H-L introduces a Tracker Platform Charge

Rollinghome

grey_gym_sock wrote: »

my guess (i have no inside knowledge) is that that is exactly the charging structure that H-L are planning on using if the FSA sticks to its guns (as i hope it will!) and bans the commissions which give H-L most of its current income. i think these charges for trackers are a bit of experiment for H-L, because they will need something of this kind for all funds. but whether the charge would still be £2, or something higher, i don't know ...

the new CEO was talking a while ago about how H-L has in the past reduced its margins, but simultaneously increased its volume of business sufficiently that profits still rose, so that may be their plan again.

doubtless if they do increase the platform charge from £2, they will blame the FSA .

(full disclosure: i own some shares in H-L.)

You say it’s a guess but is it based on any numbers? I assume you’ve looked carefully or you wouldn’t be holding their shares?

The figures suggested to me, unverified, are that they have around 330,000 clients producing £159,000,000 of revenue. If correct, that’s £500 around per client pa.

If they charged £24 per holding and each client had 10 holdings that’s just £240 per client. Take into account that many of those clients’ accounts will have a second held by a spouse so if you take a figure of 10 holdings per couple then the numbers look still worse. On that basis they’d have to double or treble a flat holding charge of £24 to get back to that £500 per client average.

So are those numbers wrong and the numbers you’re using completely different? A charge of £48 to £60 per holding would be a nonsense for many of the very small investors they cater for. They could blame whoever they liked but would their clients wear it and, if they won’t, then where will that increased volume they need come from?

Ark_Welder

HL's latest annual report gives Vantage client numbers as £380,000 and turnover generated from Vantage as £160.5m (being 77% of total revenue), generated from assets of £23.1bn. But remember that this revenue includes share/ETF dealing commissions within Vantage in addition to fund commissions.

grey_gym_sock

Ark_Welder wrote: »

HL's latest annual report gives Vantage client numbers as £380,000 and turnover generated from Vantage as £160.5m (being 77% of total revenue), generated from assets of £23.1bn. But remember that this revenue includes share/ETF dealing commissions within Vantage in addition to fund commissions.

yes. they state that the average gross revenue margin on assets within Vantage was 78 bps. and that (at the year end) Vantage assets were 30% in equities, 60% in funds, 10% in cash. they don't break down revenue across those 3 categories. i'd speculate that they probably make less than 78 bps on equities (which includes the founders' large shareholdings in HL itself), but a lot more than 78 bps on cash. so the revenue margin on funds could be quite near to 78 bps. this fits with what we are told about typical renewal commission of 0.5% and platform commission of 0.3%.

so the commission on funds which they'll be looking to replace might be about 60% of £160.5m = £96.3m, which is £253 per client (using the year-end figure of 380,000 active clients). so, if clients have an average of 10 holdings of funds, a platform fee of £24 p.a. per holding would nearly replace that missing revenue.

now, i've no idea what the actual average is for fund holdings per client. note that the same fund counts up to 3 times if you have it in both SIPP, ISA, and Funds & Shares account. but some clients will hold no funds at all. and if you introduce a charge per fund holding, people will reduce their number of holdings to minimize the charge. £2 per month may not be enough, but i don't think it's all that far off.

even at £2 per month, this would be rather expensive for small investors who have about 10 different funds; more realistic with about 2 funds.

dunstonh

yes. they state that the average gross revenue margin on assets within Vantage was 78 bps. and that (at the year end) Vantage assets were 30% in equities, 60% in funds, 10% in cash. they don't break down revenue across those 3 categories. i'd speculate that they probably make less than 78 bps on equities (which includes the founders' large shareholdings in HL itself), but a lot more than 78 bps on cash. so the revenue margin on funds could be quite near to 78 bps. this fits with what we are told about typical renewal commission of 0.5% and platform commission of 0.3%

You will find that on many equity funds they are over 0.78. Aberdeen Emerging Markets, for example, would be around 0.9% (based on unbundled platforms which rebate all commissions). Equities are typically in that range. Property funds and fixed interest funds would be less but still around 0.5-0.6%.

gadgetmind

dunstonh wrote: »

Property funds and fixed interest funds would be less but still around 0.5-0.6%.

Wow. Just wow.

I now regard anything >0.5% TER as silly and aim for <0.4%. Of course this is weighted figure across all my asset classes. Many are much lower but some drag it higher.

psychic_teabag

I think Cavendish has been mentioned a couple of times in this thread, but not sure if anyone is really championing them. Is there any notable pros/cons of either fidelity or cofunds as the platform ? (Don't need any fancy portfolio analysis tools or anything.) Any rumours on what might be happening with them in the RDR ?

With HL, the fund initial charge is refunded immediately, and you get more units for your money. As far as I can tell, the Cavendish model is that you pay the initial fee, and then at some point in the future, it will be refunded to you as cash, outside the ISA. So some of your ISA allowance has leaked out of your ISA, and can't be replaced..?

One of the platforms (can't remember which) has a switching fee of 0.25%. I assume this is if you are switching directly between funds, rather than selling one then later buying the other. Is the switching fee refunded via Cavendish, or do they keep it ? If you were to sell one fund then buy another the next day, Cavendish may refund the initial charge, so that might seem better. I think there's no switching fee if you are switching into a fund with no initial charge anyway.

Cavendish are currently waiving their one-off fee when using Fidelity platform. Yet http://www.cavendishonline.co.uk/fees/ says the fee is the only money they ever earn from you. So they are providing their services completely free ..? (Or are getting a kickback from someone.)

gadgetmind

psychic_teabag wrote: »

So some of your ISA allowance has leaked out of your ISA, and can't be replaced..?

That's also the case with Hargreaves Lansdowns "Loyalty Bonus". They take it away in the ISA and pay it to you outside, which seems silly.

SnowMan

Just a reminder for those moving away from HL because of the introduction of the platform fee:

My suggested approach for moving would be as follows;-

1. Find another platform where the funds can be re-registered
2. Write to HL to ask them to waive their re-registration fees (making it clear you expect them to do that because of the major change to the terms and conditions) and any £2 fees while the re-reregistation is being processed
3. If HL say no (as they did with me) register a complaint and then take the case to the Financial Ombudsman unless they back down. You could then re-register the investments and if the Ombudsman finds in your favour (and it is unclear whether they will) you will get your re-registration fees refunded.

Looks like my complaint is certain to be going to the Ombudsman (can't do that until mid January), and I will report back how I get on. Would imagine it will take the Ombudsman perhaps 6 months to decide.


Still no sign of my ISA transfer away from HL being completed. The units weren't 'sold' until 6th December and shockingly the new provider hasn't heard from HL yet. HL say in their letter to me 'Hargreaves Lansdown will of course look to ensure any transfer to or from our mangement is made in a timely manner'. So clearly they looked and decided against doing it in a timely manner.

Rollinghome

psychic_teabag wrote: »

I think Cavendish has been mentioned a couple of times in this thread, but not sure if anyone is really championing them.)

Can’t be much help but I finally got round to using them this week so will let you know how it goes. I notice Justin Modray of www.candidmoney.com says he uses them for his investments (even though he used to work for BestInvest).

I’ve started initially to move just a single fund (available on Fidelity but not Cofunds) that my wife holds with HL outside of an ISA and on the basis of that 0.8% figure currently earns them over £260 pa.

They say for the fund “Via Cavendish Initial Charge: 0%, Annual Management Charge: 1.5%, Renewal Commission Rebate 0.5%”. So she should save £165 pa by moving (less the bit of ‘bonus’ from HL)… and I don’t have any excuse for not sorting it earlier apart from the convenience of HL and laziness. I've only moved a few k as yet.

Click the invest button and you’re redirected to the Fidelity site. All the forms you fill in are Fidelity apart from one that you download from Cavendish and send to their freepost address. I paid Fidelity by debit card. I think you can have free transfers on Fidelity by paying a small annual fee and assume that can be done via Cavendish.

Can’t tell you much more yet but with luck someone else will chip in with their experience. With RDR unfolding I think you’re right to be a tad cautious about moving around until more is known. One of my wife's ISAs is still with HL and will stay there until I get a feel for Cavendish.

For Cavendish to waive their fee, as they currently are, I assume they’re either getting some sort of marketing fee from Fidelity or, less likely, are using a loss leader to build up volume.

dunstonh

Looks like my complaint is certain to be going to the Ombudsman (can't do that until mid January), and I will report back how I get on. Would imagine it will take the Ombudsman perhaps 6 months to decide.

This is of course another issue HL will have.

It costs HL £500 for a complaint made to the FOS on top of their own implicit costs for dealing with it. Even if the FOS reject the complaint. So at £2 a fund, that is £24. Lets say 3 funds, thats £72 earned and £500 spent.

If everyone affected by this complained and went to the FOS, it would surely have to reconsider and come out with an alternative that does not penalise a limited selection of funds but not others (which would, surprise, surprise, mean an unbundled charging model which is going to have to come in soon anyway).