hargreaves lansdown

dunstonh

What does it mean by a bundled platform...?

Bundled platforms receive rebates from the fund houses and marketing payments because they are distributing the funds. These rebates and fees received are not disclosed and that angers a lot of people.

Unbundled platforms should refund the rebates to the client but charge explicitly. So, typically on an unbundled platform you will have a much lower annual management charge as the IFA cut and the platform cut is taken off the AMC. However, you have to add back on an explicit platform charge instead. An IFA charge is only applied if you use an IFA and you agree that explicitly with that IFA. Its not factored into the product, fund or platform charges.

One of the biggest advantages of unbundled platforms is they are increasingly offering the institutional version of the fund rather than the retail version. That can knock off another 0.2-0.5% potentially on a fund charge.

Presumably its selling funds discounting the up front fee back and discounting part of the trail commision?

Forget up front fees as they largely dont exist any more. An unbundled platform doenst have trail commission. That is fully taken off the AMC. It also doesnt have the platform commission and any rebates or marketing related payments get paid to clients. So, they wont promote funds and they wont make out they are cheap when they are receiving backhanders from the fund houses.

Forget trail commission. At the moment HL keep all the trail commission on their SIPP and rebate around 0.1-0.2% of the 0.5% on the ISA. That will have to stop on new fund purchases/switches after 2012. There wont be trail. So, either they accept the loss of income, try to get greater rebates/marketing payments from found houses, increase charges to customers, a bit of all three of these or move to an unbundled platform.

I remember reading somewhere that HL get more of the trail commision than we might think but I dont see it being anymore than what an FA would get and HL still looks the better deal provided you are prepared to DYOR and buy without advice.

IFAs dont get paid marketing bonuses, dont get rebates, dont get the platform cut of the AMC and typically use the trail commission to provide servicing.

Either way users of HL are 3 percent up on the upfront fees straight off.

No they are not. Most platforms have no initial charge nowadays.

You are mixing up the provision of the services and this is what the FSA want to end. You have advice, platform and investments. The FSA wants all three to be explicit and you only pay for what you use. The bundled platform muddies those waters and hides who gets what and can give the impression you are getting something cheaper when in reality its someone else that is paying your charges. On that basis, why should HL keep any of the IFA trail commission when they are not providing advice? They should be rebating the lot. After all, if you went to an IFA on an execution only case on fee basis, the IFA would rebate trail. e.g. on £100k in the HL SIPP, HL are keeping the £500 trail commission. An execution only fee basis IFA would be rebating that trail commission. So, say it costs you £500 to get you on a platform, you would break even in 12 months and then be cheaper thereafter for the rest of the term. If you occasionally needed to use an IFA then you agree a fee for that IFA and its charged explicitly to the contract (e.g. 2 hours work totalling £250 can be taken from the platform. No more, no less). If you dont use the IFA you dont pay for them.

Rollinghome

HL aren't the only IFA out there who want our money.

If other IFAs can beat their charges and service they'd be well advised to publish their fees, not make them as obscure as possible in order to catch as catch can as so many do. Happy investors would beat a path to their door.

If they aren't willing to do that, then it's pointless whinging that no one understands them.

jimjames

dunstonh wrote: »

One of the biggest advantages of unbundled platforms is they are increasingly offering the institutional version of the fund rather than the retail version. That can knock off another 0.2-0.5% potentially on a fund charge.

I keep hearing a lot about unbundled platforms but have not seen any examples quoted. I am with HL and am happy with the service but would have no hesitation to go elsewhere if I can get the same service and products at a cheaper price.

Can we have some names/website examples of unbundled platforms that we can compare prices with?

blinko

but realistically we all get what we want with HL we get no initial fees upfront isn't that what everyone wants !!??

SallyG

I've not found any IFAs in my area that publish their hourly rates on their websites - is this universal?

Rollinghome

SallyG wrote: »

I've not found any IFAs in my area that publish their hourly rates on their websites - is this universal?

Certainly seems to be.

Most seem to be as secretive as possible about their charges, presumably either because customers would keep away if they knew or so that they can charge as much as they can get away with.

The few exceptions are the discounters such as HL, Cavendish, Chartwell etc.

dunstonh

but realistically we all get what we want with HL we get no initial fees upfront isn't that what everyone wants !!??

Forget initial charges. They have mostly gone now. They certainly should be on DIY as there is no excuse for them there. Its how the annual charges are structured that is where the difference is.

Take the SIPP, you are actually paying the full IFA trail commission. Yet you are not getting anything for it. So, why should you be paying it? Even on the ISAs you are only getting 0.1-0.2% back. Why not the full 0.5%? They are not providing IFA services.

The problem is that you see the bundled platform as cheap but if you remove the IFA cut (which will happen on bundled platforms from 2012 and is already the case on unbundled), then remove marketing payments and rebates (which you dont see but are kept by the bundled platform but rebated using the unbundled platform), then use institutional funds instead of retail then you may find there is not much in it or the unbundled platform may be cheaper. Typically, at the moment you find small investments are better on bundled and large investments are better on unbundled (as the platform charges on unbundled get cheaper with larger amounts and they are not particularly interested in small amounts).

Personally, I quite like having both options available as you can use the right one to suit the right person. However, ethically, the unbundled platform is the best option as you know who is getting what and that fund recommendations and best funds lists are not generated on who may or may not provide the marketing payments and biggest rebates. We see frequently that some people think the marketing is advice.

I've not found any IFAs in my area that publish their hourly rates on their websites - is this universal?

Most dont have websites. All will have them published on their terms of business. Most websites are nothing more than placemats. Mainly due to onerous compliance requirements and costs.

jimjames

dunstonh wrote: »

Typically, at the moment you find small investments are better on bundled and large investments are better on unbundled (as the platform charges on unbundled get cheaper with larger amounts and they are not particularly interested in small amounts).

Most dont have websites. All will have them published on their terms of business. Most websites are nothing more than placemats. Mainly due to onerous compliance requirements and costs.

If not websites, can you provide any names? Or are they not accessible to private investors?

dunstonh

jimjames wrote: »

If not websites, can you provide any names? Or are they not accessible to private investors?

I don't really follow the DIY platforms that much. I believe SelfTrade moved to that method in recent years by introducing a platform charge and explicit charging.

Most of the DIY platforms that I am aware of though use bundled as they can earn more that way. if a platform goes unbundled then it earns less. So, there isnt much benefit for a platform to go unbundled unless they are forced to.