Hargreaves Lansdown "playing hardball"

dunstonh

The 2016 date is important as that is the date that legacy business (pre April 2014 for DIY) has to be moved to the new charging method.

Platforms require a certain amount under management to be profitable. The more they have, the less they can charge. So, what you have been finding on the IFA side (where the biggest platforms are) is that they are periodically lowering their prices as they get more money. However, many have been running at a loss to get quicker to that breakeven point. For some years now, there has been concerns that platforms will need to consolidate as there are too many and that some platforms will go on to fail and go into administration. So, do not rush to the cheapest as your priority. Look at financial strength and backing. Do they have large amounts under management. Is their pricing in line with the market. Do they have a capital rich parent company or are profitable in their own right or heading that way.

You may have trade a few basis points for peace of mind, sensibility and safety. Plus, if the DIY market matches the IFA market, you tend to find the cheapest platforms lack functionality of the more expensive ones. If you dont use that functionality then thats fine. You are not paying for it. However, if you do, then dont assume all platforms offer it.

grizzly1911

zagfles wrote: »

One of the issues of course is that when you're investing tens or hundreds of thousands, the primary concern must be how safe your assets are, from fraud, error, or defaults. I think a lot of people will stick with HL despite higher charges for the same reason people stuck with Barclays, Lloyds etc rather then going for higher interest rates with Icesave, BCCI etc.

The same type of people that stay with any familiar brand be it Heinz or British Gas, BT will probably stay.

As long as the platform is regulated by the FCA ( or whoever it is this time round) and covered by the FSCS then the chance of material loss for the vast majority is very low, from the platform itself.

grizzly1911

dunstonh wrote: »

The 2016 date is important as that is the date that legacy business (pre April 2014 for DIY) has to be moved to the new charging method.

Platforms require a certain amount under management to be profitable. The more they have, the less they can charge. So, what you have been finding on the IFA side (where the biggest platforms are) is that they are periodically lowering their prices as they get more money. However, may have been running at a loss to get quicker to that breakeven point. For some years now, there has been concerns that platforms will need to consolidate as there are too many and that some platforms will go on to fail and go into administration. So, do not rush to the cheapest as your priority. Look at financial strength and backing. Do they have large amounts under management. Is their pricing in line with the market. Do they have a capital rich parent company or are profitable in their own right or heading that way.

You may have trade a few basis points for peace of mind, sensibility and safety. Plus, if the DIY market matches the IFA market, you tend to find the cheapest platforms lack functionality of the more expensive ones. If you dont use that functionality then thats fine. You are not paying for it. However, if you do, then dont assume all platforms offer it.

If a regulated platform were to fail what is likely to happen?

zagfles

dunstonh wrote: »

The 2016 date is important as that is the date that legacy business (pre April 2014 for DIY) has to be moved to the new charging method.

Platforms require a certain amount under management to be profitable. The more they have, the less they can charge. So, what you have been finding on the IFA side (where the biggest platforms are) is that they are periodically lowering their prices as they get more money. However, may have been running at a loss to get quicker to that breakeven point. For some years now, there has been concerns that platforms will need to consolidate as there are too many and that some platforms will go on to fail and go into administration. So, do not rush to the cheapest as your priority. Look at financial strength and backing. Do they have large amounts under management. Is their pricing in line with the market. Do they have a capital rich parent company or are profitable in their own right or heading that way.

You may have trade a few basis points for peace of mind, sensibility and safety. Plus, if the DIY market matches the IFA market, you tend to find the cheapest platforms lack functionality of the more expensive ones. If you dont use that functionality then thats fine. You are not paying for it. However, if you do, then dont assume all platforms offer it.

Yes, in some ways it's quite reassuring that HL have a big profit margin! Like you say are the cheaper platforms running at a loss to attract funds?

Though I suppose with the likes of Cavendish, where they are just brokers using the Fidelity FundsNetwork platform, if they were to go bust presuambly the funds would still be safe as they're with Fidelity.

Rollinghome

zagfles wrote: »

if they were to go bust presuambly the funds would still be safe as they're with Fidelity.

No, if you've invested they'd be with the investment fund managers, not Fidelity (unless you invested in a Fidelity fund). CavendishOnline require no payments of any kind to be made to directly to them and get their 0.05% from Fidelity.

Probably most used out there is Cofunds, the largest and owned by Legal and General. Used by Interactive Investor, Charles Stanley etc. and many IFAs. L&G are are far more widely based company than Hargreaves Lansdown in every sense. Charles Stanley themselves are a very old established company dating back to the 1890s (and I was using them as brokers 40 years ago)

zagfles

grizzly1911 wrote: »

The same type of people that stay with any familiar brand be it Heinz or British Gas, BT will probably stay.

People don't tend to have hundreds of thousands invested with Heinz, BT, or BG!!

As long as the platform is regulated by the FCA ( or whoever it is this time round) and covered by the FSCS then the chance of material loss for the vast majority is very low, from the platform itself.

There's a £50k limit for investments, plenty of people have more than that on platforms.

The main risk I guess is not the platform going bust (presumably client assets are ringfenced), but the platform being hacked, possibly as an inside job, which results in assets being transferred abroad or used to purchase some useless stock which is then ramped. If the amount taken is significant enough then the platform, which is obviously responsible, may not have enough to refund investors and the amount may be over the FSCS amount.

I doubt this could happen on a scale big enough to make a large platform like HL go bust, but maybe for a smaller one.

Or is this scaremongering? Not sure what would actually happen in the above situation.

Blackdog

What I have learned from the process of HL announcing these changes is that I have no idea what I am paying in charges at the moment so I am struggling to know how this will affect me. The easy bit is that I know I will be paying a vast amount more on my passive funds (Vanguard, SWIP tracker etc) but I have no idea the actual cost in £'s of all my other funds. Also until the HL announcements start on 1 March of their discounted funds I couldn't even start to calculate the difference in cost even if I knew how to do it! From the various comparison tables I know that I would be better off using Interactive Investor for my size of holdings but in cash terms what this means I still don't understand. I have been fine with the DIY investing so far (even though I am clearly ignorant of how much charges have been) but perhaps it is time to seek expert help.

masonic

zagfles wrote: »

The main risk I guess is not the platform going bust (presumably client assets are ringfenced), but the platform being hacked, possibly as an inside job, which results in assets being transferred abroad or used to purchase some useless stock which is then ramped. If the amount taken is significant enough then the platform, which is obviously responsible, may not have enough to refund investors and the amount may be over the FSCS amount.

I doubt this could happen on a scale big enough to make a large platform like HL go bust, but maybe for a smaller one.

Or is this scaremongering? Not sure what would actually happen in the above situation.

As you say, the assets are ringfenced so failure of the platform itself would not put the assets at risk. Institutional fraud would be a concern, but who is to say whether HL has better safeguards against fraud than Interactive Investor or Charles Stanley Direct. Add to that the fact that some of these alternative companies use larger platforms such as Cofunds (which is now owned by Legal & General) and I think the argument that your money is safer with HL is questionable.

Rollinghome

zagfles wrote: »

I doubt this could happen on a scale big enough to make a large platform like HL go bust, but maybe for a smaller one.

Which platform did you have in mind?

Hargreaves Lansdown is the third or fourth largest in terms of AUM. Most of the supermarkets seems use Cofunds or Fidelity.

Alliance Trust Savings might be one of the smaller one in terms of AUM but is fully owned by Alliance Trust established around 1860 and with vastly more assets than HL. (Companies get into the FTSE on the basis of share capitalisation which comes and goes, not on asset value.)

zagfles wrote: »

Or is this scaremongering? Not sure what would actually happen in the above situation.

Possibly.

jamesd

joerugby wrote: »

I now learn that HL plans to charge us £1,650 per annum for platform fees. Where the charge will be taken from is unclear to me at the moment. ... If we continue with bundled funds will loyalty bonuses be sufficient to cover the charges?

I don't know the answers to these questions at the moment but what I do know is that RDR is about to make investing for income much more complicated for us, and it seems it may reduce our net income.

There are two main ways in which HL charges you. The old way is the fund companies charging you more, paying HL much of that and then HL paying you a portion of what they get back. For example, here are the charges paid indirectly to HL that way for some funds in the Wealth 150 range:

1.01% Liontrust Macro Equity Income Class R Acc
0.99% Troy Trojan Income Class I Acc
0.95% Aberdeen Latin American Equity Class A Acc
0.95% PSigma Income Acc
0.90% Melchior Selected Trust European Absolute Return Class H GBP Acc

Those aren't the total annual management charge, they are just the commission paid to and kept by HL. Those aren't typical, I picked some of the highest. More normal is around 0.65%.

So say you held the Liontrust fund, the fund manager would charge you 1.5%, they would pay HL 1.01% of that and HL would pay you none of it, leaving HL to keep all of the 1.01%. For Troy Trojan the fund manager would charge you 1.5%, pay HL 0.99% and HL would pay you nothing and keep the 0.99%. For the Aberdeen fund the fund manager charges you 1.75%, pays HL 1.05%, HL pays you 0.1% in Loyalty Bonus and keeps 0.95% itself.

The second way is to charge fee, in HL's case a percentage of the total holding size. HL expects to do some of each for the older bundled/commission paying funds that people already own.

I've given some examples, but if you ask HL they can provide you with a Trail Commission Statement [STRIKE]Client Holdings Valuation report[/STRIKE] that will tell you for all of your funds in percentage and Pound terms how much the charges are, how much commission they get paid and how much of it they keep and pay on to you.

With £375,000 invested and their average percentage cut being around 0.65%, if you are paying that average, you're already indirectly paying them £2,438 a year via commission. So £1,650 would be a substantial cut compared to that, but they may still choose to keep some of the commission, they haven't said that they will start paying it all out, just some.

Now, your options. They start with asking for that report to find out what they are being paid now.

Next, at the start of March they will announce new unbundled funds, commonly called clean funds elsewhere. You will have the option to convert your existing funds to the clean version. This will eliminate all commission paid to HL for any funds you convert and your fund charges will decrease correspondingly, increasing your capital growth by about that 0.65% a year. To pay for the fee you should keep a moderate cash balance on your account by selling some fund units occasionally. Enough to cover the charges.

For the commission paying funds two different things will happen:

1. for funds purchased after April the commission will be rebated to you but must by FCA rules be used to buy more fund units. HL will default to buying more of your biggest holding but you can tell them to hold it on account for you to buy whatever you want. You can't cash it directly, you have to buy a fund first. Then you can sell what you just bought to get money to pay the charges.

2. For funds purchased before April the commission will continue to be paid to HL as now but they will start to rebate more of it to you in the form of generally higher Loyalty Bonus payments in cash added to your account. HL may still keep some of it.

Of these three options the best is probably going to be to convert and sell a bit from your higher capital growth. But in a few cases it might be cheaper to have the older funds that pay commission, because sometimes clean versions have higher prices than the commission paying ones after commission is rebated. Keeping the ones that pay commission in cash might be as cheap as the other ways but it'll probably be more expensive and the worst way. You won't know this until HL publish the new fund charges and commission rates in March.

However, it is clear that from the amount you have there you are in prime "much cheaper to move away from HL" territory. Just wait a couple of months for other places to announce their own new pricing so you can pick the best place to move to. HL's new pricing may well save you £800 a year (which you get in higher capital growth) but you can probably save another £800 plus by moving off HL.