View the article online at http://citywire.co.uk/money/article/a727979
Hargreaves Lansdown repricing angers Rathbones
Hargreaves Lansdown, the UK's biggest fund supermarket, announces new charges tomorrow. Tensions in the investment industry are rising.
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.
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by Gavin Lumsden on Oct 23, 2016 at 00:01