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Hargreaves: we won't go lower than 28 bps

by Jun Merrett on Apr 30, 2013 at 10:05

Hargreaves: we won't go lower than 28 bps

Hargreaves Lansdown has said it will not offer a price lower than 28 basis points when it launches its rebate free charging structure on 1 January 2014.

Chief executive Ian Gorham said due to the company’s cost base it would have to charges clients at least 28 bps in order to remain profitable.

'If we charge less than 28bps we'd make a loss. That is the minimum we'd have to charge to make a profit,’ he said.

Gorham (pictured) said the charges would be tiered and percentage-based which would allow Hargreaves to be competitive for both big and small clients.

'Percentage-based is better for small investors as investors usually make small investments and we want to be the friend of the small investor,’ he said.

'We want to appeal to small investors but also acknowledge the larger ones. If you've got £1, £2 or £3 million [the tiered structure] makes sense.'

Last week the Financial Conduct Authority extended its ban on cash rebates and fund manager payments to execution-only platforms, as well banning legacy rebates. Platforms have until 2016 to fully comply with the rules.

The company is currently in talks with fund groups and asked them to offer it their best prices, estimating this will take six months with more details to be published in the autumn.

12 comments so far. Why not have your say?

Simon Kershaw

Apr 30, 2013 at 12:34

Dear HL,

Sounds like a challenge. You really have had a wake up call. I suspect that many of your existing clients may be a bit smarter now they have been in your Vantage space for a little while. I think that there is no loyalty where money and rate tarts are concerned. I can think of at least 4 platform propositions that will be glad to go head to head with you on D2C at somewhat less than 0.28% margin. Like you they have built their platform and are now in payback time.

The race to the bottom continues - but you have hobbled yourselves with this declaration of tactics.

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Chapman

Apr 30, 2013 at 14:14

Would .28bps really be profitable for a 6k fund??

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Philip Wise

Apr 30, 2013 at 14:25

"We are going to launch something late, and expensive. And we dont want your money if you've got a lot of it"

Is their normal PR team having the day off?

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Graham Newitt

Apr 30, 2013 at 15:16

It's hard to see how active non-advised platforms can survive on 25-30bps when they have all the acquisition and servicing costs to cover. Will they have to make an initial charge to cover these, say 1.5-2.0%

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Julian Gilbert

Apr 30, 2013 at 15:30

I do find all the negative comments about HL rather dull. They are overall a very good, well run business and have revolutionised opportunities for direct investors. All the knockers out there should either try and do something better or just keep quiet. Good luck to Peter Hargreaves and Stephen Lansdowne and well done for building up a great business. It may not be perfect, but what business is? It's easy to be negative, much harder to build a successful business.

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Knowledgable insider

Apr 30, 2013 at 16:29

Completely agree with JG HL have a brilliant company - meeting demand albeit i suspect that many clients left to there own devices lose money but hey thats there problem and I certainly wont knock HL for accommodating these clients.

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Graham Newitt

Apr 30, 2013 at 17:15

I am for one was not knocking what HL have achieved, but I am curious to know where they go next.

If I have understood their last interim statement correctly, they make 81bps of revenue with 21bps of operating costs, very nice if you can get it.

However, the old world is now dead and the story of save the initial charge and get a loyalty bonus will not compare so easily to core advised platforms. A 30bps Platform charge against an 81bps revenue line leaves a big gap to fill and virtually all of their current business is "legacy" so customers need to be converted to a new charging structure. So how will they do it and what will it look like doesn't seem an unreasonable question to ask?

I am sure Hargreaves have a plan, they have been bringing their operating costs down and diversifying to drive more scale, I look forward to seeing how this all unfolds.

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TJL

May 02, 2013 at 11:22

I think this will be a defining moment for HL.

There's a lot of loyalty out there (as a couple of the posts suggest), but I sense investor's awareness of charging issues is growing by the day.

I hope they get it right (transferring will be such a hassle!)

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New Modal Bob

May 02, 2013 at 14:07

If 28bps is their low point, what's the high for their 'friend[s] ... the small investor', 1% for anything under $100,000. That was they could actually achieve and increase their 89bps revenue.

Irrespective of how much cheaper their competitors will be in comparison, they definitely have a loyal following so who knows, they could get away with milking them dry. No doubt they will also not pay interest on cash which will add considerably to their bottom line, especially whenever rates start increasing again.

Amazing how financially naive Joe Public sometimes are. No offense Joe.

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Julian Gilbert

May 02, 2013 at 14:18

So ignorant, they probably can't spell. No offenCe.

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TJL

May 02, 2013 at 18:58

Oh Julian!

Apologies for stooping to your level (....lowest form of wit etc.), but it is Lansdown, not LansdownE.

If you are a customer, do you know how much they charged you last financial year?

Some people actually think the service is free!

Hope my speling is okay.

Regards

TJL.

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Julian Gilbert

May 03, 2013 at 07:15

TJL.

Good retort and well spotted!!

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