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Hargreaves defends exit fees and re-reg charges

Hargreaves Lansdown has defended its decisions to introduce a £25 exit fee for investors who want to close their platform account and a £25 per holding charge for investors wanting to re-register to another platform.  

At a press conference on the company’s new pricing structure announced today, Hargreaves said a £25 fee would apply to encashing investments, while all tax wrappers and investment accounts would now incur a charge of £25 per stock to transfer to another provider.

The table below shows some of the ‘activity based charges’ that are going to be introduced on the Vantage platform:

Hargreaves activity based charges table original.jpg
Source: Hargreaves Lansdown

Chief executive Ian Gorham said it would not be good business practice if the firm was trying to generate “material revenue streams” from clients transferring out.

He argued the fees reflects the cost to Hargreaves to transfer a client off the platform. He said: “We are trying to recognise the cost of carrying out the service.”

Gorham added as the Vantage platform is “a net importer of business” Hargreaves was keen for re-registration between providers to be made easier.

Hargreaves also argues that both its old and new Wealth 150 lists have been compiled on investment performance alone.

Head of investment research Mark Dampier says: “It was purely done on investment. It has always been investment led contrary to what other people have said.”

He adds the firm’s new Wealth 150+, a list of 27 funds offered at discounted terms, is made up of funds which he believes represent investment performance with a discounted price.

Dampier said: “There are some good funds outside the wealth 150+ but they didn’t give us a better price. We believe 150+ is the best funds at the best prices.”

The firm will reveal its full list of discounted funds on 1 March when the new pricing structure goes live.

Early details show the Legal and General UK 100 Index fund will be offered through the Vantage platform at 0.06 per cent. The best priced active fund will be 0.30 per cent.

Artemis Strategic Assets will be priced with a 0.09 per cent discount at 0.66 per cent annual management charge. Invesco Perpetual Tactical Bond will cost 0.175 per cent less on Vantage than the standard 0.625 per cent charge while the Marlborough Multi-Cap Income fund will be priced at 0.6 per cent compared to a standard cost of 0.75 per cent.

Dampier said some fund providers had offered the firm terms as low as 0.2 per cent for actively managed equity funds but they were not included on the Wealth 150+. He said: “Some were at 0.2 per cent. They were trying to buy the business but the fund performance didn’t stack up for us.”

He also argues fund management costs for retail clients will come down in future years to bring them closer to investment costs charged to institutional investors. He adds that he expects the 27 funds on the Wealth 150+ “to grow as we get better deals”.

Gorham said the business needed to balance price with investment performance as its basis point charging structure means it is reliant on client’s investment performance as well as new volumes.

Hargreaves announced its new pricing set-up to the stock exchange this morning. It says it will need to secure £3.5bn in net inflows over the next three years to maintain its current level of profitability.

How the D2C platforms compare on cost: 

Source: The Platforum

The following table shows the costs of holding example fund portfolios with leading direct platforms, including the underlying funds’ annual management charges (since they differ between platforms) and some trading costs. Actual costs will depend on the funds held, the number of trades made, levels of cash held and other specific activity-related charges a platform may levy.

*Assumed AMC discounts of 0.11 per cent against the clean share class funds available on other platforms (the approximate average discount reported to have been negotiated on Wealth 150 funds). Any discount will depend on the funds chosen; and specific fund pricing on Hargreaves Lansdown will be announced on 1 March 2014. 

    £10,000     £50,000     £150,000  

AJ Bell Youinvest

£121

£683

£1,731

£221

£880

£1,789

Barclays Stockbrokers

£132

£658

£1,975

Bestinvest

page4image22960

£128

£638

£1,913

Charles Stanley

£106

£649

£1,708

£152

£723

£2,168

Hargreaves Lansdown (old pricing structure)

£134

£671

£2,013

Hargreaves Lansdown (new pricing structure)*

£115

£574

£1,722

Interactive Investor

£164

page4image48544

£724

£1,644

TD Direct Investing

£118

£738

£2,003

The Share Centre

page4image56968        

£218

£942

£1,906

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. TCF outcome 6: “Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.”

    I would love to see the response if every IFA, big and small, across the country started charging customers £25 per holding (easily hundreds of pounds in some cases) to move to a new IFA. The enforcement squad would be on that immediately.

    They can argue that they incur a cost when a customer moves away from them, but this should be reflected in the entry or ongoing costs like virtually every other provider.

  2. Platforum – are your costs in a GIA only? What about wrapper costs? Are they for 1 yr?

  3. The Hound of the Compliancevilles! 20th January 2014 at 6:35 am

    Keith, I fear your wrong.

    The regulator has made it very clear they are not a price regulator and will probably leave these sorts of issues as commercial decisions which will either live or die by market response….is it an ‘unreasonable’ post sale barrier, personally I think not, it’s a business decision that the FCA should stay well out of .

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