Hargreaves Lansdown "playing hardball"

zagfles

jamesd wrote: »

I'm paying about 0.06% to HL for one holding. A tracker that is the single largest holding in my pension there, around 40% of its total value.

And people keep saying HL is expensive

I use my work DC scheme for trackers - the choice is quite limited but then you don't really need a lot of choice with trackers. The TERs are very low. I only use HL for managed funds, so I'm expecting my charges to go down if anything (though my holding isn't particularly large).

A substantial price rise for a big component could easily increase the overall costs significantly unless I transferred out the affected holding(s). That particular product has around 0.3% or so initial charges last time I looked so it'd be an in-specie transfer out as a cheaper option than even just rebuying elsewhere with new money.

You also need to watch what is meant by tiered pricing. Some meanings offer the high tier price to all holdings, others charge the higher lower level pricing for the first chunk of money, next higher to the next chunk and so on until only the topmost part is at the lower rate. The second way produces a blended charge that's significantly above the top tier rate until the total holding is much bigger than that threshold.

Good point - they work out cash interest like that (for what it's worth).

gadgetmind

zagfles wrote: »

And people keep saying HL is expensive

Not if you use them sensibly. Holding a single tracker with them can be very cost effective and the £45 cap when using their ISA for equities and ETFs is also pretty reasonable.

westy22

zagfles wrote: »

Presumably the costs for the managed funds would go down and the costs for the others would rise. How would your TER change with clean units?

My SIPP was 90% ITs, ETFs and direct shares and 10% in Cazanove UK Opportunities. I calculated my contribution to HL's coffers was about 0.14% made up of a £200 p.a. cap on my shares etc and approximately £150 being 0.5% on my one 'dirty' fund (0.75% less 0.25% rebate). A current total of £350 p.a.

I estimate that HL's new pricing may put me on 0.35% or so on the whole SIPP balance which would be £900 to £1,000.

My charge on Youinvest from 1 Jan 14 will be £100 p.a. SIPP admin fee plus 0.2% on Cazanove UK Opp clean class - so approximately £150 p.a. in total.

Also I will be able to trade at £1.50 per month on their regular investing dates.

zagfles

gadgetmind wrote: »

Not if you use them sensibly. Holding a single tracker with them can be very cost effective and the £45 cap when using their ISA for equities and ETFs is also pretty reasonable.

They're not so bad for small holdings of managed funds, as there aren't any fixed charges eg trading or annual charges like there are with other platforms. Mine's getting to stage where I'd probably be better off with clean units and explicit charges so I await their new charging structure with baited breath...

dunstonh

Yes, and the new charges are rumoured to be about 0.35% for large holdings. Hence my surprise that those with large holdings will be worse off.

If the large holdings are non-commission paying then they are paying little or nothing to HL. They are effectively a loss leader in the commission world or there was behind the scenes marketing payments for the fund house to get the funds on platform.

So, people with those will go from little or nothing being paid to HL to something like 0.35% being paid.

With people using managed funds, HL would be paid out of the TER. They would get the platform commission and tended to keep the bulk of the IFA commission. So, going forward, there is no IFA commission and no platform commission to keep. It will be replaced with an explicit charge and a cheaper fund. Those two things should be cheaper on larger holdings.

Example time:

Inv perp distribution retail fund (old school bundled charging) is 1.56%. That paid 0.5% trail commission (most of which was kept by HL). So, the remaining 1.06% was shared between fund house and platform.

Inv Perp distribution clean fund is 0.87%. On top of that you would pay the platform charge (and IFA if one). So, a platform charge of say 0.35% would take the unbundled charge to 1.22%. So, cheaper than the bundled charge of 1.56%.

Now, lets say you have Vanguard Lifestrategy 60%. That has never been available in bundled form. Only unbundled. HL could either issue it as a loss leader (as they did with other trackers historically) or make a platform charge. They introduced that £2pm per fund in 2011 that didnt pay commission. So, with someone with 100% in that fund pays 0.31% p.a. plus £24 a year to HL.

Going forward that same person on new charges will still pay the 0.31% TER for Vanguard but also have to pay the platform charge. Using the example of 0.35% that means their new charge is 0.66%. For most people, that will result in higher charges.

if you had £500k on platform
Inv Perp distribution bundled would be £7800 a year with everyone paid out of that
Inv Perp distribution unbundled would be £4350 for fund and £1750 for platform (assuming 0.35%) which is £6100
Vanguard on current pricing would be £1150 for fund and £24 a year for platform
Vanguard on unbundled platform pricing assuming 0.35% as the platform charge would be £1150 for fund and £1750 for platform.

So, you can see that some cases will see winners and losers.

The figure of 0.35% was used for example purposes only based on what other platforms are charging. We dont know what the charges for HL will be.

zagfles

westy22 wrote: »

My SIPP was 90% ITs, ETFs and direct shares and 10% in Cazanove UK Opportunities. I calculated my contribution to HL's coffers was about 0.14% made up of a £200 p.a. cap on my shares etc and approximately £150 being 0.5% on my one 'dirty' fund (0.75% less 0.25% rebate). A current total of £350 p.a.

I estimate that HL's new pricing may put me on 0.35% or so on the whole SIPP balance which would be £900 to £1,000.

My charge on Youinvest from 1 Jan 14 will be £100 p.a. SIPP admin fee plus 0.2% on Cazanove UK Opp clean class - so approximately £150 p.a. in total.

Also I will be able to trade at £1.50 per month on their regular investing dates.

Thanks - yes that's what I was missing - I only use them for managed funds, I didn't realise they were so much cheaper for direct shares etc. People keep going on about them charging 0.7% or thereabouts, but presumably this is because most people use them for managed funds.

I would have thought it would be financial suicide for them to massively increase the cost of holding shares as such people I guess are more likely to move elsewhere than those with funds.

dunstonh

would have thought it would be financial suicide for them to massively increase the cost of holding shares as such people I guess are more likely to move elsewhere than those with funds.

Not really. Firstly, they are likely to be making very little on those people if anything at all. If one person with £500,000 in direct investments/non commission paying fund stays, then HL could make £1750 on them if they charged 0.35%. Currently they make £24.

£1750 /24 allows 72 people being charged £24 to take their business elsewhere and still earn more.

Increasing charges is about finding the sweet spot where you get enough people staying on the new charges to offset the amount that leave and increase your profit.

zagfles

dunstonh wrote: »

If the large holdings are non-commission paying then they are paying little or nothing to HL. They are effectively a loss leader in the commission world or there was behind the scenes marketing payments for the fund house to get the funds on platform.

So, people with those will go from little or nothing being paid to HL to something like 0.35% being paid.

Understood. It was the 0.7% which HL supposedly charge now which confused me. This clearly isn't the case for such people.

With people using managed funds, HL would be paid out of the TER. They would get the platform commission and tended to keep the bulk of the IFA commission. So, going forward, there is no IFA commission and no platform commission to keep. It will be replaced with an explicit charge and a cheaper fund. Those two things should be cheaper on larger holdings.

Example time:

Inv perp distribution retail fund (old school bundled charging) is 1.56%. That paid 0.5% trail commission (most of which was kept by HL). So, the remaining 1.06% was shared between fund house and platform.

Inv Perp distribution clean fund is 0.87%. On top of that you would pay the platform charge (and IFA if one). So, a platform charge of say 0.35% would take the unbundled charge to 1.22%. So, cheaper than the bundled charge of 1.56%.

Yes, and presumably they might introduce trading charges, annual charges on the SIPP etc.

Now, lets say you have Vanguard Lifestrategy 60%. That has never been available in bundled form. Only unbundled. HL could either issue it as a loss leader (as they did with other trackers historically) or make a platform charge. They introduced that £2pm per fund in 2011 that didnt pay commission. So, with someone with 100% in that fund pays 0.31% p.a. plus £24 a year to HL.

A far cry from 0.7% !!

Going forward that same person on new charges will still pay the 0.31% TER for Vanguard but also have to pay the platform charge. Using the example of 0.35% that means their new charge is 0.66%. For most people, that will result in higher charges.

Yes. It's just the mixed messages on this thread. HL currently charge 0.7% or thereabouts keeps being bandied about, then charges likely to rise keep being bandied about. Truth AIUI is that charges will likely only rise for those paying far below 0.7% it seems. Agreed?

if you had £500k on platform
Inv Perp distribution bundled would be £7800 a year with everyone paid out of that
Inv Perp distribution unbundled would be £4350 for fund and £1750 for platform (assuming 0.35%) which is £6100
Vanguard on current pricing would be £1150 for fund and £24 a year for platform
Vanguard on unbundled platform pricing assuming 0.35% as the platform charge would be £1150 for fund and £1750 for platform.

So, you can see that some cases will see winners and losers.

The figure of 0.35% was used for example purposes only based on what other platforms are charging. We dont know what the charges for HL will be.

Do they have to treat all funds the same? Could they have (eg) a higher charge for managed funds than for trackers & shares?

gadgetmind

dunstonh wrote: »

So, you can see that some cases will see winners and losers.

I prefer to call them "stayers and leavers".

westy22

zagfles wrote: »

Do they have to treat all funds the same? Could they have (eg) a higher charge for managed funds than for trackers & shares?

Yes, they could but it really goes against the founding principle of RDR which was to ensure that investors in one type of investment were not subsidising investors in other types. One of the theory pillars behind RDR was that all investors should be charged the same whatever type of investment they chose. Transparency and equality was what it was all about.