Hargreaves Lansdown turned down offers of active equity fund annual management charges (AMCs) as low as 0.20% for its new Wealth 150 plus core list.
Hargreaves’ head of research Mark Dampier said the decision to reject such low pricing offers shows the underlying selection process for the core list, alongside the Wealth 150, remains investment-led. He said the list was slightly shorter at 27 than had been anticipated on account of the team’s focus on quality.
‘It goes back to the best funds at the best prices. We got offered some incredible prices but we did not think the funds were good enough. Some were 0.2% to 0.25% on equity funds. They were trying to buy the business and saying “put us on" and they would give us that price. We looked at fund performance and it did not stack up for us,’ Dampier (pictured) said.
The best price offered fpr an active equity fund on the Wealth 150 plus list is 0.30%, 0.15% for an active corporate bond fund, while a passive fund on the list will be offered at 0.06%.
The research head said he liked to think of the new core list as the ‘cream of the crop’ and expects it will get bigger over time.
Hargreaves today unveiled that it has negotiated an average AMC on its Wealth 150 of 0.65% and 0.54% for its Wealth 150 plus list as part of its new RDR pricing structure.
Dampier said there had been ‘very little change’ to the Wealth 150 following the tender that was sent out to fund groups back in May, which asked them to put their best price forward. The Wealth 150 currently stands at around 90 funds, which Dampier said reflects the fact that some of the funds that traditionally appeared are now closed to new money. He said one new fund would appear on the Wealth 150 plus list following the tender.
At a press briefing, chief executive Ian Gorham said that not all of the discounts negotiated were exclusive deals for Hargreaves clients, with the discounts passed on to clients through rebates in the majority of cases or access to different share classes. While this will pose a problem for those investing outside of tax wrappers, Gorham pointed out the firm’s challenge to HMRC following its decision to tax rebates.
‘As know, we are currently fighting with HMRC on that, so this is dependent on the outcome of that case,’ Gorham said.
He said Hargreaves had not opted to impose favoured nation clauses with the fund groups it works with.
‘It is up to the fund manager to decide what they want to charge. We have said put forward your best foot.’
Gorham said Hargreaves' decision to pressure fund groups to offer the best prices was no different to how supermarkets negotiate deals for their customers.
'They say to suppliers, you have got the product, we have a massive shop window and we think our clients should get a better deal. The suppliers then decide what they want to do. That is exactly same way we like to treat it.'
When asked if the direct-to-consumer platform is concerned about the potential impact of discounted prices on the margins of the asset management companies, Dampier said prices of active funds could go even lower.
‘I think active managers could drive down their costs more. There are huge costs. If you looked into asset management companies you see a sales director, a marketing director, someone who makes the tea. That is incredible. There are layers upon layers of management,' he said.
'I shouldn’t really say it as I will upset some of my colleagues and friends, but they are definitely top heavy in my view. There could be quite a lot of change and don’t even move me on to the salaries as you well know. And I am not talking about fund manager salaries either.'
Gorham, meanwhile, expects asset management companies will look to overcome a potential hit to their margins by increasing volume.