Minimising Hargreaves Lansdown exit fees

SoupAnxiety

Hi all,

I'm simplifying my fund holdings and considering moving my HL ISA. I've got no reason to fault them or their service, the platform is great and it's only that Charles Stanley Direct do the same for a 0.20% less than Hargreaves Lansdown.

There are transfer fees and closure fees but I'm happy to sell all of the holdings and withdraw to my bank account (no transfer fees) and therefore the only fee I would pay is the £25 + VAT closure fee (triggered automatically when the balance drops below £50).

It'll take years for the fee savings to pay for the switch but I'm thinking long term, although longer long term with a portfolio above £20-25k will see me switching to a fixed fee broker.

The portfolio is currently £6k, I've got no issue being out of the market as I'm tidying things up anyway and would rather line everything up for the long run. This is my pension / retirement fund. As an aside I'm switching to a Vanguard LifeStrategy or Target Retirement fund but after working out a weighted TER for my entire portfolio of low cost index trackers I think I can do something similar to Vanguard for ~0.15% against their 0.24% TER (balancing global / UK / emerging equity and global / UK / corporate bonds). I understand on £6k there's little in it but long term the fee savings over a Vanguard fund of funds would add up. Combine this with the platform switch and it's a big saving. I've been reading a lot of the self help resources, Monevator.com is particularly good, and I feel comfortable staying on top of a simple portfolio.

Another drift from the title of the ticket but for now my focus is on ISAs, I'm nowhere near hitting allowance limits. Although I plan to invest for the long term without withdrawal I really do not like the idea of investing in a SIPP and money being locked away until I'm much much older (even though I already have a cash emergency fund). I have no private pensions. The tax relief on contributions is enough to make me think twice but the possibility of income tax at the other end with the pension means I prefer ISAs to SIPPs. Does this make me crazy? Everybody else seems to love SIPPs.

bigadaj

Seems little point in transferring with those sums, I'd leave it in hl until I got to £20-£30k and then move to a fixed fee provider.

Saving 0.1% on fees to self manage, rebalance and have other hassles seems pointless to me, the sums you are talking about are just too low.

People are a little obsessed by sipps, they are nothing special, just give an opportunity to invest in a wide range of investment within a pension wrapper. Unless you are a higher rate taxpayer then I'd personally stick to isas, they are marginally less tax efficient but the extra flexibility for someone below 55 outweighs that in my opinion.

jimjames

Have you already filled your ISA for this year elsewhere? If not and you don't plan to do so, then the way to pay no fees at all is to sell part of the holdings, withdraw cash to pay into new ISA and leave a balance with HL. I've done that when moving from HL and not paid any fees. Balance left is below £1k which is enough to not trigger exit fees.

bigadaj wrote: »

Seems little point in transferring with those sums, I'd leave it in hl until I got to £20-£30k and then move to a fixed fee provider.

I disagree. If you've realised at £6k you want to move then surely it's best to not let the situation get worse where you have more limited options. At £6k you can withdraw cash if you're not using your full ISA allowance and pay no exit fees, at £20k you don't have that choice. Even if you leave existing money where it is and start investing new cash with a new provider it will stop you paying more fees than needed.

EdSwippet

SoupAnxiety wrote: »

The tax relief on contributions is enough to make me think twice but the possibility of income tax at the other end with the pension means I prefer ISAs to SIPPs. Does this make me crazy? Everybody else seems to love SIPPs.

Not crazy, but it is potentially suboptimal, depending on a) what you earn and your tax bracket now, b) what you expect your tax bracket to be in future, c) how you expect to use the money at the end, and d) how much having instant access to your money is worth to you.

Suppose you earn £100, pay £20 tax, put the £80 remaining into an ISA, watch it double through growth over a decade, say, nets you £160. Compare with earning the same £100, pay £100 into a SIPP, watch it double over the same decade, then withdraw £50 as the 25% PCLS tax free and the remaining £150 taxable at 20%, nets you £170. The added £10 here is the reward for the (largely, political) risk you run by tying up money until at least age 55, possibly later if the government changes the rules yet again.

All very simplified. If you don't earn enough to pay tax currently then saving into a pension that would mean you pay tax on the withdrawals makes no sense relative to an ISA. Similarly, if you pay tax now at 20% but expect to pay it in retirement at 40%, 45% or even 60% then pension saving also makes no sense relative to an ISA. On the other hand, if you pay 40% tax now and expect to pay 20% tax in retirement, or pay 20% now and expect to pay 0% in retirement, then pension saving can make a lot of sense.

Other factors. Employers are now required to make pension contributions for employees, so if you opt out of any employer scheme you're probably throwing some cash away. Some employers offer 'salary sacrifice' which may bump up pension contributions further by refunding employer NI. The government changes the rules on pensions at least once each year, and some years two or three times, so there is no stability at all -- this alone is one of the reasons many folk entirely avoid engaging with pensions. The pension access age may rise (again), and annual and lifetime allowances may fall (again). The government could flip from the current pensions to a 'pensions ISA' model with no up-front tax relief. Tax rates could change, to your detriment. And so on.

xylophone

at £20k you don't have that choice.

He will have that choice from 2017-18.

Vortigern

jimjames wrote: »

... leave a balance with HL. I've done that when moving from HL and not paid any fees. Balance left is below £1k which is enough to not trigger exit fees.

...and leave that balance in an INCome fund. The income can be set against HL's 0.45% pa ongoing fee and may also provide a small return on investment.

SoupAnxiety

Thanks for the replies, as always it's the MSE forums to the rescue!

The biggest worry with pensions is future changes. The tax relief at first seems like a gift but to me it's more of a bribe for surrendering access control and running the risk of political changes. I was paying 40% tax until the band changes this year, I'm a few hundred quid out now. Over the next few years my cash savings requirement will dwindle and I'll be able to pile grown up amounts of cash into my investments.

I've made a subscription to the HL ISA this tax year, am I right in thinking I'll have to wait until 17/18 and open a new ISA with Charles Stanley? If so that suits me - I'll slowly migrate my holdings over as part of rebalancing (all new holdings with CS) and keep a holding worth a few hundred in HL (as income units - good tip!) to avoid closure fees.

I'm looking after my son's JISA with HL. This is the one which I think is stuck - I'd be screwed over for transfer fees and closure fees as there's no withdrawal. This can be one for the future when it converts into a transferable adult ISA.

I'll self manage the holdings for now using cheap as chips trackers as I'm investing in asset classes similar to the Vanguard multi funds. I don't expect to beat it but it makes sense to get used to rebalancing and choosing my allocation when I'm managing less money rather than worry about fees and try to go DIY later on. I'm only splitting the portfolio on emerging / global ex-UK / UK lines to balance ease of management with cheap fund availability, it's not too difficult to manage. My regret is spending years in actively managed funds and not paying enough attention to it.

Thanks again all!