Hargreaves Lansdown and SIPP

crisp

Would you say HL is a low cost SIPP provider in the Income Drawdown mode?

Are there any similar popular providers?

Once you enter the Income Drawdown mode can you transfer your pot between providers?

jamesd

No. They have relatively high charges for drawdown compared to their competitors. But it does depend on pot size, what investments you use and how often you trade. For low trading a place like Alliance Trust can be good. For lots of fund trades HL can be better because it has no explicit charge for fund trades.

When in drawdown you can transfer the whole of each pot, not a part of it. There is a workaround for this that involves starting drawdown with different providers to create different pots that then cannot be combined. This can be useful when pots are at least £50,000, better at least £100,000 each. Doing that yo can keep some flexibility to move bits of your total pot to get the best deal for each piece. You can also have GAD calculation dates that are arranged to be different for each pot, so all don't go up or down at the same time because they have different calculation dates instead of just one.

HL is low cost compared to some of the premium SIPP providers out there, just not to its DIY or lower cost IFA competition. They are planning to introduce their required new pricing sometime before April next year.

Freecall

Income drawdown charges don't look too bad to me. Or am I missing something?

Starting drawdown: No charge
Each GAD calculation: £75 +VAT
Regular income payments: No charge
Alter payment amount/frequency: £10 +VAT
One-off payments: £25 +VAT

Obviously you have the charges relating to the management of the portfolio (dealing, custody etc.) but you would have those anyway. If you stick it all in one low cost fund these charges might just be £24 pa.

I can think of a lot that charge significantly more.

Perhaps I am missing the point jamesd?

crisp

Freecall wrote: »

Income drawdown charges don't look too bad to me. Or am I missing something?

Starting drawdown: No charge
Each GAD calculation: £75 +VAT
Regular income payments: No charge
Alter payment amount/frequency: £10 +VAT
One-off payments: £25 +VAT

Obviously you have the charges relating to the management of the portfolio (dealing, custody etc.) but you would have those anyway. If you stick it all in one low cost fund these charges might just be £24 pa.

I can think of a lot that charge significantly more.

Perhaps I am missing the point jamesd?

thanks. there is also a 0.5% annual charge. just wondered if others thought it was all reasonable and competitive.

On ball facts it looks fine, but over 10-years it eats into the pot as illustrated by their own handout sent regarding draw down.

jamesd

Freecall, you're missing the routine charges for funds. Around 0.60-0.75% of the total value of your investments, taken by the fund AMC and paid to HL. The same funds that would have an AMC of say 1.35% (after HL Loyalty Bonus rebate to customer) at HL can be had elsewhere at a 0.75% AMC, for example at Alliance Trust. But AT charges dealing charges for funds so it would be more costly for those who buy and sell funds a lot.

Freecall

jamesd wrote: »

Freecall, you're missing the routine charges for funds. Around 0.35-0.4% of the total value of your investments, taken by the fund AMC and paid to HL. The same funds that would have an AMC of say 1.35% (after HL Loyalty Bonus rebate to customer) at HL can be had elsewhere at a 0.75% AMC, for example at Alliance Trust. But AT charges dealing charges for funds so it would be more costly for those who buy and sell funds a lot.

Interesting.

In my example I included a £24 custody fee so if a low cost fund house was used (Vanguard for example) on the investment side the charges would be no different wherever the OP went.

I was really challenging your statement that 'They have relatively high charges for drawdown compared to their competitors'. The drawdown charges don't look particularly high to me.

I am not trying to promote HL or anything, it's just that at face value I can't see how their charge sheet justifies such a statement.

If HL are high I would love to know who and how much cheaper the medium and low cost providers are (for drawdown that is).

I would agree that AT are relatively low cost as well at £135 + vat pa although the £200 set up fee and the addition of the £75 annual fee seems a bit steep to me.

Of course it will probably all change over the next few months anyway but still interested in the basis of your statement.

planteria

would you use HL to build up a SIPP and then look to transfer to another provider in order to drawdown james? or would you not use HL at all?

crisp

jamesd wrote: »

They are planning to introduce their required new pricing sometime before April next year.

James, what general changes in pricing do they require to be made and where are these changes arising from (govt?)

dunstonh

If HL are high I would love to know who and how much cheaper the medium and low cost providers are (for drawdown that is).

For benchmarking purposes, on a fund that size, the UK's biggest drawdown provider would be 0.40% p.a. using internal funds and trackers excluding IFA cost. External funds would cost more.

James, what general changes in pricing do they require to be made and where are these changes arising from (govt?)

It is not the Govt forcing the changes. It is the regulator. The changes need to be in place by 2014. Most platforms have moved to the new method of charging (unbundled) but HL have not. HL keep most of the IFA commission. With unbundled charging there is no IFA commission. They also get paid a hidden commission from the fund house. With unbundled, they do not. They have to charge an explicit charge which should not be biased towards and investment type (apart from dealing costs). So, the current managed/tracker bias would need to end.

It is logical for them to hold on as long as they can as the current model is almost certainly earning them more than the new pricing model. Although for many people, the new pricing model will end up costing them more. Most platforms charge around 0.35% to 0.50% p.a. HL are taking around 0.7% on average currently (through IFA and platform commission).

jamesd

crisp wrote: »

James, what general changes in pricing do they require to be made and where are these changes arising from (govt?)

The FSA required all IFA platforms to switch to explicit charging instead of commission last year. The same change for DIY platforms must happen by April 2014. Some have already changed, the most prominent of those has been Alliance Trust.

Freecall illustrates part of the problem the FSA was trying to solve: counting the explicit charges but ignoring the bundled commission charges. So providers like HL claim there is nothing more to pay for funds while in reality you're paying out of the fund management charges continuously.

planteria wrote: »

would you use HL to build up a SIPP and then look to transfer to another provider in order to drawdown james? or would you not use HL at all?

My ongoing contributions go to a work salary sacrifice scheme. This provides for two free transfers out then more at a £50 charge. I expect to transfer out every two or three years.

I am watching how platform charges change. Then I will decide.

There are three general varieties of charges:

1. Commission and a few fees, the banned one that HL and some DIY are still using and can use until April 2014. Great for lower value pots and continuing investing.
2. Percentage platform fee, say 0.3% of total investments value, dealing fees, or not. This is the most likely one that type 1 charging will switch to. Might be cheaper for lower value pots and while still investing regularly. Poor for larger value pots, say over £100,000, perhaps only over £50,000.
3. Fixed platform fees, dealing fees. Cheapest for larger pots with infrequent trading, a common drawdown combination.

There can be other mixtures, these are just some combinations.

Freecall wrote: »

I am not trying to promote HL or anything, it's just that at face value I can't see how their charge sheet justifies such a statement.

Their explicit charge sheet doesn't justify such a statement. It doesn't include their ongoing commission charges and those are the biggest part of the total cost of using HL in larger pot cases. And those using drawdown are likely to have larger pots.

Say you invested £100,000 there in a range of funds with AMC of 1.5% and Loyalty Bonus rebate that averaged 0.15%. About 0.75% of that would be kept by the fund manager, 0.75% would be paid to HL and HL would pay 0.15% to your account. That's £1500 charged by the fund manager, £750 of that going to HL and £150 rebated to you. HL would be getting a fund-based charge from you of £600 a year.

Freecall wrote: »

I would agree that AT are relatively low cost as well at £135 + vat pa although the £200 set up fee and the addition of the £75 annual fee seems a bit steep to me.

The same fund there would be charging just 0.75% so you'd be saving £600 a year of fund-based charges compared to HL and other commission-based platforms.

It's vital to include fund-based charges in comparisons. Their exact effect depends on the fund mixture used.

toesonthenose

Very clearly explained!

Jamesd, I cant find anything on the Alliance Trust site that shows how deal with this "hidden" cost - any chance of a url please? HL are up front about how much you get charged per annum, ie 1.5% less 0.25% loyalty plus 0.19% ie 1.44%.

Again the funds vary for example HL Vanquard US Equity Index Acc is 0.2% plus a £24 /annum fee. Note no discounts, its not hard to work out why!

Ive ignored the start up costs in this point - dont ignore them when you do you own maths!

So you have to look at the detail of the funds as well!