Investing directly with fund companies?

TUVOK wrote: »

The charges at Hargreaves Landsdown are very high, the company gives good service but the charges are very steep.
For example, I estimate that investing £1000-00 for five years with HL would cost £215-90 out of interest made.
Investing the same amount and time period with Vanguard would cost £92-50, a vast difference!

You have either misread the charges or misused your calculator, because your figures are about ten times higher than reality. The charge at HL is not 4.5% a year but 0.45%. So £4.50 the first year, if your £1000 is invested for the whole year. So a thousand pounds invested for five years (assuming no significant investment gains or losses) would cost you about £22 not £220.

You are right that it is more expensive than going direct to the fund manager, in the case of SOME fund managers who offer you access to their products at a competitive price, such as Vanguard.

There are several reasons why people don't just go direct:

Going direct is not always cheaper..One reason for that is because building an investor servicing / customer admin function to deal with small retail investors who might only want to invest a few hundred or a few thousand pounds a time, is something that's expensive for a fund manager to do, and only gets cheaper with economies of scale. So a business with hundreds of thousands of indivdual customers offering a wide variety of investments from all different fund managers can do it cheaply, or perhaps not very cheaply to the customer but quite profitably for themselves.

So HL choose to charge £4.50 per £1000 invested per year and Charles Stanley Direct choose to charge £2.50 per £1000 invested per year. Whereas if the fund manager created a direct-to-customer offering, splitting the costs of running the investor servicing function over just a few customers, they would struggle to do the admin for a few pounds a year on a thousand pounds invested. Some fund manager products 'via themselves' are much more than the 0.15% Vanguard charges to use its in-house platform which only retails its own product. It only works when you have a lot of customers and one way to attract a lot of customers is to have a broad range of good products for sale. So Vanguard can offer the service cheaply as it drives demand for their product and they already have trillions under management in the US and experience in running a direct-to-customer offering. Not all can.


Ignoring costs, from an investor point of view it is quite restrictive to go direct to a fund manager because you can only hold certain products in the account. So if I open up an ISA with Fundsmith and put £1000 in it, I can't also invest in a bond fund or a small companies fund or a UK-focussed fund or a property fund, inside the ISA, as Fundsmith doesn't offer any of those products, and I am not allowed to open up more than one S&S ISA in a year. Fundsmith and Vanguard and Baillie GIfford don't currently offer pensions either.



Even if I didn't care about tax wrappers, when it comes time to rebalance my portfolio to my preferred allocations from time to time it would be annoying to have to cash out money from one fund with one fund manager, get the money back to my own bank account, then send it over to the other fund manager, and invest the money again. One manager is unlikely to have the best-in-the-market offering for every asset class or product type. If you use a funds supermarket or wrap platform you don't really have that problem and can instruct to sell/redeem and rebuy into a different product the same day.

AnotherJoe wrote: »

IIRC Vanguard are about 0.22% and HL 0.45%. So as said I think it should be £18 for HL and £8.80 for Vanguard. Not a vast difference, not even a tenner. (Edit for some reason I did 4 years not 5 but same principal)

Vanguard's platform charge is 0.15%, not 0.22% (perhaps you are getting confused with the OCF for LifeStrategy funds, which is 0.22%). So, Vanguard is one-third of the cost of HL; I'd say that was significantly cheaper.

OP, yes, experience with Vanguard. Very positive. I can see no reason to pay HL 's rip-off fees if you only want to buy Vanguard funds.