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Savers cash in their ISAs to survive, says Hargreaves Lansdown
(Update) Financially stretched families are taking money out of ISAs to make ends meet, says the boss of Hargreaves Lansdown, the online investment platform.
(Update with new comments on fund charges and impact of financial reforms).
Hard-pressed savers are cashing in their ISAs to make ends meet, according to Peter Hargreaves, founder of Hargreaves Lansdown, the online investment platform.
Squeezed by high inflation and low interest rates people were being forced to eat into their capital in order to survive, said Hargreaves, executive director of the Bristol-based firm.
In the second half of last year Hargreaves Lansdown saw the amount of money held in its Vantage ISA (individual savings account) fall £600 million to £8.9 billion.
Although a 7% fall in the UK stock market accounted for some of this decline Hargreaves said that for the first time his firm had seen people encashing their ISAs.
He said: ‘It’s not a flood, it’s a trickle but we’ve never seen that before. We normally only ever lose an ISA client to a rival, and that’s rare, or to probate.’
Hargreaves spoke to Citywire Money after the firm released results for the six months to 31 December, the first half of its financial year. These showed Hargreaves Lansdown generally shrugging off the difficult investment conditions. Pre-tax profits jumped 28% to £72 million with shareholders rewarded with a 5.1p per share dividend, up 13%.
Net inflows of new money from investors fell 13% from a year ago but at £1.16 billion analysts at Peel Hunt said it was ‘an impressive trading performance’. Total assets under administration fell £1.2 billion to £23.4 billion during the six month period but marked a 5% increase over 2011. Operating margins rose 2.5%.
Reviewing the half year, Hargreaves said he regretted the furore caused by the firm's introduction of monthly fund charges in December, although he defended the move as 'the right thing to do'.
As first revealed on Citywire Money, Hargreaves Lansdown now applies a £1 or £2 levy on funds (many of them index trackers) where it does not receive a rebate, or share of the fund's annual management charge from the fund management company. Although the charge is more transparent, it was controversial because it made the funds more expensive for smaller investors.
'Any publicity like that isn't good for you,' admitted Hargreaves, although he insisted that the policy was fair. 'We believe our charges should be commensurate for the work we do,' he said.
The fund fee was also an experiment to see how such charges could work before the Financial Services Authority abolishes the payment of commission to financial advisers at the end of this year under its 'retail distribution review' (RDR). This will herald a fundamental shake up of how savings and investmets are sold to the public and how financial advice is paid for.
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