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Hargreaves Lansdown repricing angers Rathbones

Hargreaves Lansdown, the UK's biggest fund supermarket, announces new charges tomorrow. Tensions in the investment industry are rising.

 
Hargreaves Lansdown repricing angers Rathbones

Investment industry tension over the revolution taking place in fund charges boiled over today as stock broker  Rathbones warned it would hit back at fund managers that grant market leader Hargreaves Lansdown exclusive cut-price deals.

Hargreaves Lansdown, the country’s biggest funds ‘supermarket’, is due to unveil its new platform pricing to the stock market at 7am tomorrow. The much-delayed announcement has generated intense speculation over whether the Bristol-based broker has succeeded in extracting so-called ‘super clean’ fund prices from investment groups.

David Coombs, head of fund research at Rathbones, has written to fund managers warning their funds will be struck off its ‘buy’ list if it does not receive similar terms to Hargreaves. Coombs has clout as Rathbones has £8.5 billion of client money invested in funds.

Coombs (pictured) told our sister website Citywire Wealth Manager: ‘We have already informed the asset management companies in writing that as far as we are concerned we do not want to be put at a competitive disadvantage.’

He added: ‘In fact, any fund that is on that list where we are offered a worse deal will not be on our recommended list.’

Hargreaves Lansdown and most rival ‘execution-only’ brokers have been forced to overhaul their charges by the financial regulator. It abolished the payment of commission by fund managers and insurance companies to financial advisers over a year ago. The Financial Conduct Authority followed this up by banning retail brokers from receiving a slice of the annual charge on funds sold on their online platforms.

This heralded a revolution in fund prices, the first stage of which we will see when Hargreaves makes its announcement.

Effectively, fund supermarkets and online stock brokers are having to ‘unbundle’ their charges. Where previously an investor would typically pay a 1.5% all-in annual charge on a fund investing in shares, they may now pay a ‘clean’ fund price of around 0.75% plus additional platform fees and a separate fee for advice (if they have an adviser).

We first wrote about the onset of new platform charges last March.

FundsNetwork, the funds supermarket run by investment group Fidelity, has warned that the proliferation of charges may not mean investors end up paying less. ‘We will see significantly more transactional costs – where there were few, there will be many,’ Mark Till, head of personal investing at FundsNetwork, cautioned last year.

FundsNetwork has not yet announced its new terms and prices for direct investors, waiting for Hargreaves to make its move.

DIY investors will get their first taste of the new era when Hargreaves boss Ian Gorham presents the new charges at the London Stock Exchange.

Investment industry rivals are waiting to see whether the FTSE 100 firm can sustain its margins in the brave new world. Last year, the company announced it would replace its Wealth 150 list of fund recommendations with a shorter Core 30 list. In return it said it wanted fund groups to discount their fund prices below the ‘clean’ price of 0.75%. This is the ‘superclean’ charge Rathbones has objected to, blowing the lid on the tensions that have simmered between Hargreaves, fund groups and fund distributors for the past year.

So far the City is betting that Hargreaves Lansdown (HL.L) will protect its margins and see off the competitive threat from smaller, cheaper rivals. Shares in the Bristol-based company were one of the FTSE 100's best performers last year, doubling in price.

Today the share price rose another 1.5% to £15.08 in response to an upgrade from Morgan Stanley.

Jon Hocking, a respected analyst on the platform sector, hiked Hargreaves Lansdown to ‘overweight’ from ‘equal weight’ saying he expected the company to be a big winner from the withdrawal of banks from giving investment advice. Hargreaves Lansdown has 30% of the direct fund investor market, according to Hocking, and could grab 10% of the £130 billion of investors’ assets looking for a home as the advice sector shrinks.

Controversially, Hocking also believes direct investors are less price conscious than usually thought. Based on a Morgan Stanley poll of private investors, he thinks the public is prepared to pay between 0.5% for an 'execution-only' platform like Hargreaves up to 1% for accessing a  platform with a financial adviser. While this may suggest some margin pressure for Hargreaves, it will be offset by increased volumes in business, Hocking says.

Tomorrow we will start to find out if this is really the case.

21 comments so far. Why not have your say?

TJL

Jan 14, 2014 at 18:21

Fascinating.

I've always wondered why/how HL have a weekly article in the Independent, giving Mark Dampier the opportunity to push anything he wants - I wonder how the fund he pushes is chosen and how much is invested as a result?

Regardless of anything else, HL cannot be faulted on their profile.

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Hmmmmm

Jan 14, 2014 at 19:00

So the Core30/Wealth150/'Buy List' funds are the ones that give the biggest discount to the broker, rather than the best performing. Who would have thought it?

(eg Rathbones will not put a top perfoming fund on their buy list if the dont get at lease as good a deal as HL. What the punter wants is irrelevant)

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Lumino

Jan 14, 2014 at 19:52

Legislation was needed to stop these companies (among others) conning their customers into thinking their fees were more generous than reality. Now we should force them to stop lying about "recommended" funds which are undeniably presented as those they believe will be best for customers when that clearly isn't the case.

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Simon Broaders

Jan 14, 2014 at 20:07

It doesn't sound like efforts to clean up the funds industry have been all that successful.

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Franco

Jan 14, 2014 at 20:34

The HL select list will have the best funds of the groups that give HL the biggest kick backs. The idiots who use HL deserve what they get.

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Gordon Ross

Jan 14, 2014 at 21:04

Should we be surprised about stockbrokers, estate agents, insurance companies all with vested interests offering their "hot deals" with forked tongue? The best advice on share picking...DO YUR OWN RESEARCH.... It helps keep your decision making objective..... If you don't want to think about it, best stay out of stock picking! Here's to a happy and prosperous year!

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Rob Walker

Jan 14, 2014 at 21:15

We have to ask Rathbones "Who is the customer?" If Sainsburys do a deal that disadvantages Tesco we all think "well, good for Sainsburys" - so why should it be any difference when brokers get competative over commissions? It speaks volumes about the cruddy set-ups and stitch-ups that private investors have had to suffer for too long.

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John Ness

Jan 14, 2014 at 21:37

Franco, It's the idiots who invest in a fund on the HL select list just because it is on the list who deserve everything they get.

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TJL

Jan 14, 2014 at 22:03

I am one of the 'idiots' who use HL - but getting wise and waiting to see what tomorrow's announcement brings?

However, I have never taken much notice of whether a fund is on the 150 list when choosing to invest in it (having long suspected a rat).

A few years ago I took up the offer of a free portfolio review, which amounted to a phone call from an IFA who told me that one of my funds wasn't on the 150 list - that's what I call a detailed review.

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John Ness

Jan 14, 2014 at 22:23

TJL, Don't put yourself down. It's not idiotic to use HL. Just don't believe that their Wealth 150 is not compiled for a reason other than for your benefit.

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a mcf

Jan 14, 2014 at 22:28

So the question is if we dont trust IFAs, we dont trust tied FAs so who do we trust

The answer is surely ourselves. The problem is that none of them are interested in me or you, they are only interested in what they can sell/make

Its human nature - Im not surprised by it. I suspect the majority if not all on here have smelt the coffee, its the little guy or lady who has a pot who is getting fleeced . If they want 5% return and get it are they being fleeced or should they be happy.

We all want more, someone has to pay

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forestbhoy via mobile

Jan 14, 2014 at 23:13

The odd thing is though, that more and more people are finally waking up to what a lot of the financial industry has been doing to the likes of us all these years,that they want to take matters into their own hands.........and who better to do it with than HL....watch their price keep climbing...

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Terry Joyner via mobile

Jan 14, 2014 at 23:45

A mcf, there is no such thing as a 'tied Ifa' what are you on about?

And don't label ifa's as untrustworthy, we make a living by looking after clients money, tax efficiently, getting the right asset allocation, wide choice of funds, with the right provider, and review on an ongoing basis. If you DIY then great, but most don't and therefore get someone like us to give advice. No different to accountants, solicitors, even plumbers - if you don't know how you get advice from the right people.

The alternative ? Go to a bank, HL and accept recommended 'best buy', or SJP who are the biggest sharks in the industry with what they charge (a lot more than ifa's, average performance, no choice).

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Trevor L

Jan 15, 2014 at 01:22

For a while, as HL customers we have researched more widely than HL and noticed recently that several funds performing well and recommended by Citiwire cannot be bought on line through HL. They are going to have to take a long hard look at themselves if they are going to prosper in future.

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Francis Wilkinson

Jan 15, 2014 at 09:07

The fact is HL are well organised and you speak to real and sensible people.

Naturally they look after their own interests but they are user friendly.

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Keith Snell

Jan 15, 2014 at 09:11

As one of the idiots who use H-L I beg to differ, the only occasions I have lost out significantly was when I used "experts" to advise me, that said the majority of my investments are in individual equities and the wealth 150 I refer to but do not make decisions based on it alone. I will be interested to see tomorrows

H-L anouncement

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Deirdre Walsh

Jan 15, 2014 at 13:24

What is everyone's opinion on Cavendish online, I am currently looking at their new charges which kick in soon?

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Gavin Lumsden (Citywire)

Jan 15, 2014 at 13:29

Hargreaves Lansdown announcement is out. The story on it is here:

http://citywire.co.uk/money/hargreaves-lansdown-slashes-costs-for-investors/a728057?ref=citywire-money-latest-news-list

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Francis Wilkinson

Jan 15, 2014 at 19:47

Can anyone explain to me why HL should charge more for holding investment trust shares to any other company share other than trying to weight things against them in favour of unit trusts?

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Clive B

Jan 16, 2014 at 10:55

@ Deirdre

I'm with Cavendish/Fidelity FundsNetwork. What "new charges" are you referring to ?

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r rodney

Jan 17, 2014 at 14:19

If there is one thing that bothers me about HL its that it caters for the masses and has to uphold such high standards which then tends to detract from the personal touch which IFS's can offer. Now I'm not an IFA but I can see the rationale of using one (or rather going round the houses to choose one you can identify with). An IFA can be a meeting point and discussional forum for what's performing and not performing in your portfolio. On the other hand HL has the service commitment buttoned down 24/7 but if you have noticed the service attendants are a bit like monkeys and I don't mean that derogatorily. Its the feeling they are trained by a system to stick to a script and not think outside the box or for themselves. Its polite and impersonal (like dealing with Talk Talk or another major). Its all got to be according to the HL standard model and these call centre guys are graduates don't forget. There is a lack of personality and expression coming through from HL I think. Perhaps they are restricted by the FSA guidelines but to increase their business and grow their client base I think they will need to be very much more adventurous with their marketing. Where is the humour and the reaching out to new and existing customers. Its a bit of a bland format. Of course for regular DIY investors who cares so long as its efficient.

Now that its a level playing field according to the "rules" all the other providers are going to show themselves more strongly and compete more strongly. HL kind of identified and developed this market....now its going to settle down with a number of players all eyeing and competing with each other for the growing business. Interesting times.

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