H-L charging structure

Rollinghome

HL have also said they were looking for deals giving them exclusive rights to funds which would then be included in their “Wealth” list: so similar to what Skandia have been doing as reported here http://www.investmentweek.co.uk/investment-week/news/2250399/revealed-the-funds-on-skandias-select-list

Skandia’s list seems to be just rebadged versions of existing funds which will run in parallel to each other. So no different to simply having additional share classes. I read that HL were targetting smaller fund houses but would be rash of any of them to give HL that degree of future leverage over them. Would be equally surprising to see any of the big managers playing that game with their big selling funds.

If HL is to have a new “Wealth 30” list to heavily market funds they’ve arrangements with, as reported, it’ll be more difficult to maintain the pretence that their inclusion is based on out-performance. A benefit to them would be that in specie transfers away from them could be more difficult.

As they clearly won’t be able to compete purely on price and the high cost of a slick website and free envelopes becomes more obvious, it looks as if their major effort will go into confusion marketing.

Rollinghome

Another wheeze here:
"Fund groups eye 0% share classes as alternative to ‘super clean’ ".
http://www.investmentweek.co.uk/investment-week/news/2275072/fund-groups-eye-0-share-classes-as-alternative-to-super-clean#ixzz2WfdlDgP3

I gather the fund managers would then invoice the platforms using investment management agreements and a fee charged to the investor by the platform; with the benefit to them that the breakdown of the arrangement between fund manager and platform could be concealed.

It seems that the prospect of straightforward competition on the basis of price and performance isn't attractive to them.

grey_gym_sock

Rollinghome wrote: »

I gather the fund managers would then invoice the platforms using investment management agreements and a fee charged to the investor by the platform; with the benefit to them that the breakdown of the arrangement between fund manager and platform could be concealed.

that is quite breathtaking ...

we had "free" platforms and charges for funds, with the funds paying an undisclosed sum to the platforms.

the FCA says this has to stop, so that ppl can see the separate charges for platform and funds.

so this idea is to have "free" funds and charges for the platform, with the platform paying undisclosed sums to the funds.

you've got to admire their persistence

koru

Their cynical determination to flout the spirit of RDR appears to know no bounds.

koru

Looks like HL have persuaded many fund managers to agree to "superclean" deals:
http://www.dailymail.co.uk/money/diyinvesting/article-2411553/Hargreaves-Lansdown-promises-superclean-low-cost-funds-early-2014.html

dunstonh

Along with the other platforms saying the same thing

SnowMan

HL are now challenging the tax on fund rebates

http://www.telegraph.co.uk/finance/personalfinance/investing/10295814/Tax-on-fund-rebates-faces-legal-challenge-from-Hargreaves-Lansdown.html

It is disappointing that Hargreaves Lansdown can't just embrace the concept of straightfoward clean pricing and an explicit platform charge.

As a small investor I would say the tax on rebates is no attack on me, others may disagree. I would much rather pay a clean charge and an explicit platform fee without the complications of having to factor in rebates.

Hargreaves Lansdown's refusal to disclose what commission they have been paid over the years; that I consider an attack on the small investor, as investors have no way of knowing what HL are charging for their services.

dunstonh

Hargreaves Lansdown has launched a legal challenge against the decision by HM Revenue & Customs (HMRC) to impose an income tax on "loyalty bonuses" – rebates of some of the fund management fees paid by investors.

They are not loyalty bonuses. They are a refund of charges. That said, it does seem daft they are taxed.

Hargreaves Lansdown, the largest payer of loyalty bonuses on funds in the UK, has launched a legal challenge – arguing that the tax penalises investors.

If you call them loyalty bonuses then I guess they would be as no-one else calls them that. However, all the other unbundled platforms refund all of the commission in full. HL just return some of it and call that loyalty.

bowlhead99

dunstonh wrote: »

They are not loyalty bonuses. They are a refund of charges. That said, it does seem daft they are taxed.

As the economic effect to the investor is a net lower fee, it does seem silly to tax you on a "payout". The argument is quite straightforward though:

If I invest £100 in an OEIC or unit trust which makes £6 of income, and it costs £2 to run it for a year, it will only pay me £4 of income distribution at the end of the year. I'll pay tax on the four quid at an appropriate marginal rate. However if I then get a £1 kickback on my fees, I've successfully extracted a fiver of income out of the fund and should really have paid tax on it all, not just on the first £4.

Of course, dividends have their own effective tax rates and rules re tax credits, and if it's a growth fund there might not be any dividend anyway. For some funds, the extra pound taken out of the fund via the manager and through the backdoor to my pocket causes the fund to have a lower NAV and either a lower capital gain or an increased capital loss. It certainly seems unfair to charge me at income tax rates for the CGT saving I make, but then from HMRC's perspective they have to draw a line somewhere somehow and set an easy rule that's not open to interpretation and argument.

So I can see where the rule comes from. But it's not necessarily "fair" depending on the fund's or the investor's circumstances. The obvious conclusion is that an investor gets to avoid any harmful tax treatment by simply paying lower costs in the first place, instead of high costs and high income on the side.

My background is in the world of individually negotiated private funds (hedge, PE, real estate etc), where everyone typically invests through transparent partnerships. There, there's generally an aversion to giving investors extra income or gains and then charging them fees which might not be tax deductible. Far better to have a potential income offset to produce a lower direct fee. Or, for example, structure a management or performance fee as a share of profits so that you can cherry-pick what types of proceeds the investors end up with, vs what the fund manager wants to take.

But in retail funds and UTs the options to haggle around when the funds are being set up are not really there. It falls to fund houses and platforms to come up with the best compromise between return for the investors and the manager and the platform. One would assume they would look to minimize any tax costs for a typical UK investor as part of the equation, to make the overall package more attractive - but they will be driven by what the competition does and what they can get away with, given a proportion of investors will always be too lazy, dumb or or blindly loyal to bother moving.

WaltD

Out of the blue, HL have introduced what they call a "suggested minimum cash balance", which they say is to ensure that the client always has enough cash available to pay any fees and charges! They say it is not compulsory to hold this amount as cash in your account ... they just recommend it. The amount recommended depends upon the value of your total holdings in the account ... the higher the value, the higher the recommended cash balance, up to a maximum of £250.

I am very suspicious. Does this herald the advent of a large periodic fee or perhaps new dealing charges under a revised charging structure? At the moment, I only pay a monthly fee (capped) of £3.75 for holding shares within my ISA and this has always been paid automatically from my Income account.

Also, I thought it was against HMRC regulations to hold cash within a Stocks & Shares ISA unless it is specifically for the purpose of investing the cash in stocks & shares or funds.
:eek: