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Hargreaves unveils unbundled pricing structure

by Jun Merrett on Jan 15, 2014 at 07:07

Hargreaves unveils unbundled pricing structure

Hargreaves Lansdown has unveiled its new unbundled tiered pricing structure for its Vantage platform.

The tiered charging structure is:

  • £0- £250,000: 0.45%
  • £250,000 to £1 million: 0.25%
  • £1 million to £2 million: 0.1%
  • From £2 million above: no charge

From 1 March 2014 the average annual management charge (AMC) for a Wealth 150 fund will fall to approximately 0.65%. Hargreaves said the average AMC charges will compare favourably to the standard AMC of 0.76% for the same funds and give an average discount of 0.11% for Hargreaves clients.

Hargreaves has also selected 27 funds from its Wealth 150 list which will make up a new list called the Wealth 150+ where the average AMC will be 0.54%.

The average AMC for funds available on Vantage which are not in the Wealth 150 is 0.71%, including passives.

The company will reveal the full list of the 27 funds who have offered it super clean deals on 1 March.

The execution-only platform was set to announce its pricing structure at the end of 2013 but delayed it until 2014 so it could refine its Wealth 150 list of funds.

The platform is required to implement the new structure from 6 April 2014.

Hargreaves has estimated the new pricing structure represents a £8 million cost based on its financial results for the year ended 30 June 2013.It also believes there could be a £9 million hit on its revenues as it approaches April 2016 when legacy rebates will be banned.

At the start of trading the firm's shares were down 2.6%, or 39p, at £14.69, lagging the FTSE which was marginally up.

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31 comments so far. Why not have your say?

Gary Bond via mobile

Jan 15, 2014 at 07:17

There's a good reason to avoid those 30 core funds then ! Hard closed in no time and I wonder which fund groups would really want to be in HL's pocket ? ..

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Bert Poppins via mobile

Jan 15, 2014 at 08:14

It is hard to be anything other than impressed with this lot.

For those businesses that fancy a slice of the direct pie have just seen their task get a whole hedp harder.

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Scott Gallacher via mobile

Jan 15, 2014 at 08:21

So for most clients it will be more expensive than IFA alternatives (depending on cost of advice and naturally advice has benefits above and beyond finding the cheapest products).

A significant change for HL now rather than giving clients a rebate they will be charging them up to 0.45% pa. That's a completely different proposition and I wonder how their clients will react.

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sol trader

Jan 15, 2014 at 08:35

I thought it was free

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HHS via mobile

Jan 15, 2014 at 08:52

It is free for clients with above 2 million of assets apparently! How does that work? Very charitable lot HL. I suspect these prices mean a considerable pay to the platform.

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Christopher Petrie

Jan 15, 2014 at 09:01

This announcement is good news. HL have been very successful using a rather "old model" system for many years now, where their income came from hidden agreements with fund companies.

Now, they compete directly with platforms such as Transact, Cofunds, Alliance Trust. Hey, iii do a flat-rate £80 per year direct-to-client platform if that does what you need.

For the IFA, the HL platform is more expensive than many we use (as D2C HL marketing costs will be high), so we have a competitive edge. I'm sure the major IFA platforms will get similar clean share terms such as those HL and Standard Life are already boasting about (though giving no details yet).

The cost of our advice is on top of course - and that's down to us to demonstrate to clients that advice is worth paying for.

Sorry to mention RDR - but the market place is being cleaned due to its rules.

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Christopher Petrie

Jan 15, 2014 at 09:04

@ HHS. I suspect you've read the article wrong...you still pay fees on the first £2 million. Thereafter they charge no more.

Most IFA platforms have very low charges above those amounts anyway.

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M E Too

Jan 15, 2014 at 09:05

Not sure how this will be cheaper than advice which will add a 40% to costs at 50bps or 87% if advice is 1% pa. Basis of maths - 0.3 for platform (Supermarket not a decent wrap) + 0.76% for equivalent fund + 0.5% for advice = 1.56% vs HL charge 0.45% + 150 fund 0.65% = 1.10%. Add in the research & tools etc you get from HL & it looks very compelling for a DIY. Don't get me wrong I'm independent but I can't see why people are jumping up & down for joy here. I can't see how there is anything other than a growth story for HL with this.

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Knowledgable insider

Jan 15, 2014 at 09:05

@HHS - i think youll find that its a tiered structure so the £2mill + investor pays the earlier charges but no more on the excess

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Slight of hand

Jan 15, 2014 at 09:13

The big change is they now charge on Investment Account (non-ISA/SIPP), previously this was a "loss leader". Many large investors especially share traders will be worse off due to this.

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Mik

Jan 15, 2014 at 09:21

@Scott Gallagher

Taking the example shown of Artemis Strategic Assets, I would rather pay 0.66% on the fund and 0.45% to HL (total 1.11%) than 1.5% on the fund and receive 0.1% rebate from HL (total 1.4%).

But maybe you prefer to feel richer by having 0.1% come into your account each year, if you even notice it..

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Greg M

Jan 15, 2014 at 09:39

HHS - it works because it's only the assets held above £2 million that are 'free', the client is still paying 0.45% on the first £250 k etc. At least I think that's what it means, there is always confusion about what 'tiered' rates mean, especially when reported second hand as here.

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Cromwellsbrain

Jan 15, 2014 at 09:41

@ M E Too

I beg to differ. We know it is lower cost than they have been used to but their customers believed it was free when it clearly was not.

The outcome of this announcement is that shareholders will see that HL revenue will fall: rebates in their KFDs are referred to as around 65bps, so this is a significant drop.

Customers may be swayed by the marketing onslaught to come but there is an explicit cost to hold assets and this is not why they are at HL - and let's not forget when comparing charges above, that this is just to hold assets and is not advisory....

And finally, one of their main advances has been with the Workplace Vantage SIPP. These charges are likely to exceed Webb's charge cap when consultation concludes and employers will be forced to communicate with employees, which will cause some serious friction.

No, I think there will be some ripples....

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Gordon Hay

Jan 15, 2014 at 09:47

I think their accounts and KIDs showed a typical commission to them from their discounted funds of around 0.6% - 0.7% - It looks like this will now be a maximum 0.45%. Not sure how that squares with only a £9m hit on income ?

It is a cheap and good platform for those investing say up to £250k without advice. It is much more expensive for larger investors than competitors and what most IFAs could do for them.

Still wondering will they apply the same charges to their own HL Multimanager Portfolios which are very expensive and hold circa £4billion ?

Not doubt well thought out by them and their share price growth over the last year suggests this has been tested and well received by shareholders

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Jonathan Kirby

Jan 15, 2014 at 10:04

In this new era of transparency, will they also make clear that they give no advice and there is absolutely no comeback?

The few people I have talked to about them think that their bumph amounts to a recommendation and that caveat emptor applies.

Hardly got me quaking in my boots at this level of charge though.

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Duncan Orr

Jan 15, 2014 at 10:04

As observed and commented elsewhere, when you can buy a multi asset fund for less than 30 bps, you might think twice about paying 45 bps just for administration and custody???

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Philip Wise

Jan 15, 2014 at 10:10

How do you describe HL now? Discount broker (no, they dont discount). IFA (no, they dont do much advice).

Internet retailer seems more accurate. How long till Amazon buys them? Might be worth buying their shares as a takeover target.

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M E Too

Jan 15, 2014 at 10:21

@cromwell - fair points on workplace & revenue, but lets not forget most typical HL clients want to do it themselves & generally don't want an adviser. They aren't natural targets for advisers, so the lower demonstrable cost will vindicate their decision. Sure, there'll be some moaning, as there always is with change, but I don't think there's any danger of them closing down or it affecting Hargreaves or Lansdown's lifestyle... As I've said their typical client base isn't a good hunting ground for our sector.

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Jonathan Kirby

Jan 15, 2014 at 10:28

Whoops should have said caveat emptor doesn't apply.

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Daffyd

Jan 15, 2014 at 10:31

Currently I have a portfolio of shares with HL £120k to have this on the platform the maximum charge currently is £200 under the new charging this will be 0.45% = £540pa. £200 pa looks cheap compare with the competiers but its quite a difference with the new charge!!!!!

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Simon Webster1

Jan 15, 2014 at 11:32

@ME Too

Clients have a choice either DIY with loads of internet information but no help, no comeback and no one to talk to or take advice for a few bps and get fully insured advice & support.

I am may not be jumping but I am quietly optimistic! :)

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Anitaki

Jan 15, 2014 at 11:38

@ M E Too

You are wrong. Many WOULD want an adviser IF they were to give free advice which, if it went wrong, they could claim redress for.

I'm afraid some people want it both ways

Only this week, l have heard of another example of somebody going to an "upmarket" adviser because they (now admit wrongly) were led to believe the more they paid, they higher returns they would get!!

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Phillip Bray

Jan 15, 2014 at 11:44

Interesting comments from all, it seems HL are destined to permanently polarise opinion.

We've had five reviews for their SIPP on our SIPP Chat facility, although the longest is some time ago, 9 months, people seem generally happy with the SIPP. It'll be interesting to see how this changes over time once the new charging structure is implemented.

For those who are interested in the reviews so far or who want to add their own:

http://www.investmentsense.co.uk/sipp-chat/view_sipp_provider/hargreaves-lansdown

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Keith Cobby

Jan 15, 2014 at 12:39

I think the new charges are expensive particularly for the larger portfolio. Most investors would be better off now with one of the platforms charging flat fees, like Alliance Trust Savings.

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TLR

Jan 15, 2014 at 12:44

Cromwellsbrain is correct I believe. I assume a chunk of HL’s customers are generally not only under the assumption the platform is free they actually get a loyalty bonus for using the service. Being told they are now going to have to pay explicitly for the service and sorry, no bonus anymore, is really going to upset the a large number. You may remember when they introduced the £2 charge for passives there was some furore on internet message boards. Having a quick browse of the same message boards, a number of people are suggesting they will go directly to fund managers so they don’t have to pay the charge (albeit they probably don't realise this is likely to be more expensive)

With regards to the new margins, it is difficult to extrapolate how they come to an £8m fall in revenues (given it looks much bigger) but I assume that which is lost on funds will be made up on those investors who hold only shares/Its/ETFs and there appears to a marginal gain on their own funds with the price falling by 25bps but now subject the platform charge.

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Gerry Cooper

Jan 15, 2014 at 12:47

Like others, I think this is good news for us as IFAs.

Assuming that all the main Adviser platforms also get the 65 bps, and would anyone bet against that? and assuming an advice charge of 50 bps, my story will be that the HL structure, with no advice, for the clients that I can access where we are, at up to £250K, is not cheap at a total 110bps, and that their total charge going through me, at around 152bps is bloody good value!

By the way, I love that comment about the 'upmarket advisers' - pay more and you get better returns - you couldn't make it up! Oh! they did didn't they!

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Anitaki

Jan 15, 2014 at 13:24

@ Gerry

Yes,

"Pay more and your money will be managed by far more successful managers" (So, 'Past performance/guide to the future etc', obviously didn't apply).

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Simon Kershaw

Jan 15, 2014 at 13:32

@Philip Wise

Many moons ago, long before blogs such as this were available, I described HL (in a letter to Money Marketing) as a "bucket shop discounter".

I subsequently received a letter from Peter Hargreaves in which he took great pains to refute such a suggestion, and an enjoyable correspondence ensued.

I insisted then that my description of his firm was correct, but also told him that I admired and envied his business model. HL at the time had just reached £100m under management.

HL is still a bucket shop discounter and I still admire and envy them.

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Cromwellsbrain

Jan 15, 2014 at 13:51

@T L R

Agreed with all you say other than ETF costs, which HL currently charges 0.5% pa to hold - an explicit cost, of course, and I question what proportion of assets are currently held in ETFs. This would be telling in light of their customer perception.

So even this cost will come down. I have also tried to mull over whether the stated costs will be subject to VAT and conclude that they probably won't be as it an intermediation supply. Any comments?

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Len Murray1

Jan 15, 2014 at 14:01

Just read through the detail on HL's new charges, and the charges look like they're roughly the same or slightly less than they are now.

The platform charge of 0.45% applies to funds only, not shares and IT's. Each account is charged separately, so most customers will be paying the 0.45% charge. Added to an expected fund charge of approx. 0.75%, this gives a total charge per fund of approx. 1.2% instead of the current AMC of between 1.5% to 2%.

Shares and IT costs are pretty much unchanged. Platform charges of £45 per ISA and £200 per SIPP remain. However, shares and IT's are charged separately, so if you've got both shares and ITs in your ISA, you'll be billed two lots of £45. However, this is negligible compared to the stamp duty charge.

As far as I can see, fund customers will save about 0.3% of their fund value per year, and share buyers will probably have to stump up an extra £45.

Like a lot of people, I thought the 0.45% charge applied to share portfolios, but it doesn't. Turns out to be a lot of fuss about nothing.

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Jonathan Kirby

Jan 15, 2014 at 14:01

@ Anataki

But the FCA view is equally obtuse.

They intimate that the less you pay the more your returns, so obviously any sort of management is irrelevant to them!

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