Hargreaves Lansdown Blinks Under Pressure

Published in Investing on 1 December 2011

Amazingly, yet more charges. But there's a cheaper tracker for small investors.

It's fair to say that the imposition of a platform fee by fund supermarket Hargreaves Lansdown (LSE: HL) has attracted a lot of criticism from aggrieved investors and pension savers.

As I explained last week, investors in popular low-cost trackers -- such as those offered by HSBC (LSE: HSBA) -- will now have to pay a fee of either £1 per month per holding, or £2 per month per holding, in order to hold these funds.

Why? Because in short, such funds aren't otherwise profitable enough for Hargreaves Lansdown. And while the firm is sugaring the pill with talk of additional fund listings, such as Vanguard's range of trackers, small investors are going to be hit hard.

It gets worse

However, Hargreaves now seems to have blinked -- but in the process, revealed an additional layer of platform fee charges of which investors were previously unaware.

Yesterday, the firm offered a concession to some investors: instead of imposing the new platform fee from 31 December, the fee would be levied from 29 February.

Why? Because the investors in question held a significant number of funds that would attract the new platform fee, across SIPPs, ISAs and trading accounts. And the additional two months, says Hargreaves Lansdown, provides a window of opportunity for such clients to reorganise their portfolios so as to reduce the charges that they pay.

But the letter offering this gesture contained a sting in the tail.

One account, two charges

Investors who have transferred pension schemes from past employment into a Hargreaves Lansdown SIPP are quite likely to have what are called 'protected rights' pension funds, arising from a decision to contract out of the State Second Pension (S2P), or its predecessor, the State Earnings‑Related Pension Scheme (SERPS).

From the client's perspective, as far as Hargreaves Lansdown's SIPPs go, the distinction is largely academic.

They have one SIPP with one account number; one SIPP total fund valuation -- but which is made up of two sub-totals: an 'ordinary' SIPP sub-total, and a 'protected rights' sub-total. Funds are held in each pot, in other words, and add up to the total value of your SIPP.

And here's the killer: hold a low-cost tracker in your protected rights pot as well as your 'ordinary' pot, and Hargreaves Lansdown is going to charge you twice. That's right: one account; two charges -- for the same tracker, in the same SIPP.

And looking at my own SIPP, I see that I'm on the hook for £13 a month -- a whopping £156 a year.

So what can I -- and other investors -- do about these charges? Particularly investors with relatively small holdings, such as my friend with around £2,000 in an ISA containing HSBC's FTSE All-Share Tracker?

Time to think

One option is to ask for the same 29 February extension, in order to contemplate moving to the Vanguard trackers that Hargreaves Lansdown is talking about with increasing levels of confidence. The letter offering the 29 February extension, in fact, explicitly mentions Vanguard.

My friend did just this -- and was told 'no', in no uncertain terms. Here's the response, in fact:

“We have only offered this [extension] to a small number of clients who hold a large number of funds that will begin to attract the platform fee from 31 December 2011.

This was to allow these clients time to reorganise your portfolio, if they wished to do so. As such, we are not prepared to extend this offer to you.”

The BlackRock option

What Hargreaves Lansdown is doing, though, is drawing its clients' attention to the range of trackers that it offers from fund giant BlackRock.

Now, with a TER of 0.57% for BlackRock's FTSE All-Share tracker, I wouldn't normally look twice at such funds. That's more than twice the TER of HSBC's equivalent tracker, for example.

But crucially, there isn't a platform fee to pay. Which from a total-cost perspective, makes the BlackRock products cheaper for small investors.

Why isn't there a platform fee? Because some of that whopping TER goes to Hargreaves Lansdown, in the form of trail commission.

Cheaper, but with a spread

Doing the maths, it turns out that for holdings of less than £8,000, it's worth switching to BlackRock, as the additional TER will be less than the £24 you'll pay for the equivalent HSBC product.

So should investors such as my friend with the £2,000 ISA simply switch to BlackRock, then? Alas, it's not that simple.

The BlackRock trackers also have a bid-offer spread (unlike their HSBC and Legal & General (LSE: LGEN) equivalents). What's more, it's a spread that's far from insignificant.

That said, it's not as bad as it first appears: as canny blogger Monevator points out, included in the offer price is the initial charge that investors pay -- which in this case, is fully rebated by Hargreaves Lansdown.

This reduces the spread, but doesn't eliminate it.

Action plan

Personally, as I've said before, I'm not doing anything yet. In particular, I'm not going to switch into BlackRock, only to then switch into Vanguard.

So I'm going to hang on until the Vanguard situation becomes a little clearer -- and thanks to the 29 February extension, I've got the wiggle room to do so.

I'm also waiting to see what HSBC and Legal & General do in response to the platform fee.

But if you're a small investor who is due to be levied the platform fee from 31 December, time is short. And so I'd certainly take a look at the BlackRock products.

More from Malcolm Wheatley:

Malcolm and his delightful wife Mandy are Hargreaves Lansdown clients, and hold trackers from HSBC and Legal & General. Malcolm also holds trackers from Vanguard.

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Comments

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MunroMan 01 Dec 2011 , 4:29pm

That begs a question. If you think £156 a year is too much how much do you think you should pay for someone else to keep track of your paperwork and keep the FSA off your back?

jackdaww 01 Dec 2011 , 4:36pm

if the rules have been changed from the origonal agreements

cant aggrieved investors just vote with their feet and move elsewhere ?

runtothehills 01 Dec 2011 , 5:02pm

Dear Sir

I think you may have blinked or just looked the other way.

Protected Rights disappear from April 2012 and I've been led to believe that most pension providers will be amalgamating accounts when this happens. So in this case, the double fee is only applicable from the 29th Feb (according to your article) to the 5th April - hardly 'a whopping £156 a year'.

15551 01 Dec 2011 , 5:04pm

I literally just completed all the forms and was about to switch my investments to Hargreaves Lansdown until they dropped this bombshell. Now I am staying well away. The figures just do not stack up for me and other investors will probably be in the same position. Right, now to file those forms in the bin.

rober00 01 Dec 2011 , 5:07pm

Yes why get involved in all this complication, why not go elsewhere say Alliance. HL certainly seem to have deteriorated since becoming a public company and the departcher of Peter Hargreaves from the helm!!

There is a smack of British Gas and its contempt for its customers arising from its large customer base.

As a SIPP customer of HL I am keeping a very weary eye on them and will certainly vote with my feet should my cost position alter.

MDW1954 01 Dec 2011 , 5:30pm

Hello runtothehills,

The stipulations regarding what protected rights pension savings can be used for do indeed expire in April 2012. But to the best of my knowledge, HL hasn't said what its plans are in respect to merging PR and non-PR holdings.

Let me re-phrase the question: if it did indeed plan to merge them, why make a point of charging £2 per tracker for just a few months?

And if it does merge them, why go to the point of annoying customers with extra charges for such a short period?

Either way, it seems odd. And to clarify, the £156 is the total across both holdings, btw.

Malcolm (author)

Glorious12th 01 Dec 2011 , 5:43pm

Malcolm,

Regarding the amalgamation of the P/R Pensions I have contacted HL twice on this issue and they maintain that no decisions have been made yet.

There is nothing stopping them amalgamating at the end of the tax year and it would simplify admin for them and clients alike. However they then wouldn't be able to charge you twice for the same product.

I wonder what they will do ;-)

G12

MDW1954 01 Dec 2011 , 5:59pm

Hello G12,

Thanks -- that chimes with my own understanding. I checked the website before replying, and couldn't spot a change in the position.

It would certainly suit me if they did merge them (and not just from a fees point of view), as the PR amount that I have is an odd one, and one that doesn't fit easily with my intended fund allocations.

Which is why I've wound up with the same trackers in both the PR and non-PR pots, of course!

Malcolm

Luniversal 01 Dec 2011 , 6:33pm

Out of clouds of confusion-- the ifs and buts and getout clauses and jokers and whatnot-- we see emerging the ugly picture of a business whose leader is leading the way in muddying the waters for the public.

Gas and electricity providers are getting it in the neck at long last for making it too hard for customers to compare packages. Yet ahead of the Retail Distribution Review the IFA rack-, sorry, industry, seems hell-bent on imitating the utilities' spreading of deliberate confusion... but the advisers' clientele is more sophisticated and quick on the uptake than the OAP worrying about fuel bills, and less inert about sticking to the devil it knows.

What a very myopic and silly sort of clever-clever game the middlemen are playing. It will blow up in their well-fed faces.

Peter Hargreaves needs Max Clifford to teach him a few things. We are not as big suckers as we used to be.

runtothehills 01 Dec 2011 , 6:36pm

Hi guys and thanks for the response Malcolm

Like you I don't know what their plans are but I would assume it would make it easier all round if they were amalgamated. Watch this space I guess.

On a side note, I've been researching platforms for some time (I've got a stock ISA with my bank) and HL seem to be on the ball so why introduce these fees now? Part of me thinks this may be the way everyone will be going, they're just the first to do it. I might sit it all out until the other platforms make their own positions clear and move then - dealing with my ISA through the bank is frustrating to say the least!. As my dad always says, y' don't get owt for nowt lad.

Snorvey 01 Dec 2011 , 8:46pm

Hi Malcolm

I use Skandia / Financial Express for my research and although there is a tiny B/O spread on the Blackrock UK Equity fund, the AMC is an equally small 0.20% (TER 0.21%) - and it's the AMC's that do the most damage to your fund in the long term.

http://uskan.financialexpress.net/fundfactsheet.aspx?code=MYAAAD&redirect=https%3A%2F%2Fwww.skandiais.co.uk%2FFundFactSheet.asp

MDW1954 01 Dec 2011 , 11:29pm

Snorvey,

I don't think that this is the same product that is on offer to HL investors. HL cite the TER as 0.57%, for instance. I think you may be looking at the institutional variant, not the retail product.
HL investors are being offered the Class A variant.

Malcolm

jaizan 01 Dec 2011 , 11:49pm

The FSA should insist all pension providers who increase charges MUST offer the consumer the option of a free in specie transfer of all assets to another provider. Also they must commit to processing it swiftly too.

Otherwise companies can just lure customers in & ratchet up the fees.

piecan 02 Dec 2011 , 11:14am

jaizan

"Otherwise companies can just lure customers in & ratchet up the fees."

Unfortunately this is standard business practise. Whose better at it than Banks, Utility Companies, etc. I don't think I will live long enough to see the FSA or any regulator become effective. It's a battle between minnows and sharks. We all have to remember Caveat Emptor.

fudgely 02 Dec 2011 , 2:16pm

Hargreaves charges £30 per investment to transfer to another provider.

dbadger82 02 Dec 2011 , 2:24pm

On a related note, I noticed a monthly charge relating to my HSBC tracker holding in my HL ISA. On investigation turned out that charge was a 0.5% AMC, mistakenly applied or so I was told. Worth checking out as cold easily be missed amongst other charges.

piecan 02 Dec 2011 , 2:29pm

fudgely

"Hargreaves charges £30 per investment to transfer to another provider."

If you are happy to sell some or all of your shares, there is no charge to transfer cash.

Len

snoekie 02 Dec 2011 , 4:56pm

Len 38, "If you are happy to sell some or all of your shares, there is no charge to transfer cash."

With respect, if you have a decent portfolio, and in paper form, it will cost a lot more to buy back into, so they are onto a winner each and every time.

The only reason people want to change is because of the charges (too high) or service (or lack thereof), so why should you have to pay?

For shares, they are in crest with HL, they do not allow anything else, so they guarantee they are the dealers (with associated fees each and every time at the end of the day), so they are in a win, win, win, win, win position, regardless of how bad they become. At then end of the day they get your money, divis go to them until you swap out

When I tried to get written info about their charges they only referred to their published conditions, one of which is they can vary the terms (including charges at anytime), on notice, and refused to write back. That served as a stark warning, you are the smallest of tiddlers in their giant pond, and they rule and sod you.

feefifum 02 Dec 2011 , 5:14pm

So as a small investor (less than 2K in HSBC AND L&G trackers) who deposits £100pm into an all shares FTSE tracker which is held in an S&S ISA with H&L - and one who wants to vote with their feet - what other platforms are worth looking at?

I already buy shares through ii portfolio builder (£150 every other month) which are not in an ISA (that 'portfolio is only worth £750 at the moment).

HELP please, I only invest small amounts because it is all I can afford to loose, I use it to teach myself more about the markets etc.... But last thing I need is my small amounts to go into the already overflowing pockets of the managers etc.

Thanks

dunagain 02 Dec 2011 , 5:14pm

HL chage me twice: once in my SIPP and again in my ISA for the same (2) L&G trackers

GeorgeJHarney 02 Dec 2011 , 6:21pm

The key for me with all this is the fact that as a flat rate fee it hits smaller/poorer investors far harder than those with large holdings. And it isn't just trackers that are affected, good low cost unit trusts like Lindsell Train's UK Equity (TER 0.94%) that I use in preference to a UK tracker due to better performance combined with low fees for an active fund is also being hit.

Add to this the overtly political intervention attacking unions on behalf of the government on the eve of the public sector strike by h-l's Tom McPhail that was quoted in a number of papers (I want h-l to look after my money not support the blinkin Tories!), and I am seriously unhappy with them.

As others have said, they appear to be getting too big, too arrogant and have forgotten their original stated purpose.

countingcrow 02 Dec 2011 , 6:21pm

Some great comments above. It’s sad that, however much HL cared about its clients in the past, going public has changed it in no time.

Now, please help me out with this question. I’m already a rate tart and mortgage tart and now I’m planning to become a broker tart (does that term exist?). My wife and I are going to move our HSBC trackers from HL to Fidelity, because they are offering £150 for funds transferred in over £20k (and £50 if under £20K), and they will pay all exit fees (up to £100). Then because they are expensive themselves, I’ll look around to find a cheaper broker (probably iii since I have an account with them already). So the question is: am I being immoral?

MDW1954 02 Dec 2011 , 6:43pm

Hello feefifum,

In your shoes, I'd be tempted to switch to Blackrock and stay with HL.

HL are the first fund supermarket go charge platform fees, but they won't be the last.

See my various FSA links.

Malcolm (author)

snoekie 02 Dec 2011 , 10:46pm

Malcom, I have read and reread "HL are the first fund supermarket go charge platform fees, but they won't be the last.".

What the blazes does the sentence mean? A typo somewhere?

MDW1954 03 Dec 2011 , 10:14am

Ah, sorry snoekie: replace "go" with "to".

Adjacent keys, and I was in a hurry to get to the pub!

Malcolm

piecan 03 Dec 2011 , 12:12pm

snoekie

Know where you're coming from, but I did say to fudgeley - if "you are happy" to sell some or all of your shares. It is his decision, not mine. I've no way of knowing what he's invested in. I was simply making the point about cash in case he was unaware of it.

Len

jackdaww 03 Dec 2011 , 4:34pm

i buy my own shares through saga/barclays.

as far as i can tell i pay only dealing charges and stamp duty.

am i missing something ??

principa 03 Dec 2011 , 5:24pm

I notice that the Vanguard funds just added to HL attract the £2 /month charge, which will still make them expensive for investors building up a portfolio.

piecan 04 Dec 2011 , 12:21pm


"I notice that the Vanguard funds just added to HL attract the £2 /month charge, which will still make them expensive for investors building up a portfolio."

The TER's on funds also make it expensive. I would prefer up front charges which are transparent and could be easily compared between
providers, rather than a bundle of charges containing trail commission and all sorts of other things, which are easy to disguise. Unfortunately, at the moment we have a mix of both.

Bazinga 04 Dec 2011 , 4:12pm

I was fan of Hl until i read the discussion. Like ' jackdaww', i prefer to buy my own shares. Luckily, i did not get into any scheme with HL.

the AMC are a rip off, when the fund does not do well.

johnrobinson2 05 Dec 2011 , 12:27am

There are less stressful dealing accounts around.
I use First Direct Sharedealing where I buy shares, etfs, warrants and investment trusts in investment accounts as well as isa's. Dividends except for the isa automatically transfer to my First Direct Savings Account (paying 1% interest ) which also sits along side a Regular Saving Account (paying 8% pa). All accounts are visible and accessible from the same web page making transfers between accounts really easy.
And what do I pay for this comfortable trading environment - jusy £11 per trade plus 0.5% stamp duty. No monthly or annual charges whatsoever. The key here is choose investment trusts or etfs in preference to funds which frequently have been shown to give better returns as well as lack of trailing charges.

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