S&S LISA Provider - AJ Bell or Hargreaves Lansdown

jackb13

Hi

I am looking to open a S&S LISA.

Comparing AJ Bell or Hargreaves Lansdown, have I done my fee calculations correct, based on my circumstance?

£200 contribution pcm, £50 Gov Bonus pcm = £2400+£600 = £3000 pa.
Invested into a fund tracker.

AJ Bell:

• Funds custody charge (including unit trusts, OEICs and structured products) 0.25%
• Buying and selling investments (per deal) £1.50 Funds (including unit trusts and OEICs) online

youinvest.co.uk/lifetime-isa?utm_source=moneysupermarket&utm_medium=affiliates&utm_campaign=lifetime%20isa&dclid=CO7xl-Xxm-QCFYXX3godFNUMcw


Hargreaves Lansdown:

• Funds Value of funds Charge On the first £250,000 0.45%

hl.co.uk/investment-services/lifetime-isa/charges

Therefore my charges for a year would be:

AJ Bell:

• 0.25% of fund = £6
• £1.50 per fund deal (x 12 months) = £18

Total cost = £25.50 per annum

Hargreaves Lansdown:

• up to 0.45% of fund = £13.50

Total cost = £13.50 per annum

Many thanks

bowlhead99

Basically correct. You confused me by saying 0.25% of fund = £6 on the AJ Bell cost, as that was on only £2400 rather than on the full £3000. But I see your total cost of £25.50 did reflect the full £3000. (£18 + £7.50 instead of £18 + £6).

One other thing you should recognise is that the 0.25% and 0.45% are not charged on what you contribute, they are charged on your average balance (levied monthly or quarterly). The account will start the year with nothing and end at £3000 (depending on investment gains or losses) but on average, the account balance won't be £3000 all year. On average it will be less than £2000. So the 'percentage-based' element of the charge is over-estimated for the first year.

Likewise the second year it will start around £3000 and end around £6000 (hopefully more, with growth) so you should probably assume an average balance of something like £4500 - £5000 for the second year depending on investment returns.

With lower balances, it's better to have percentage-based charging so that the people paying the ISA manager the most fees are the people who have the big balances. This means that in the first couple of years it's likely going to be more cost-effective to use HL, even though their headline charge of 0.45% is almost twice as much as AJ Bell's Youinvest. But the position will reverse over time.

However, a few things to consider:

- The charges each year are not massively different. It's good to save money where you can, but 'about £14' and 'about £25' are only 'about a tenner' different, and a tenner is not going to change your life when you have thousands of pounds invested.

- At some point it will not be cheaper to continue to use HL, because you can see their percentage charge is almost twice as high (e.g., it's £45 on £10k instead of £25 on £10k). Unfortunately at that point, when thinking of moving to AJ Bell or another rival, you'll notice they have transfer-out charges and/or account closure charges. So if you want to 'invest and forget' it is perhaps not the end of the world to pick the provider which is initially more expensive but likely to become cheaper in the long term.

- At AJBell you could always set your monthly investment amount to be something bigger than £250 so that it doesn't trigger every month (because there's only £250 of new money in a month, and the investment will fail through lack of funds every so often, if you set the purchase order to a bigger number like £300 or £500). This would results in some cash sitting there idle for a little while from time to time, but means you could cut down the 'monthly £1.50s' to being every other month instead. Boom, you saved almost a tenner each year. Although it cost you some returns on the uninvested capital, which would eat into some of the cost saving...

Alexland

Firstly I assume you have chosen S&S because you want to invest for age 60+ or your property purchase is at least 5 years away (preferably longer) to reduce the risk you withdraw less than you contribute.

Secondly I assume if you are a high earner investing for 60+ you are already making big enough pension contributions to avoid higher rate tax.

Both AJB and HL are reputable and provide a good service so (unless like me you particularly like the HL app) it mostly comes down to cost. Generally the fees on a S&S LISA are higher than for the equivalent S&S ISA due to less market choice and particularly so in the early years while the balance is low.

As you have already noticed the £1.50 fund trade costs for AJB causes it to be more expensive in the early years to someone regularly investing. In addition, as the LISA bonus is added later, it would make sense to group up the reinvestment of the bonus with a later contribution to avoid making 24 trades per year.

However in the later years as the balance grows the £1.50 trade costs are less significant than the 0.20% difference in platform fee and AJB eventually works out cheaper for holding funds. But to confuse things further HL have achieved some exclusive discount on fund charges (for example Blackrock Consensus 85, 100 or L&G International) where the saving is about 50% of the platform fee difference.

Alex

jackb13

Thank you both for those comprehensive replies, greatly appreciated!

I am a 25 year old so looking for long term investment.

With you both referencing the Grouping up of contributions, how does this work in practise?

With the method you mention bowlhead99, is there repercussions with the contribution failing?

Likewise Alexland, is it simple to group up the investments? Or time the investments slightly slower?

Does the funds sit in an account and then drawn from into the investment as per the set contribution rate?

Thanks

Alexland

When you contribute into either the AJB or HL LISA it sits as a cash balance in the account so it up to you to decide when to invest (and incur the AJB fund trade fee). Similarly the bonus is added to the cash balance. You can group up contributions and bonuses to reduce the number of times you trade but as bowlhead describes you might miss on investment returns (or losses) from time out the market.

Also worth mentioning the situation completely changes once you have around £15-20k invested at which point it is worth moving from funds to ETF(s) or maybe ITs to benefit from capped platform fees (provided you are relaxed about the lack of FSCS protection). Our HL LISAs are around £17k each and we have just switched into an ETF.

When holding these exchange traded investments AJB cap at £30 pa and HL at £45 pa but it costs £10 or £12 per trade respectively. However on these types of investment there are no HL discounts possible so AJB are the clear winner... unless like me you really like the HL app and are willing to pay a bit more....

If regularly investing in a higher balance LISA it wouldn't make sense to pay the £10/12 trade fee each month and while there are reduced price regular investment options they do not cover the bonus investment (on HL at least...). As such it would make sense to switch a lump sum into an ETF/IT and then start again investing in funds until you have reached a big enough balance that it is worth switching another lump into the ETF/IT, etc.

Alex

masonic

Alexland wrote: »

When holding these exchange traded investments AJB cap at £30 pa and HL at £45 pa but it costs £12 or £10 per trade respectively.

In both cases, you can make use of regular investing @ £1.50 per trade to buy ETF and investment trusts. I can't comment on the ease of using regular investing to make a one-off investment at HL, but at AJ Bell this is easily set up online and the trade is executed on or around the 10th of the month, meaning you can subscribe at the beginning of the tax year and invest within a few days, then mop up the bonus a couple of weeks after it is paid during the following month.

Zorillo

I use AJ Bell for mine and minimise the transaction charges by only depositing once a year. Usually I do this at the start of the Tax year because my company bonus is paid in April. So my only two transactions are investing the deposit and then the bonus

Alexland

Interesting so with AJB you can setup a couple of one-off regular investment against the account cash balance (similar to Halifax SD) to completely avoid £10 trade costs for ETFs on a LISA?

With HL the regular investment feature is linked to the collection of the contribution (similar to Fidelity) and there is no way to regularly invest the bonus.

Also I notice my LCWL is available for regular investment with AJB and is not with HL. Maybe we should switch to AJB... £33 pa (£30 + 2x£1.50) versus £69 (£45 + 2x£12). Across both our LISAs that would save £72 pa.

Alex

Alistair31

masonic wrote: »

In both cases, you can make use of regular investing @ £1.50 per trade to buy ETF and investment trusts. I can't comment on the ease of using regular investing to make a one-off investment at HL, but at AJ Bell this is easily set up online and the trade is executed on or around the 10th of the month, meaning you can subscribe at the beginning of the tax year and invest within a few days, then mop up the bonus a couple of weeks after it is paid during the following month.

Strangely I cannot see how to set this up in my LiSA on AJB, does this option only become visible when there is a balance available to invest ? i.e is it hidden because I have already invested my £4K 19/20 allowance ?

I guess I’ve got plenty of time to figure it out for next year

masonic

Alexland wrote: »

Interesting so with AJB you can setup a couple of one-off regular investment against the account cash balance (similar to Halifax SD) to completely avoid £10 trade costs for ETFs on a LISA?

Yes, the 'Regular payment' and 'Regular investment' options are separate at AJ Bell. It's a shame this isn't the case with HL.

Alistair31 wrote: »

Strangely I cannot see how to set this up in my LiSA on AJB, does this option only become visible when there is a balance available to invest ? i.e is it hidden because I have already invested my £4K 19/20 allowance ?

I guess I’ve got plenty of time to figure it out for next year

Here's where I have it (I only hold a LISA, so always have a balance available to cover the fees):

Alistair31

Thanks Masonic. I couldn’t see it for looking at it.

I guess next year I just wait until the bonus comes in then set up monthly regular investment for £2500 and then cancel it after the second payment has processed ? Thus incurring charges of £3 rather than £10 as a one off investment ? Risk being time out of market and market swings during the period.