HL Charges

cloud_dog

During the whole RDR and frequent platform prices changes a while ago I opted to move an ISA account from HL to TD Direct and re-invest in ITs (ETFs later) thereby negating ongoing platform charges.

The OH has a SIPP with HL (OIECs) and at the time I investigated the option of moving the SIPP away from HL also (due to concern on charges).

Anyway, being not such a good MSEer I just left the SIPP with HL.

Now a number of years later HL do charge apply their charges, and I know I can get lower charges elsewhere, BUT.... I find that with the HL Loyalty Bonus (payments) the SIPP is actually cost negative (loyalty bonus minus charges = profit).

This is not something I was expecting.

I know the level of charges is an important consideration and that also the loyaly bonus varies across the different funds but it is not something people tend to comment on when discussion HL.

I'm not pro or anti HL; not bothered either way, just thought it was an interesting situation.

dunstonh

SIPPs and PPPs did not need to change to clean share classes when things went unbundled. So, most made no changes automatically. I dont know what HL did with their SIPPs. So, do you hold any bundled share classes? These maybe paying higher bonus than the clean version.

bowlhead99

These days the fees are supposed to be transparent, to get away from the situation where people pay high management fees (taken from the fund assets, which reduce the fund performance) and then her manager pays a kickback to the platform which the platform might keep for themselves without even telling you about it (ie hidden fees).

The simplest way to address that is for the funds to have new classes of shares or units with low "clean / unbundled" ongoing management fees and then there is no scope for kickbacks. The investor pays the "real" management fee to the manager out of the fund's assets and is charged an independent platform fee.

The messier way is to still have an expensive management fee and still give a kickback to the platform and have the platform rebate it all to the customer who can then spend it on their platform fees. Some platforms still offer such funds.

The situation gets further confused when someone like HL wants to advertise themselves as being the best platform by negotiating access to "exclusive" fund classes or paying "loyalty" rebates which other platforms might not offer. They basically tell the manager they will bring so much business that it is worth making the net cost of the fund available more cheaply than other platforms.

Of course, this is partially a distraction tactic because if you tell a customer they can access a fund for 0.6% net of rebate instead of 0.7% elsewhere, the customer might stay with you because they don't realise it still costs more than their other option:getting the 0.7% version of the fund elsewhere with no rebate, and paying a 0.25% platform fee instead of a 0.45% one at HL.

So to work out what you are *actually* paying at HL in excess of the competition, you really do have to do the full analysis on gross management fee paid out of fund assets, discount or rebate paid into your platform cash account, and platform fee paid from the platform account. Usually HL comes out worst in that analysis because their 0.45% fee is pretty damn high, unless your portfolio is small compared to a rival's fixed fees or lower percentage. And the rebates only "cover the fees" if the management fees you're paying which generate the rebates are higher than they need to be (i.e. It's not a very clean fund)

If you take as an example a fund that HL claim to offer a special loyalty bonus on:

Black rock consensus 85 Acc class I
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/blackrock-consensus-85-class-i-accumulation
Standard ongoing charge forecast 0.22
Rebate 0.13
Net cost after rebate 0.09%
Add HL's platform fee of 0.45% = 0.54% all in

Or
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/blackrock-consensus-85-accumulation-inclusive
Black rock consensus 85 Acc class A
Standard ongoing charge forecast 0.62
Rebate 0.53
Net cost after rebate 0.09%
Add HL's platform fee of 0.45% = 0.54% all in

In both cases the total cost borne by the investor is 0.54% after all rebates so they would be better served by paying the full whack 0.22% for class I with a different platform, no rebate, and a 0.25 or 0.30 platform fee.

Your observation that the "rebate covers platform fees, giving net negative cost" is probably only because you're ignoring the management fee you paid out of the fund's assets, which financed it. For example an investor in Class A above would experience a 0.52% "loyalty" payment which adequately covers the 0.45% platform fee, and think he was quids in, but would get a better result going elsewhere to a cheap platform and buying class I and not bothering with rebates.

There are thousands of funds out there and no doubt some quirks where bundled with rebate is better than unbundled clean. But HL, though they're a market leader, are not usually in the game of giving something for nothing.

zagfles

It'll be because you have "dirty" units, or "inclusive" as HL put it. They're the old style units that include the platform/IFA charge.

For a typical actively managed fund they might have "clean" units with an OCF of 0.75% and "dirty" units with an OCF of 1.5%, but give a 0.75% "loyalty bonus" on the dirty units - same end result.

So on the "dirty" units you'd see a 0.45% platform charge minus the 0.75% "loyalty bonus" so see a negative net charge. But your units would have an extra 0.75% management charge.

HL do some so called "superclean" units where they give you a discount even on clean units, but that'll usually only be 0.1% or so, less than the platform charge.

Note also that HL do negotiate on platform charges if you threaten to move away - I'm paying 0.25% and don't have a particularly large amount with them. Some people report getting the charge even lower, and having it capped.

cloud_dog

Yes, there is no way around it I am going to have to validate each investment to confirm (ho hum).

I had thought that all investments had to be clean funds by now but seem to remember that if you held a dirty fund (in HL) it would continue until you sold so, there may be an element of that.

More work for the HFA (household financial advisor)

dunstonh

There are thousands of funds out there and no doubt some quirks where bundled with rebate is better than unbundled clean.

I don't know about HL but that is certainly the case with a number of other platforms. I have my own pension in bundled funds as its cheaper than moving it to unbundled. Although I am getting close to the breakeven point where it will be cheaper to swap over. It really depends on the platform and the funds in question but are quirks you need to look out for.

I had thought that all investments had to be clean funds by now but seem to remember that if you held a dirty fund (in HL) it would continue until you sold so, there may be an element of that.

ISAs and GIA (unwrapped) had to go clean but there were exceptions but these are rare. However, pensions and life wrappers were exempt due to the nature of their contract. There was no sunset clause on pension and life wrappers.

cloud_dog

Ok, so I appreciate this is not comprehensive or fully representative but, I have analysed one of the investments (not a huge holding but nonetheless)....

Blackrock Gold & General - Current investment value in this fund £1428.90

A Class (which is what is currently held)
HL ongoing charge: 1.17%
Add HL Ann Man: 0.45%
Total: 1.62%
Cost: £23.15

D1 Class (I believe this is the clean class)
HL ongoing charge: 0.90%
Add HL Ann Man: 0.45%
Total: 1.35%
Cost: £19.29

Loyalty payment for 01/10/2015 to 30/09/2016 = £7.56 (for Class A)

Charges using Cavendish

D1 Class
Fund charge: 0.90%
Add Cavendish Ann Man: 0.25%
Total: 1.15%
Cost: £16.43

So, £23.15 - £7.56 (loyalty) = £15.59 - So this is still cheaper than Cavendish online.

I appreciate that this one fund may not be representative but....What am I missing?

dunstonh

So, £23.15 - £7.56 (loyalty) = £15.59 - So this is still cheaper than Cavendish online.

What is the delay on the loyalty payment and what period does it cover? It may have been paid in a given period but qualify in a different period. The value it was worked out against in one period may be different to the value it was worked out in the period it was paid.

Equally, it could be that they get a bigger backhander on the bundled fund than the margin on the unbundled fund.

It will be fund specific. Some funds will be better off bundled but some unbundled.

premierfella

Having a quick look, I believe the 1.17% HL ongoing charge on the A class is AFTER taking into account your 0.75% loyalty bonus (if you see the note against that 0.75% on this page:
http://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/b/blackrock-gold-and-general-accumulation-inclusive

zagfles

cloud_dog wrote: »

Ok, so I appreciate this is not comprehensive or fully representative but, I have analysed one of the investments (not a huge holding but nonetheless)....

Blackrock Gold & General - Current investment value in this fund £1428.90

A Class (which is what is currently held)
HL ongoing charge: 1.17%
Add HL Ann Man: 0.45%
Total: 1.62%
Cost: £23.15

D1 Class (I believe this is the clean class)
HL ongoing charge: 0.90%
Add HL Ann Man: 0.45%
Total: 1.35%
Cost: £19.29

Loyalty payment for 01/10/2015 to 30/09/2016 = £7.56 (for Class A)

Charges using Cavendish

D1 Class
Fund charge: 0.90%
Add Cavendish Ann Man: 0.25%
Total: 1.15%
Cost: £16.43

So, £23.15 - £7.56 (loyalty) = £15.59 - So this is still cheaper than Cavendish online.

I appreciate that this one fund may not be representative but....What am I missing?

You're looking at the net OCF - ie the OCF with the loyalty bonus deducted!

On the HL website the Class A units have an 1.92% OCF and a 0.75% loyalty bonus. Net 1.17%

The Class D1 has 1.17% OCF and 0.27% discount at HL. Net 0.9%

On the Cavendish site it shows 1.17% OCF and no mention of any discount/loyalty bonus. So net 1.17%

So HL are 0.27% cheaper for these units than Cavendish. HL's platform charge seems to be 0.15% more than Cavendish (they have 0.25% "service fee" plus 0.05% "Cavendish ongoing charge" compared to 0.45% at HL), so (shock horror to those who say HL are "expensive") HL are cheaper than Cavendish for these units by 0.12% !!

george4064

cloud_dog wrote: »

Yes, there is no way around it I am going to have to validate each investment to confirm (ho hum).

I had thought that all investments had to be clean funds by now but seem to remember that if you held a dirty fund (in HL) it would continue until you sold so, there may be an element of that.

More work for the HFA (household financial advisor)

There is an option on the HL website that tells you if you hold dirty or clean funds, and if you do hold any dirty funds with clean versions available it will allow you to instruct HL to convert the dirty funds to their clean versions.

Login to HL > Click on your chosen account (in this case your OH's SIPP) > Account Administration > (at bottom right of this screen) Convert my funds to new unit types