H-L charging structure

jimjames

Reaper wrote: »

I would love to hear their explanation of why non-commission paying Investment Trusts don't make the list.

And also trackers which they have belatedly admitted are quite good options for mature markets like the UK & US. The list of funds (2) on the 150 for the US is tiny compared to the size of market, mainly it seems because none can consistently beat the market.

For anyone interested the article is here
http://citywire.co.uk/money/hargreaves-to-cut-investor-costs-and-2-passive-fee/a676956

westy22 wrote: »

Having read the article on Citywire I am amazed that Ian Gorman is quoted speaking so unguardedly about HL's intentions.

I can imagine it is a reaction provoking and listening exercise so I'm sure they are reading the comments here to assess whether the amounts suggested would be acceptable to investors. Better to do that than use the F&C or iii method of just imposing them and getting the backlash afterwards. At least they have the opportunity to adjust.

The crazy thing on the HL charges to me is that the share platform charge is a percentage that is capped but the fund one isn't. Why should shares be capped at £45pa but funds with small values could pay £200+ in platform charges.

Rollinghome

Reaper wrote: »

I would love to hear their explanation of why non-commission paying Investment Trusts don't make the list.

Perhaps similar to why their Mark Dampier at first strongly advised readers in the Independent against buying Fidelity China Special Situations when it was first announce and expected to be the same as other ITs and not pay trail commission... until Fidelity changed their minds and agreed to pay them 0.5% annual commission on it after all.

It then mysteriously became the best investment ever at HL Towers with even Peter Hargreave's dog investing his last biscuit in it apparently.

(Sadly for Rover FCSS now well down on the issue price and has lost 25% relative to the FTSE.)

doughnutmachine

all these different classes of UT are likely to cost more in admin etc, and we all know it's the investor that pays. why do people not ditch the middlemen and buy a portfolio of directly held shares?

0.6% is enough for an annual holiday on a fairly typical 6 figure portfolio...

jimjames

doughnutmachine wrote: »

all these different classes of UT are likely to cost more in admin etc, and we all know it's the investor that pays. why do people not ditch the middlemen and buy a portfolio of directly held shares?

0.6% is enough for an annual holiday on a fairly typical 6 figure portfolio...

You hit the nail on the head with the 6 figure portfolio quote. Most people don't have that much so funds work out cheaper and far easier. Maybe it works for the UK but I certainly wouldn't feel confident choosing and buying shares in the Far East.

Radiantsoul

doughnutmachine wrote: »

all these different classes of UT are likely to cost more in admin etc, and we all know it's the investor that pays.

I am guessing you might end up with a situation a bit like when Directory Enquiries was opened to competition. I am not sure the outcome was lower costs, but rather a more confusing situation for the customer. I guess this might be worse as there are potentially more layers.

pqrdef

Radiantsoul wrote: »

I am guessing you might end up with a situation a bit like when Directory Enquiries was opened to competition. I am not sure the outcome was lower costs, but rather a more confusing situation for the customer.

Don't we all just use the cheapest?

Radiantsoul

pqrdef wrote: »

Don't we all just use the cheapest?

Well I just use google, but there was a period of time where there was a bewildering array of options. I think 118 118 is probably the most popular as it spent the most on adverts and had a catchy number.

doughnutmachine

jimjames wrote: »

You hit the nail on the head with the 6 figure portfolio quote. Most people don't have that much so funds work out cheaper and far easier. Maybe it works for the UK but I certainly wouldn't feel confident choosing and buying shares in the Far East.

i don't know what you would consider an economic amount to invest in a directly held share, but i'd consider £2k as the minimum i would normally invest. a portfolio of say 15 shares would provide a fairly well diversified portfolio.

so that's only £30k, not a huge amount for a lot of people in the uk to invest.

0.6% on £30k is still a weekend away somewhere.

a lot of FTSE 100 companies do have a lot of emerging market exposure...

jamesd

Of particular interest is "Gorham added that the cost ratio of the business means that it cannot charge less than 0.28% because the company would make a loss". But that's across all customers and investment pot sizes and types. It's easy and sensible to charge higher percentages to smaller investors who have a relatively high cost of service provision but much harder to do it for large ones who have increasing and eventually substantial cost incentives to move to avoid high percentage charges. Finding a way to entice people in and perhaps offer advice at relatively low values in the early days of their investing and keep them as their investment size and value goes up is an interesting challenge.

I'm now beyond the point where it makes pure financial sense to be with HL on costs. Getting on for £180,000 with them and another £50,000 that could be with them but isn't on cost grounds. 0.28% of that is £672. What they are currently charging me behind the scenes is perhaps 1.5 times that overall. But that's a mixture of investments.

I'm paying HL something under 0.08% with their £24 a year fee to hold one passive fund because I have more than £30,000 in it. Raise that to 0.3% or 0.6% and that cost rises to £90 or £180 and even for just one fund that's enough for it to pay me to transfer that chunk of money to a place with flat charge and trading fee. Such cases give a high incentive for people to move significant amounts of money.

Yet other parts are in managed funds and I do a fair number of trades of funds at £250 along with the bigger ones at £1,000 or £5,000. For those some sort of percentage fee to avoid transaction charges might make sense. And this sort of thing is particularly attractive to smaller customers and newcomers where it works out quite inexpensive.

It might make sense for them to offer a pair of virtual offerings with different charging and make it easy for people to move money between the pots/offerings, effectively internal transfers. Inefficiency in people's allocation of money between the two would increase the effective charge by HL but also allow HL to be competitive with the range of offering types they have to compete with.

In one way this becomes a core/modifiable pairing, with a fee but no percentage part great for core and larger holdings and a percentage great for those where more active trading and accumulation is expected.

It'd be nice not to have to use two different providers to get the pricing that's appropriate for each portion of what I do. which is a way HL can get in a small premium, the convenience factor of one place and ease of moving money around between deals and products.

jamesd

doughnutmachine wrote: »

i'd consider £2k as the minimum i would normally invest. a portfolio of say 15 shares would provide a fairly well diversified portfolio. ... so that's only £30k, not a huge amount for a lot of people in the uk to invest.

From the story:

"In the UK the average amount invested in equity per person is £9,776"
"Around 75% of our investors have less than £100,000"

£30,000 is big compared to the typical directly held UK pension pot. I think above even the average amount used to buy an annuity at retirement here. Your view of what is viable for most people to get diversification is perhaps distorted by not knowing just how little is typically invested per person.

Rollinghome wrote: »

‘Wealth 150’ list would no longer be criticised for allowing fund managers to buy their way on with bigger kickbacks to the platform."... Which is a tacit admission of the obvious: that their "Wealth 150" list is currently a list that funds pay to be advertised on

No it isn't. It's a recognition that people make that false claim and it'll go some way to deal with that claim.

But it can't eliminate it because the FCA rules will allow marketing funds to be paid to platforms and what will matter there is how well the FCA mandates making it clear what is and what is not paid for content. Naturally it'd be bad if payments to be in a list of funds or house magazine editorial are permitted. But ads identified as such within such things would be fine, much as some newspapers today carry advertorial content identified as such and of course web sites routinely have advertising around editorial already. And MSE of course makes revenue directly from mentioning products in editorial content, while claiming independence from products from which those mentions produce income. In such cases the lists and house magazine would not be suffering from paid for content but providing the unbiased editorial platform within which paid for space can be purchased.

As an incidental point for HL, the 0.28% cost of doing business without making a loss amounts to £98 million on the £35.1 billion of investors' assets currently with them. third quarter revenues leaped 23% to £76.3 million. Turnover for the first nine months of the year rose 24% to £175 million and that looks like maybe £250 million a year so well above the 0.28% level.