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Hargreaves unveils unbundled pricing structure

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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.

The company said in order to offset the effect of these changes it would need to gather an additional £3.5 billion in new assets over the next three years.

Hargreaves has also announced the level of loyalty bonus, or rebate that is passed onto clients for existing fund holdings will be increased to around 0.75% per annum.

The increase in the loyalty bonus on pre-RDR funds with an AMC of 1.5% means that the effective charge is now 0.75%, the same charge as for unbundled funds. Previously the average annual loyalty bonus was 0.17%.

Hargreaves is also removing existing flat £1 or £2 per month platform fees which it had levied on a number of index tracking and other passive funds. Under the new pricing structure it will apply the same tiered pricing across all funds.

The company said that this change meant investors with larger passive holdings would pay more but in an effort to offset this it is launching new ranges of ‘super-low’ cost index tracking funds from Legal & General and BlackRock with AMCs starting at 0.06%.

Examples unbundled funds secured at a lower cost include the Artemis Strategic Assets fund, currently with an AMC of 1.4% but the unbundled AMC will be at 0.66%.

Invesco Perpetual's Tactical bond  AMC's of 1.15% has been dropped to 0.45%. Legal & General's UK 100 Index AMC has gone from 0.65% to 0.06% and Malborough Multi-Cap Income fund has changed from 1.40% to 0.6%.

The new charging structure will apply to all clients, accounts, existing and new fund holdings and has no fund dealing charges for clients placing fund deals and no charges for holding an account with Hargreaves Lansdown.

Ian Gorham (pictured), chief executive of Hargreaves Lansdown, said: ‘We are pleased to announce that we have negotiated new lower cost funds for our clients; changed our pricing structure to the benefit of the majority of our clients and further improved the already excellent service that we provide.

'We have always sought to share our success with clients through using our negotiating power and by continually reinvesting in our service through new technology, more staff, better information on a wider range of investments, or as we have done here, in lower charges for fund.

‘In 2011 we reduced charges for holding and dealing in shares by £9 million when we launched our new low-cost stockbroking service. In 2012 we spent £7m introducing loyalty bonuses in the Vantage Sipp. We are now reducing the cost of investing in funds, saving our clients an estimated £8 million per annum. As a result, most clients will be paying even less when investing through Hargreaves Lansdown.’

The Financial Conduct Authority (FCA)’s move to include execution-only platforms, in its April 2013 platform paper, meant Hargreaves had to change its current charging structure which is based on receiving rebates from fund managers.

Following the regulator’s platform paper the Bristol-based broker said that it expected to use its size and power to negotiate deals with fund managers through preferential discounts on fund costs. It also said it was looking into creating a core list of 30 funds within its Wealth 150 made up of funds which offered the platform their best price.

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