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Could this be Hargreaves' new charging structure?

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by Alex Steger on Aug 13, 2013 at 11:53

Could this be Hargreaves' new charging structure?

Ever since the Financial Conduct Authority (FCA) moved to ban fund manager rebates for execution-only platform all eyes have been on Hargreaves Lansdown to see how the FTSE 100-listed market leader was going to react.

We didn’t have to wait much more than an hour after the FCA published its paper in April for a typically bullish response from the Bristol-based broker. Chief executive Ian Gorham said the company had seen it all coming and still expected to use its size and distribution power to negotiate deals with fund managers via 2013’s buzzword ‘super clean’ share classes.

Cue further speculation about the size of the discount Hargreaves could secure, from who, and what they would get for it a return. Essentially, what price the Wealth 150, or the core 30?

Well Hargreaves has given some clues, promising that the new charging structure would be revenue neutral, and vowing to get the best ‘super clean’ deals going.

Hargreaves is set to unveil its new pricing structure in the autumn, and brokers at Barclays have helpfully mapped out what it might look like.

Barclays has proposed two models, one (see table one) based on a pure management fee structure with a sliding scale of charges between 75 basis points (bps) and 35bps.

It has also put forward a second model (see table two) which factors in transaction fees which it estimated would lower the direct fees, as described in the previous model, by 7bps.

Barclays has tipped Hargreaves to flourish in the retail distribution review world but the charging structure it has set out looks a little high when compared to adviser platform fees, where clients with up to £100,000 will pay around 40bps at the top end and 12bps at the bottom. Of course there will be advice fees on top of these charges, so perhaps Hargreaves is banking on these having to be sufficiently high to make up the difference.

12 comments so far. Why not have your say?

Knowledgable insider

Aug 13, 2013 at 13:33

Hargreaves knows that most customers believe that advice isnt worth paying for so will hardly be worried about 'advice ' competition. the geniuses at the FCA havnt got a clue about clients perception and the fact that all of the additional paperwork bought about by RDR serves to put many investors off seeking advice.

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Chartered Mark

Aug 13, 2013 at 15:18

Not really sure why this article has been provided.

All it is, is an organisation that has failed in the advice business, having a best guess at what someone else is going to charge. What are the chances of them being right?

I think I will ask Barclays if they can have a guess at what I am charging, and see if they are even in the right time zone.

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sgjhaghsdg

Aug 13, 2013 at 15:21

I can't see myself or my wife being HL's customers if they push through these charges.

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Wizdon

Aug 13, 2013 at 15:22

let's see in a few years. it all comes round. At some point a lot of HG customers will wonder what they've bought, why, are they on track, what next....and then let's seek out a good planner/adviser.... or maybe not!

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Man of Kent

Aug 13, 2013 at 15:25

So now we have speculation about what Hargreaves might be banking on, based on someone else's two shades of speculation about what Hargreaves' charging structure might be.

Isn't there enough real news?

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Simon West

Aug 15, 2013 at 09:51

What ever charging structure emerges they won't be able to pretend that their service is free. This is the main point.

See comment from 'sgjhaghsdg' above.

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sgjhaghsdg

Aug 15, 2013 at 11:15

Currently my wife pays HL £24pa PA for her SIPP in which she invests in a single Vanguard LifeStrategy tracker. If HL switch to 35bps on top of Vanguard's fees, then the PA cost to her would increase about 10 fold.

What is this other than an indication that it's time to take your business elsewhere?

I don't care whether fees are visible, or whether providers get all coy about them, what matters is that the overall fees are low.

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Simon West

Aug 15, 2013 at 11:28

@ sgjhaghsdg

At the moment your wife's SIPP is being subsidised by other HL investors and is uneconomic in its own right.

The new charging structure will make it fair for all.

You might want to ask yourself where you are going to take your pension as all other providers will have to adopt similar pricing structures.

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sgjhaghsdg

Aug 15, 2013 at 12:56

I'll decide where it's moving once everyone has shown their hands.

BestInvest charge £120pa for my SIPP (again, mostly Vanguard trackers but a few ETFs and ITs too), which seems reasonably likely to be maintained post-RDR.

Failing that, wherever gives us the best deal for Vanguard or Blackrock Class D trackers.

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Simon West

Aug 15, 2013 at 14:48

Hmm. Cost is only one factor. You can't have a properly diversified portfolio consisting of trackers/ETFs only. Trackers are cheap funds, only expect below market results. They only really work in highly liquid established markets.

Don't believe the hype that trackers are a panacea. You will be disappointed by the results.

Also, trackers are inherently risky:

http://www.trustnet.com/News/449489/beware-risky-passive-funds-warns-ricketts/

Not to mention the hidden risks and charges of many ETFs.

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sgjhaghsdg

Aug 15, 2013 at 15:24

It's entirely possible to have an well-diversified portfolio using only passive investments, but you'll notice I also mentioned ITs, which I use for less liquid markets.

As for the results, there is a wealth of historical data that demonstrates the long-term out performance of low-fee passive investments compared to high-fee over-hyped active ones.

Of course, using passive investments does deny me the excitement of seeing my carefully-chosen active funds pop up in the next instalment of BestInvest's "spot the dog" feature!

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RegulatorSaurusRex

Aug 16, 2013 at 16:14

What is the point of HL?

How can it charge "trail commission" where advice isn't being provided when the FCA is banning "trail commission" where advice isn't being provided?

No wonder I'm extinct...

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