HL fee cap on ETF's?

mcooke999

I notice that HL cap their fees at £200 on shares, investment trusts & ETF's... This could make the platform significantly cheaper for large pots when compared to using HL and investing in funds? Or am I missing something? (I know there are cheaper fixed fee platforms for large sums, but I just want to talk about HL)

Secondly, is there any reason not to hold a large portfolio of ETF's (I'm specifically refering to index trackers) as opposed to OEIC type funds such as the Vanguard LifeStrategy? I'm not as familiar with ETF's as I am with normal funds.

chucknorris

mcooke999 said:

I notice that HL cap their fees at £200 on shares, investment trusts & ETF's... This could make the platform significantly cheaper for large pots when compared to using HL and investing in funds? Or am I missing something? (I know there are cheaper fixed fee platforms for large sums, but I just want to talk about HL)

Secondly, is there any reason not to hold a large portfolio of ETF's (I'm specifically refering to index trackers) as opposed to OEIC type funds such as the Vanguard LifeStrategy? I'm not as familiar with ETF's as I am with normal funds.

I've got over £1.8m in HL and apart from paying the spread and dealing charges (when rarely dealing), I only pay £245 per annum (as you say £200 on the SIPP and also £45 on the ISA). Which is extremely cheap. My money is mainly in ETF's, but also individual corporate bonds, and a little in British Land (a single company REIT).

george4064

You aren't missing anything, other than that ETFs attract a dealing charge (either £11.95 per trade online or £1.50 per regular investment) whereas funds don't attract any dealing charge when buying or selling.

AnotherJoe

Same here, nowhere near as much as Chuck but most of my HL SIPP is in ETFs, shares and ITs mostly for keeping costs low.

ChesterDog

Same here also.

We switched our SIPPs to HL some time ago (leaving ISAs and a GIA elsewhere), changing from OEICs to equivalent ETFs and ITs in the process.

cloud_dog

Same can be done in Fidelity, capped at£45pa.  Fidelity is likely to have a reduced range of ETFs and ITs but it is increasing and you can ask them to add one if they don't list it.

The site is far below the level of HL site but I have learned to 'accommodate' it.

mcooke999

Thanks everyone. It's not for me it's for someone I know with quite a large pot. He wants to stick with HL because of the service & quality of website/app but is currently invested in funds. Switching to ETF's or IT's would save him a fortune.

I just don't understand why HL are willing to cap their fees at £200 for ETF's but happily charge people £1000's for funds? What's in it for them by capping their fees in this way and why do they do it?

Rollinghome

mcooke999 said:

Thanks everyone. It's not for me it's for someone I know with quite a large pot. He wants to stick with HL because of the service & quality of website/app but is currently invested in funds. Switching to ETF's or IT's would save him a fortune.

I just don't understand why HL are willing to cap their fees at £200 for ETF's but happily charge people £1000's for funds? What's in it for them by capping their fees in this way and why do they do it?

Because they can get away with it.

Until "RDR" the management charge on a fund included an annual commission payment for the financial advisor and the platform, typically 0.50% + 0.25%.  Shares and ETFs have never paid commision. So platforms like HL having rather enjoyed those huge commissions have replaced them with platform charges instead and it seems many investors having got used to paying commission don't object much either.   But they don't have to pay them nor restrict themselves to ITs and ETFs. They could use someone like Iweb instead who just charge the same £5 trading fee regardless of whether it's for a fund, share, IT or ETF.

It might be that using HL but restricting yourself to ITs and ETFs to save some money isn't necessarily the best tactic.  Ideally you should choose the most suitable investment rather than looking solely at fees.  There are 10 times as many funds as ITs.  I've been investing in ITs for 40 years but now, at the end of a long bull run that has resulted in vanishing discounts, you need to be very careful of which IT you buy.  Unlike a UT or OEIC, the price you pay for for an IT can be very different to the net asset value.

Albermarle

I just don't understand why HL are willing to cap their fees at £200 for ETF's but happily charge people £1000's for funds? What's in it for them by capping their fees in this way and why do they do it?

I also asked this question in the past , as some other providers even cap at a lower level. Apart from all the well explained points above , you should take into account that the vast majority of investors are in funds, and generally only more experienced investors tend to buy ETF's or Investment Trusts. These will also tend to be more acutely aware of charges and be more likely to jump ship .

So it seems the larger % charge platforms ( HL, AJ Bell and Fidelity ) use these almost loss leader type charges to keep some bigger hitters on board, rather than lose them to a fixed fee competitor . Also they can claw some back through dealing charges .

mcooke999

Great thanks everyone.

This might sound like a stupid question but I'm just wanting to check, are there any reasons why ETF's are any more risky than funds (when comparing like for like in terms of the index they track or whatever)?

Rollinghome

mcooke999 said:

Great thanks everyone.

This might sound like a stupid question but I'm just wanting to check, are there any reasons why ETF's are any more risky than funds (when comparing like for like in terms of the index they track or whatever)?

Not all ETFs physically hold the assets of whatever index they track. Instead they hold swaps issued by a counterparty, normally one or more big banks. That creates the risk of the counterparty collapsing if we revisit a 2008 scenario.  The advantage is that the costs are lower than for physical etfs but then totally free lunches are rare.

You also need to take into account how large the investment will be and how often it will be bought. A small investor making regular contributions might be better off with a ut/oeic on a platform paying a percentage based platform fee and no trading fees rather than an etf.