View the article online at http://citywire.co.uk/money/article/a732320
Hargreaves Lansdown abandons trust charge
Investor outrage forces fund supermarket to withdraw its proposed fee on investment trusts. Its share plunge 10%.
(Update) Hargreaves Lansdown will not proceed with the platform charge for investment trusts it announced last month.
The operator of Vantage, the country's largest fund supermarket, sparked protests from investment trust holders with its plan to charge them a separate annual fee from 1 March.
Investors complained that if they held investment trusts alongside shares or exchange traded funds (ETFs) they could face a trebling in their charges, in some cases.
As anger mounted on online investor forums there was even the suggestion of taking Hargreaves Lansdown to the small claims court.
However, the threat of a customer exodus to rivals who were not introducing an explicit investment trust holding fee is more likely to have prompted the u-turn.
Hargreaves' retreat means that from 1 March there will, as previously, be no charge for holding any shares, investment trusts, bonds, gilts or ETFs or venture capital in the Vantage Fund & Share Account.
In its ISA, however, there will be a single annual charge covering these investments of 0.45% capped at £45 per year.
Similarly, holding these investments in the Vantage Sipp will also cost 0.45% although capped at £200 per year.
Because investment trusts are not being charged separately, individuals holding a mix of investment types on Vantage will not pay more.
In fact investors of these assets will be better off as previously the annual charge was 0.5% a year.
Ian Gorham (pictured), Hargreaves Lansdown chief executive, said: 'We have always listened to clients and designed our service around what they want. It is clear that this particular aspect of our pricing change has been disliked. I believe it is therefore the right thing to do to revert to a charging structure that clients are happy with. Clients who hold investment trusts through Hargreaves Lansdown will therefore be better off than previously proposed.'
Despite the blunder Hargreaves Lansdown said it would continue with plans to improve its service to investment trust holders, with a new section of the site devoted to investment trusts and improved data on their fact sheets from next month.
It will also proceed with a 0.5% loyalty bonus for investors in the Fidelity China Special Situations (FCSS ) investment trust, which it heavily promoted at its launch three years ago.
Ian Sayers, director general of the Association of Investment Companies, which represents investment trusts, said: 'Whilst investment trusts are held in much the same way as funds, they are shares which are traded just like any other. We are very pleased that investors can now continue to hold both investment trusts and other shares in a cost-effective way.'
Hargreaves Lansdown said investment trusts had been 'one of the most challenging' aspects of its recent repricing.
Like other investment platforms Hargreaves Lansdown has been banned from receiving commission payments from fund management groups and has had to charge its customers new fees to make up the shortfall.
As market leader, the company has enjoyed high profit margins generally regarded as unsustainable now that the cost of investing of fund supermarkets and execution-only platforms becomes clearer. Its shares were also one of the biggest risers last year leaving scope for profit taking. First half results for the six months to the end December released today were strong, howver, with £13 billion of new mone from investors and profits 11% higher at £104.1 million
Because customers with investment trusts did not trade them as actively as they did shares the company had felt it a separate fee was justified.
Although it has now changed its mind, the company said its other price changes had been well received by customers. These will see holders of unit trusts and open-ended investment companies pay a new annual service charge starting at 0.45% per account. When new lower clean fund charges are taken into account, most customers will pay less than they did before, it said.
But Mark Polson of fund supermarket consultant Lang Cat said Hargreaves Lansdown had two more 'key issues' to resolve. 'Those are exit fees and the rather silly discount model which is based on assets held per account rather than overall assets held.'
On exit fees Hargreves Lansdown is raising a flat £75 charge for transferring to another Sipp provider to a new fee of £25 per stock, which greatly increases the potential costs to investors. The new charge applies from 2 June.
Unlike Fidelity and other rivals Hargreaves Lansdown applies its platform charge to each account (eg, ISA, Sipp, general account) rather than to the overall value of investments a customer holds on Vantage.
Polson added: 'If they can reverse those decisions too then they really will have demonstrated they have listened to their customers and are acting in their best interests.'
Hargreaves Lansdown said it had no plans to make further changes to its tariffs but would continue to listen to customer feedback.
The Citywire guide to investment trusts
In association with Aberdeen Asset Management
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by Gavin Lumsden on Mar 07, 2014 at 18:53