H-L introduces a Tracker Platform Charge

property.advert

gadgetmind wrote: »

There is more complexity, I'm afraid as some trackers such as Vanguard increase value by lending out securities.

https://www.vanguard.co.uk/documents/adv/literature/securities-lending-still-no-free-lunch.pdf

I'd fully expect them to do so. The worry is whether they further complicate matters with how they overnight the cash they receive for their securities.

Shares worth £100. They receive in £105 (105% of the value of the assets) and they lend the £105 to ????????

Cardinal-Red

I may be a bit confused over bundled/unbundled etc (and any resources on this are welcome!)

But I get the feeling from this thread that this move from HL was inevitable on the basis that HSBC trackers were loss making for them.

On that basis, if I were considering moving to BestInvest with my HSBC trackers, is the same thing not just around the corner for them?

koru

Cardinal-Red wrote: »

I may be a bit confused over bundled/unbundled etc (and any resources on this are welcome!)

But I get the feeling from this thread that this move from HL was inevitable on the basis that HSBC trackers were loss making for them.

On that basis, if I were considering moving to BestInvest with my HSBC trackers, is the same thing not just around the corner for them?

Well, we now know from statements made by HSBC that they were in fact passing a proportion of the AMC on the trackers to HL in return for an agreement by HL not to apply the 0.5% charge that they normally apply to other trackers. Presumably, HSBC felt that this would help to ensure a high volume of investment in these trackers by people using the HL platform. Therefore, we can no longer be sure whether HL was making a loss on these trackers or merely making less of a profit then they would ideally like to make.

It seems likely that Bestinvest is also getting a similar kickback from HSBC. And it seems possible that they might be making a profit on this, albeit a fairly small profit. If so, then maybe they will be happy to continue on this basis, at least until RDR comes into effect. It probably depends on how they think their customers will respond if they add a new fee on the HSBC trackers. For customers who switch to another way of holding the trackers, BI will lose the small profit they were making, but this might be offset by a higher profit they are making on the customers who stay put. It all depends on the ratio of customers who switch versus customers who stay.

However, since BI is willing to reimburse any switching costs you incur in transferring investments to them, and will potentially also pay you £300 cashback if you transfer at least £50,000 of investments to them, it seems to me that there's not much downside in switching to BI, even if you end up doing another switch sometime next year.

A bundled platform is simply one where the investor pays an AMC to the fund manager and the fund manager uses part of this to pay sales commission to the adviser or discount broker and also probably pays a platform fee to the platform (for purchasing the investments, holding them, providing valuations, and so on). On an unbundled platform, there is an explicit platform fee paid by the investor and the AMC paid to the fund is lower because it does not include sales commission (or the sales commission is rebated by the platform back to the investor). So, with an unbundled platform there is absolute transparency about what the investor is paying to each party.

gadgetmind

property.advert wrote: »

Shares worth £100. They receive in £105 (105% of the value of the assets) and they lend the £105 to ????????

Here is my understanding, which may be flawed.
1) Holder lends shares to a shorter.
2) Shorter pays holder an ongoing fee all the time they have the shares on loan.
3) Shorter hopes price goes down, and also strategically dumps shares on the market to bring this about.
4) Shorter repurchases shares at a lower price and gives back to holder.

Holder has benefited from the fee and shorter from selling high and buying lower.

Of course, if the share price goes up, the shorter has to quickly cover their short by buying, which forces the price even higher. Will the shorter even be able to afford to buy? This is why the holder has to be very diligent about who they lend to.

koru

gadgetmind wrote: »

Here is my understanding, which may be flawed.
1) Holder lends shares to a shorter.
2) Shorter pays holder an ongoing fee all the time they have the shares on loan.
3) Shorter hopes price goes down, and also strategically dumps shares on the market to bring this about.
4) Shorter repurchases shares at a lower price and gives back to holder.

Holder has benefited from the fee and shorter from selling high and buying lower.

Of course, if the share price goes up, the shorter has to quickly cover their short by buying, which forces the price even higher. Will the shorter even be able to afford to buy? This is why the holder has to be very diligent about who they lend to.

You are both right. The borrower has to provide collateral, often in cash, usually equal to the value of the shares that have been lent plus a small extra margin. If the borrower defaults on returning the shares to the lender, it keeps as much of the collateral as is needed to compensate for the shares it has lost. The collateral is adjusted to reflect changes in the value of the shares that have been lent. The lender earns interest from putting the cash collateral on overnight deposit and might or might not pass some of this interest back to the borrower of the shares. If the collateral is not in the form of cash (e.g. gilts), the lender earns a fee from the borrower.

koru

I just received a letter from HL notifying the specific platform charges that I will incur on my funds. Not that it matters in my case, because I have already set in train a transfer to Bestinvest.

Interestingly, they suggest that people who have small holdings of HSBC trackers might prefer to switch to their range of Blackrock trackers, which have a higher AMC of about 0.5%, but this is probably going to be cheaper than the HSBC trackers plus £24 platform fee for any fund that is worth less than about £10,000.

FRS

koru wrote: »

I just received a letter from HL notifying the specific platform charges that I will incur on my funds. Not that it matters in my case, because I have already set in train a transfer to Bestinvest.

Interestingly, they suggest that people who have small holdings of HSBC trackers might prefer to switch to their range of Blackrock trackers, which have a higher AMC of about 0.5%, but this is probably going to be cheaper than the HSBC trackers plus £24 platform fee for any fund that is worth less than about £10,000.

I just got the same letter, they are also offering an additional two months with no platform fees (i.e. until the 29th Feb) to allow you time to reorganise your portfolio.

To be honest I don't mind that, gives me a little time to consider what to do. Might investigate the Blackrock trackers.

Rollinghome

koru wrote: »

Another point occurs to me as I think through the ramifications of the switch to a post-RDR world. Will it remove much of the rationale for trackers?

The answer is that it's unlikely but depends. It's also possible the the reverse might be true

If you buy a tracker directly through the fund manager then there's no reason to suggest there will be any big change, in fact the cost could come down. The reason being that if you buy a FTSE all share HSBC tracker from HSBC you'll probably still pay 0.25% even though they currently pay HL 40-60% of that. If you buy from directly L&G the AMC is 0.4% just as it was from HL but of that, a whole 0.35% now goes to HL (plus that new fee on clients). Of course, L&G currently won't undercut HL but post RDR that could change, in which case it could be cheaper than now though obviously not by the full 0.35%.

There's also the possible scenario that the charges for managed funds could rise, especially through Hargreaves Lansdown.

Currently, HL have an average take from funds of 0.8-0.9%. That comprises of the commission they get, the platform fee, plus the marketing fees they get for promoting funds in Investment Times or listing them in their Wealth 150.

If they aren't allowed to take that marketing fee then there'll be big gap to fill from somewhere.

The other problem they have is that if charges are as transparent as they should be then bigger investors are likely to be far less happy paying them 4 figure sums for their services and will either want scaled fees or go to the competition. That creates another gap that HL will try to get their smaller investors to close as they have already started to do.

Draw another scenario and you could get a completely different answer. At this stage there are still details of RDR to be finalised and I don't think anyone knows for sure what fund managers and platforms will do post-RDR, even those that have announced their plans, or what competition will force Hargreaves Lansdown to do.

All we do know now is that HL will try to maintain their margins and announce changes as surreptitiously and with as little notice as possible so important not to get trapped with them. Over the next year expect them to offer lots of deals to draw people in before they introduce the new fees.

Or put another way, your guess is as good as anyone's.

gadgetmind

FRS wrote: »

Might investigate the Blackrock trackers.

I know others have mentioned commshare, but someone on Monevator recently gave the blow-by-blow.

"
See below cost of going via CommShare.
Summary of charges for Skandia’s CRA set up via CommShare
Establishment charge - free
Annual platform fee - £68.50 p.a. (this fee pays for all accounts held on the platform per investor)
CommShare’s fee – 0.25% of the pension fund value each year
Annual management charges for HSBC tracker funds – 0.25%
Annual management charges for other funds vary and trail commission of 0.5% is generally available.
Fund switches – all free
Both HSBC trackers are available along with the BlackRock trackers (institutional class = lower TER than offered by HL)."

competitionscafe

koru wrote: »

Interestingly, they suggest that people who have small holdings of HSBC trackers might prefer to switch to their range of Blackrock trackers, which have a higher AMC of about 0.5%, but this is probably going to be cheaper than the HSBC trackers plus £24 platform fee for any fund that is worth less than about £10,000.

0.5% is high for the Blackrock trackers though - for a personal pension on Skandia (via Clubfinance) charges are 0.20% for the Blackrock trackers: (Of course you also have the £68.50 annual fee from Skandia but that covers as many funds as you want).
http://www.clubfinance.co.uk/Skandia-SIS-Collective-Retirement-Account-CRA-Personal-Pension.php