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View the article online at http://citywire.co.uk/wealth-manager/article/a728267

Why Hargreaves Lansdown rejected 0.2%

by Danielle Levy on Jan 15, 2014 at 12:59

Why Hargreaves Lansdown rejected 0.2%

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.

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3 comments so far. Why not have your say?

astute investor

Jan 15, 2014 at 13:49

Mark Dampier is so right regarding heavy costs and general inefficiency of an asset management business . HL should be applauded for applying pressure on fees and acting as a collective bargaining tool for the retail investor.

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george williams

Jan 15, 2014 at 14:16

I disagree with "astute investor" - the race to the bottom on fees means that there will likely be fewer new fund entrants as the assets required to break even will be unattainable within a sensible time period. If you kill off innovation and new entrants you end up with a monopolised business - the consumer then suffers. Why couldn't the clever Mr Dampier apply some sensible pricing ideas to get costs down. I have always thought that a fund with assets over a billion charging even 50 bps seemed high - can it really cost £5 million to run a long only equity fund. Couldn't with his and others buying power have suggested as an example a reduction in the ter to 25 - 50bps for all funds over 1 billion with performance fees for delivering superior returns.

this wouldn't kill off innovation, would reward consumers and befit managers who were successful....

a missed opportunity again - usual names, usual suspects, shame

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ScepticEclectic

Jan 15, 2014 at 17:30

"Methinks Mr. Dampier doth protest too much".

The impartiality of Mark's research is forever compromised.

The tender doc to asset managers was explicit in stating two principles

• Inclusion in the Wealth 150+ is dynamic – you come and go as your performance varies - sounds fair, right?

• BUT pricing is either static or one-directional – you have no capacity to vary pricing according to membership of the Wealth 150+, to business volumes or installed AUM

So you commit to the price/volume combo which is what the ear-bending was all about, discover that you are bounced out of the Wealth 150+ and are stuck with the price.

It is very telling that there are only 27 funds on which 100+ managers with 2000 funds have agreed to drop their trousers. This isn't the cream of the crop - it's the sub-scale "any flows are better than none" funds that can't gather assets for one reason or another.

Why wait until the end of March to reveal the names unless they were also-rans?

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