effort and something I therefore resent paying a so-called 'expert' fund analyst to do for me.

IMO I pay enough for broker research and admin through the (discounted) commission they get for my investment choices. I don't personally fancy paying for their fast cars and champagne through MM charges that don't offer real transparency.

If they want to charge for their 'expert' research, they could always force you to subscribe to their website/newsletters. But they don't - now why could that be...?
Or, they could performance link their charges.

Darryl.

carnet

I do not invest in MM funds either, preferring to do all my own research and make all my own investment decisions.

However many people have neither the time nor inclination for any of this and a MM fund may suit some investors - especially those who rightly want diversification but either do not have or do not wish to invest the resources necessary for a broad spread of individual investments.

Performance based fees are gradually entering the UK UT/OEIC market and some of the focus funds which have sprung up in the last 2/3 years have introduced these in a limited capacity.