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Hargreaves Lansdown angers tracker investors with platform fee
(Update) Hargreaves Lansdown has defended its monthly platform fee on tracker funds saying it complies with forthcoming regulation and is a prelude for more passive funds in its Vantage range.
(Update) Hargreaves Lansdown has attempted to explain why it is introducing a new monthly platform fee on all tracker funds - and some others - on its Vantage platform.
Platform fee is not anti-tracker
Hargreaves Lansdown customers have complained that the decision to levy a £1-£2 monthly fee on affected funds from 31 December will make it more expensive to invest in popular, low-cost tracker funds such as the HSBC FTSE All Share Index fund.
However, Mark Dampier, head of research at the discount broker, denied the accusation from some customers that the move was 'anti-tracker'. He said Hargreaves had seen an explosion of investor interest in tracker funds - both exchange traded funds (ETFs) and passively run unit trusts - in the past three years and that it would use the extra money raised from the platform fee to extend its range of such funds on Vantage.
Dampier added that platform fee was in line with a recent change of policy by the Financial Services Authority. Over the summer the regulator announced it was minded to ban investment platforms, such as Hargreaves Lansdown, from receiving rebates from fund managers.
More fees could follow
Traditionally, actively run unit trusts - whose managers attempt to pick the best stocks - have carried an annual charge of between 1% and 1.5%. Platforms such as Hargreaves have taken a kickback, or rebate, of some of this charge, giving its customers the impression that they were getting access to the funds platform for nothing.
However, tracker funds - which eschew stock picking in favour of passively following a stock market index, such as the FTSE All Share, by buying all the shares listed on that index - have always thrown a spanner in the works. These funds carry a much lower annual management charge, typically around 0.5%, which leaves no room for the rebate to Hargreaves.
The new monthly platform fee will apply to all funds (mostly, but not exclusively, trackers) where Hargreaves currently does not receive its cut of the annual management charge from fund managers.
Dampier said Hargreaves was the first platform to respond to the FSA's policy and suggested explicit fees like this could become more prevalent on Vantage once the regulator's ban on commission and rebates took effect at the end of next year.
'If we're going to go to a pure fee charging business then there will be more of this,' he said.
Confusion over who is affected
Ben Lundie, head of Vantage development, sought to counter the impression that the cost of investing in tracker funds through Hargreaves, would go up.
Lundie said that Hargreaves already applied a 0.5% annual levy on top of the fund manager annual management charge on 130 funds where it did not receive a rebate. This was in line with the 0.5% annual charge appplied to ETFs and investment trusts and shares in its three main accounts (Sipp, ISA and fund account). These charges are capped at £45 in the ISA and £200 for the Sipp.
The only change, said Lundie, was that this additional annual charge on funds was being replaced by the monthly platform fee.
More about this:
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- HSBC European Index Inc
- HSBC FTSE 100 Index Acc
- HSBC FTSE 250 Index Inc
- HSBC Japan Index Inc
- HSBC Pacific Index Inc
- Legal & General All Stocks Gilt Index Trust Inc
- Legal & General European Index Trust I Acc
- Legal & General Global Emerging Mkts Index I Acc
- Legal & General International Index I Acc
- Legal & General Japan Index Trust I Acc
- Legal & General Pacific Index Trust I Acc
- Legal & General UK 100 Index Trust E Acc
- Legal & General UK Index Trust I Acc
- Legal & General US Index Trust I Acc
- M&G European Index Tracker (ex UK) A Euro Acc
- M&G Index Tracker A Inc
- HSBC Gilt & Fixed Interest Inc
- IFDS Brown Shipley Sterling Bond A Inc
- Legal & General Fixed Interest Trust R Inc
- Legal & General Managed Income Trust R Inc
- M&G Gilt & Fixed Interest Income A Inc
- M&G Index-Linked Bond A Inc
- Royal London Index Linked A
- Templeton Global Total Return Bond A Inc
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