HL is profiting from disgruntled customers who want to transfer their money elsewhere

DennisTenus

I came across this article on the Telegraph website and I'm confused, I thought HL just charged an account closure fee, which you could get around by leaving £1 cash in there forever. Is there a £25 fee per fund and £25 fee for cash?!

Surely he could just sell his investments in funds then transfer out as cash? Which I thought was free?

I have copied it below because you have to signup to read the article.

Hargreaves Lansdown is profiting from disgruntled customers who want to transfer their money elsewhere, charging one Telegraph Moneyreader more than £2,000 in exit fees.
Britain's biggest fund shop said it would waive its fees for investors in Neil Woodford's suspended Equity Income fund, which was included in the broker's Wealth 50 list of recommended funds.
This newspaper has called for the broker to waive its exit fees too for those customers that bought funds run by Mr Woodford.
The reader, who wished to remain anonymous, bought Mr Woodford’s smaller Income Focus fund based on Hargreaves Lansdown's recommendation. He has since lost around £2,500 from the investment and wishes to move to another broker.
He and his family have £800,000 invested across a stocks and shares account, four Isas and two self-invested personal pensions (Sipps). To move this money would cost £2,000 in exit fees.
Hargreaves charges a £30 account closure fee, plus £25 per fund and £25 for any cash held.
“This money is meant to last me and my family for the rest of my life,” said the reader, who said he intends to report Hargreaves Lansdown to the Financial Ombudsman.
The charge could be reduced if all holdings were sold and turned into cash before the transfer took place, but this would require more work for the customer and could lead him to miss out on returns while the transaction takes place.
Around half of his holding has already been transferred to Fidelity, which offers a £500 switching bonus to new clients who have been charged an exit fee to leave their previous provider. This still leaves the family more than £1,500 out of pocket.
A spokesman for Hargreaves Lansdown said: “In common with the majority of platforms we charge an administration fee to help cover the costs of transfers.
“We are working hard with others in the industry to improve and streamline the transfer process and thus over time should reduce the costs.”
In a recent study, City watchdog the Financial Conduct Authority (FCA) proposed an outright ban on exit fees, which would force Hargreaves Lansdown to drop its charges, although this has yet to take effect.
Stuart Welch of Fidelity said: “We don’t believe anything should obstruct investors from choosing the best investment platform for their needs.”
He called exit fees an “unwelcome barrier” and said they were “not in the best interest of investors”.
Mr Welch added that the broker covered the cost of exit fees up to £500 for customers transferring more than £1,000, but said that this “feels like that’s the wrong way round”.

ColdIron

DennisTenus wrote: »

I came across this article on the Telegraph website and I'm confused, I thought HL just charged an account closure fee, which you could get around by leaving £1 cash in there forever.

HL reserve the right to close your account if you just left a quid in it. See A33 – termination and closure in the T&Cs

• Where an Account belonging to you has a valuation of less than £250 and has been inactive for two years or more we reserve the right to close the Account and send you the balance, less the Account closure fee and any other charges that are due.
• If you reduce or give the instruction to reduce the level of cash or stock in your Account to a value below £50, we reserve the right to close your Account and send you the balance of the Account less the Account closure fee. Any Loyalty Bonus will be paid in cash following Account closure

NB SIPPs in drawdown may incur a higher closure fee

Is there a £25 fee per fund and £25 fee for cash?

Surely he could just sell his investments in funds then transfer out as cash? Which I thought was free?

The £25 for cash/stock line applies to transfers. If you just sell your units (free) or shares (£11.95 a pop) there are no charges to withdraw as cash. However this, rather than a transfer, would be problematic for many in an ISA or SIPP making a transfer the only practical option

DennisTenus

Why would selling the units, requesting an ISA transfer as cash to another provider to buy them again be problematic? Because you would be out of the market for a while and it could go up during that time?

bowlhead99

DennisTenus wrote: »

Why would selling the units, requesting an ISA transfer as cash to another provider to buy them again be problematic? Because you would be out of the market for a while and it could go up during that time?

Let's say you have (as the person and family in this article have) £800k of investment assets.

Not unreasonable to assume the market can move a couple of percent in a day.

On £800k, that couple of a percent is sixteen thousand quid, lost by the time you get to buy back in after a day and find your money buys fewer shares or units.

With an ISA, general investment account or pension transfer you won't get to buy back in after as little as a day. So much bigger losses are possible than that example sixteen thousand quid.

Even if the market didn't move, there may also be a bid-offer spread between the buy and sell prices of the assets; stamp duty of half a percent on UK domiciled stock exchange listed shares/ITs, etc. Which would get in the way of a tactic of moving all the money into one asset per account, transferring the one asset in specie, then rebuying the portfolio at the other end. Even if it were possible to maintain the exact risk profile and asset allocation of the bespoke portfolio in just one holding, which it largely isn't, which is why he has tens of holdings across the seven accounts.
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FWIW, I don't have a lot of sympathy for someone who doesn't want to pay exit transfer costs which have been in place for years. "This money is meant to last me and my family for the rest of my life", he sobs, while taking a knee-jerk reaction decision to switch platforms after he lost £2500 (0.003 of his £800k portfolio) on a fund which appeared in a marketing list as "recommended" but did not perform well.

The paper endorses his right to exit his whole portfolio for free in this circumstance, for some reason, great consumer champions that they are. They note that the FCA proposed a ban on charges for closing accounts and transferring away, but the FCA doesn't have solid proposals to help small platforms cover the cost of going through onboarding processes and transfer out processes with customers who don't stick around, if incremental fees for transaction processing are to be outlawed in an effort to allow people to switch at the drop off a hat.

Presumably the cost should be shared by all the customers rather than the ones who are joining or leaving. The bigger platforms will just get their large customer base who don't move, to pick up the cost of those who do, so once Mr Telegraph Reader gets to Fidelity or some further destination, he will sit there sharing the cost of all the people who ever join or leave that platform, through his annual fees. Which come out of the money which, "is meant to last me and my family for the rest of my life!"

ColdIron

DennisTenus wrote: »

Why would selling the units, requesting an ISA transfer as cash to another provider to buy them again be problematic? Because you would be out of the market for a while and it could go up during that time?

I meant a withdrawal as cash not a transfer. You could, as you say, liquidate your holdings and transfer as cash for £25 + VAT (closure) plus £25 (cash transfer)

DennisTenus

A withdrawal as cash is free isn't it? I realise however it wouldn't then be in an ISA

Hmmm I see this is "problematic" as you say.

Albermarle

Around half of his holding has already been transferred to Fidelity, which offers a £500 switching bonus to new clients who have been charged an exit fee to leave their previous provider.

This is not strictly accurate . Fidelity offer to refund up to £500 in exit fees from the previous provider.
Also they quite often have have cashback bonuses ( like currently ) up to £1000 for transferring to them.
I think they are keen to use the perceived issue with HL to gain some market share from them .

masonic

DennisTenus wrote: »

A withdrawal as cash is free isn't it? I realise however it wouldn't then be in an ISA

A withdrawal as cash is not free if it takes your balance below £50. You'll receive the balance minus the £25+VAT closure fee.

However, fear not, HL was reported to welcom plans by the regulator to ban these fees, so they'll surely be axing them any day now

DennisTenus

masonic wrote: »

A withdrawal as cash is not free if it takes your balance below £50. You'll receive the balance minus the £25+VAT closure fee.

However, fear not, HL was reported to welcom plans by the regulator to ban these fees, so they'll surely be axing them any day now

Who are "welcom plans"?!

masonic

DennisTenus wrote: »

Who are "welcom plans"?!

HL was reported to welcome plans by the regulator to ban these fees...

jaybeetoo

masonic wrote: »

HL was reported to welcome plans by the regulator to ban these fees...

:rotfl:

If they welcome the plans that much why haven’t they scrapped their fees already without intervention from the regulator?