Hargreaves Lansdown unveils new Wealth 150+ list

zagfles

jimjames wrote: »

Thanks, I'll have a listen to that.

No-one from HL, but good points about possible further reductions in prices...HL seem to be giving people offers of lower rates if they threaten to leave, will they just give up and offer everyone lower rates? Or at least larger investors, who rather than paying £30 extra for HL as in the example in the programme may be paying £500 or £1000 extra.

I had the paperwork from HL come through this week with the details of their new Wealth 150+ and proclaiming the hugely lower fund charges on that list compared to the standard prices.

Two things struck me when I read it, one there seems to be a very large number of bond funds on it which maybe not reflective of an average portfolio which generally have lower AMC anyway. One fund has an AMC of 0.15%, take that out and the average goes up to 0.56% so starting to not look quite as good. As the saying goes, damn lies and statistics will let the numbers show anything for them.

I also noticed they are listing the Fidelity Moneybuilder Income at 0.3% as having a 0.1% discount from 0.4% and being good value. This puzzled me as I currently get this at 0.3% standard charge on Cofunds.

What is going on with these supposedly "clean" units on bond funds?

Take for instance Invesco Perpetual corp bond "no trail" acc units. 0.75% AMC, but HL offer a 0.3% rebate, II offer a 0.14% rebate. How can these be "no trail" clean units if such a big rebate is being offered?

bowlhead99

zagfles wrote: »

What is going on with these supposedly "clean" units on bond funds?

Take for instance Invesco Perpetual corp bond "no trail" acc units. 0.75% AMC, but HL offer a 0.3% rebate, II offer a 0.14% rebate. How can these be "no trail" clean units if such a big rebate is being offered?

No trail does not equate to properly clean. Simplified explanation follows:

The standard old 'pre RDR' pricing of an annual mgt fee was made up of 3 things:

- Trail commission for the advisor selling their product to you;

- Platform commission to pay the platform for making the product available and letting customers access it;

- The core management fee actually kept by the investment manager for managing the assets

In reality if you went through an IFA for the product, they would allow you to pay explicitly for the advice and rebate the trail commission to you (or use it to pay for ongoing annual servicing of your portfolio).

If you went through a DIY platform they would also rebate some or all of the trail commission to you because they weren't giving you any advice anyway and they needed to keep up with the competition (although some of them would keep a larger piece back for themselves, than others).

Then we had the Retail Distribution Review which said trail commission should not really exist because it could encourage people to sell a product in their best interests but not the customers' best interest, due to high commissions. So any trail should be rebated or should not be charged in the first place, by using a cleaner class. And the customer gets a net lower fee which is paying just for the platform kickback and the manager's own income.

Then we had the Platform Review a year or so later which said that people should pay explicitly for platform services and not have it hidden in the AMC of a fund (or at least it should be rebated). From this evolved an even cleaner class without the platform kickback so the customer is now just paying for the Fund Manager's work and no kickback for trail to a sales agent / adviser and no kickback to a platform either. They should pay the platform explicitly on a flat fee or a percentage basis or some combination which will vary between platforms depending what type of customers they want. So this type of fund class is even cleaner than the 'no trail' class as all you are paying is the Manager. If you are paying the more expensive 'no trail' rates you should still be able to get sizeable rebates if you are paying explicit platform fees.

And then some platforms which reckon they can put a lot of business the fund manager's way will have the buying power to obtain for their customers a super duper clean class where the Fund Manager doesn't mind taking a lower fee percentage because he's still getting a large absolute amount of cash that allows him to run his business.

The advantage of a platform negotiating to get that super clean class is that they can charge high platform fees themselves - e.g. 0.45% explicit fee to customer but the customer gets a 0.10% cheaper headline AMC, which is no worse than paying 0.35% for platform fees round the corner with a more expensive AMC (even if that more expensive AMC is still called 'clean', because it doesn't have trail or platform kickbacks).

So as a customer if you have been buying off a fund manager for the last few years, at different points you might have had...

* Dirty 'retail investors' fund
* Cleaner class (no trail commission)
* Clean class (no trail commission or platform commission)
* Super Clean class (no trail or platform and lower % but only available through certain platforms or advisors)

When you do the maths of what you pay in platform fees and what the other fund class expenses are (i.e. OCF/TER instead of AMC) you will find that different fund classes through different platforms, with or without rebates, get you to the absolute lowest fee for the fund. Of course that can only be worked out using assumptions as for example some platforms will charge enough annual fee to not need to charge transaction fees and vice versa, so your investing style and activity levels come into it as well as the total amount you have to spend and the particular funds you fancy holding.

The good news is that the dirtier classes will drop away over time leaving a clearer choice - basically all funds should be clean but some might be superclean in some places - so do you want to go with a platform with a crazy high percentage fee to get access to a cheaper headline AMC from the manager? Those with big pots will want the lowest ongoing % fees while others with small pots will care less about AMC % and Platform % and simply want to avoid high fixed annual charges and transaction charges from the platform.

koru

zagfles wrote: »

What is going on with these supposedly "clean" units on bond funds?

Take for instance Invesco Perpetual corp bond "no trail" acc units. 0.75% AMC, but HL offer a 0.3% rebate, II offer a 0.14% rebate. How can these be "no trail" clean units if such a big rebate is being offered?

Clean means no commission to the intermediary (whether passed on the investor or not). Fund managers are free to offer rebates direct to the investor, but I think they have to be in the form of extra units.

zagfles

Thanks - so the "no trail" version isn't really "clean". Despite in being listed as "unbundled" on the HL website. I see II offer loads of units types including Z and "Z Gr" which appear to be "real" clean units with an AMC of 0.5%. The "Gr" versions look to be those which pay income gross which I guess are only available in a SIPP or ISA, though II say the Gr version is not available in an ISA (but apparently this is quite often wrong!)

Has the RDR really simplified things???

jimjames

zagfles wrote: »

No-one from HL, but good points about possible further reductions in prices...HL seem to be giving people offers of lower rates if they threaten to leave, will they just give up and offer everyone lower rates? Or at least larger investors, who rather than paying £30 extra for HL as in the example in the programme may be paying £500 or £1000 extra.

No-one from HL but the lady investment consultant appeared to be reading from an HL script.

Quoting facts such as phones answered in 10 secs and safe FTSe100 company unlike competitors - except competitors include Cofunds (FTSE100 owned by L:&G), Fidelity (one of largest investment companies worldwide) and iii (Cofunds platform) so it is just a way of sowing doubt in the minds of investors.

zagfles

jimjames wrote: »

No-one from HL but the lady investment consultant appeared to be reading from an HL script.

Quoting facts such as phones answered in 10 secs and safe FTSe100 company unlike competitors - except competitors include Cofunds (FTSE100 owned by L:&G), Fidelity (one of largest investment companies worldwide) and iii (Cofunds platform) so it is just a way of sowing doubt in the minds of investors.

Well I hope she was reading an HL script as she implied possible further reductions in costs!

gadgetmind

zagfles wrote: »

Well I hope she was reading an HL script as she implied possible further reductions in costs!

If they halve them and then halve them again, they will be competitive. Of course, that'll make remaining in the FTSE 100 difficult, but that's their problem.

SnowMan

Interesting article on FT adviser about Standard Life's negotiated super clean classes

http://www.ftadviser.com/2014/03/26/investments/wraps-and-platforms/standard-life-unveils-discounted-funds-on-platform-qVsczKR9ztMEtUhTPSe1PO/article.html

The cut-price range is broader than direct-to-consumer platform Hargreaves Lansdown’s Wealth 150+

Interesting that Vanguard are mentioned as one of the 13 groups offering discounted funds.

bigadaj

Recently listened to a podcast where a supposedly independent adviser made a big play of hl being a ftse 100 company rather than a small firm with a few employees, seemed intentionally misleading to me, but it could have been simple ignorance on her part.

koru

SnowMan wrote: »

Interesting that Vanguard are mentioned as one of the 13 groups offering discounted funds.

Yes, although the Vanguard discounts are only through "unbundled insured funds and as such are only available through investment bonds or Sipps." So, this isn't the normal unit trust.