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Justin Modray: Hargreaves Lansdown in a spin?

 I have had a few run-ins with Hargreaves Lansdown of late and have been saddened at how a once straight-talking company seems to be using spin that would put some politicians to shame. Ian Gorhams ‘price fixing’ article arguably being yet another example.

My bone of contention with Mr Gorham’s article is that it suggests Hargreaves Lansdown’s prime motivation in seeking a lower AMCs than competitors is to “seek the best price for clients that we possibly can”. Cutting costs for clients sounds very commendable, but I suspect his actual motivation might be more to preserve Hargreaves Lansdown’s rather high Vantage margin.I will save discussion on whether larger distributors should enjoy a lower annual management charge than smaller competitors for another day. But the power firmly rests with those providers behind the handful of “mega” funds that no platform can risk being without (for example, Invesco Perpetual High Income).

Let’s take a look at some facts:

According to its current Vantage Key Features Document (03/04/2013), Hargreaves Lansdown receives an average 0.77 per cent annual commission from fund providers from which it rebates an average 0.17 per cent via a “loyalty bonus” to clients, so a simple 0.6 per cent annual margin. I would have liked to include some fund specific commission examples but I cannot, as Hargreaves Lansdown does not publicly disclose these.

The actual Vantage margin is 0.81 per cent including other fees and profit on client cash balances (based on 2013 interim results), but let’s stick with the 0.6 per cent figure for now.

When Hargreaves Lansdown finally moves to clean units (either voluntary or enforced), in simple terms it will need to charge its clients 0.6 per cent a year to maintain its current margin (probably necessary to keep shareholders happy). While total cost might be unchanged from now, many clients will, for the first time, realise exactly how much they are effectively paying Hargreaves Lansdown for the Vantage service. Since 0.6 per cent looks expensive versus competitors like Charles Stanley Direct at 0.25 per cent (or less), this risks Hargreaves Lansdown losing clients in droves once the penny drops.

The only way out of this for Hargreaves Lansdown that I can see, if it is to preserve its current margin, is to negotiate much lower AMCs than the competition. So even when tacking on its explicit annual charge, of say 0.6 per cent, the total cost is more on par with competitors.

So come on Mr Gorham. Yes, you might technically be seeking the best (fund) price for clients you possibly can, but isn’t this more about protecting your margin?

If you will also cut your margin to ensure Hargreaves Lansdown clients get the lowest combined fund/platform price then I will salute you and eat humble pie (I suspect Tesco’s margin is lower than a convenience store’s). Otherwise, please give the spin a rest.

Justin Modray is founder of


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There are 25 comments at the moment, we would love to hear your opinion too.

  1. The RyanAir of Financial Services!

  2. Where Hargreaves are already offering clean funds such as with passives they currently charge £2 per month per fund. This is actually a very reasonable deal for many people.

  3. Becoming a headcase IFA 22nd April 2013 at 10:05 am

    Some very good points indeed.

  4. well said. The ” we are in it for clients” message is a gross misrepresentation when the bulk of the rebates go into their pocket

  5. Excellent spot – keeping HL margins up to feed shareholders is okay but when profilt levels are becoming excessive within the financial services industry which clearly boosts the wealth of a few marjor shareholders who now appear in the Rich List perhaps the public should seek alternatives but I suspect like most people who never change their bank accounts they wont change platforms.

  6. Spot on, Hargreaves business model is unsustainable once they have to come clean over costs.

  7. Is knocking HL becoming the latest adviser sport? Here we have what is arguably the most successful company in the sector. Built from scratch with no fairy godmothers on the way. A company that is now in the FT-SE 100 and was the leading riser last week. Whose founders are now in the Rich List.

    We should be celebrating and congratulating, not carping and moaning.

  8. Absolutely spot on Justin.

    RDR should have forced this clarity for all execution only propositions from January 1st 2013. Next question: is the Wealth 150 tantamount to giving advice?

  9. jeff prestridge 22nd April 2013 at 1:10 pm

    Brilliant article

  10. For me, the most interesting part will be to see whether the Wealth 150 provide better terms for HL than those that do not appear on the list.

  11. Even more intersting Justin, is have a look at their own HL Multi-manager range with its bid /offer spreads and costs – a serious earner for them.

    They are superb at what they do, which is marketing investments, but are easily beaten in a head to head with an IFA as we can offer far more for the same (or less) money.

  12. @Harry Katz

    Your comment rather implies that we should congratulate all and sundry if they are successful regardless of their motives or methods.

    Asking questions and examining is not the same as carping and moaning. Nor is asking for transparency across the board…

  13. @ Grey Area

    In principle I don’t disagree with you. However it does look a bit disingenuous or ‘green eye’ when advisers unanimously tear things to pieces. I can well understand high dudgeon when it comes to the likes of SJP but in essence HL is independent – very much more so than the former which has all sorts of baggage one of which is a failed bank.

    In the latter case we are not the regulator – is it our place to be so critical? Does the action of HL really hurt us or their customers? In the case of SJP and their kin, they have for many years tried to project themselves as what they are not, thereby justly incurring the ire of IFAs.

    Do we really want to attempt to show the largest UK independent adviser in a poor light? Should we not be proclaiming that this firm is a flag waver for our independent sector? You may recall that great Guru Callum McCarthy telling us the model was broken and that we couldn’t make profits and were unsustainable. Well HL has rubbed his nose in that! There are quite enough out there who would like to ‘knock’ us without us doing the job for them. And this coming from one of the industry’s champion moaners!

  14. I’m with Harry. How long have commentators been saying that the business model is broken? This is a FTSE 100 company with some very bright people working there (I used to work with Ian Gorham and he’s not a CEO of a multi-billion pound company because he’s pleasant). As an industry that isn’t awash with success stories we should look to learn – not everything or to copy – from how they have done what they have done.

  15. Conflict of interest? 24th April 2013 at 8:38 am

    @ James Hurdman 5.16pm
    Surely if they obtained higher margins on the Wealth 150, they would have been obligated to disclose such a conflict of interest wouldnt they, as it could have been seen as a key fact for an investor to take into account when valuing HL judgement? Surely they are subject to the same conflict of interest declarations as everyone else, arent they?

  16. @Harry Katz

    But can’t you see that it isn’t independent, Harry.

    If the margin for them is bigger on certain funds, generally those promoted through their Wealth150, then that creates a conflict of interest.

    It is areas such as this where they appear to contravene what Rory Percival said last week regarding what is advice and what is not.

    They may well have to drop the likes of the Wealth 150, and accept that they may be spanning the divide of advice and bucket-shopping funds to an excessive degree.

    When they have to start charging explicitly (and not a token £2 charge on ETFs, which cannot be commericial) their FTSE 100 status looks under threat.

    The smoke and mirrors are very firmly in operation still at HL, whilst the rest of the industry has had to retire them.

  17. Interesting questions “Conflict of Interest”, you tell me.

    Since my posting I have had direct written contact from Danny Cox of Hargreaves Lansdown who said “Hi James Hurdman, saw a comment attributed to you on a money marketing piece. Just to confirm, there are no commercial incentives which influence a fund being placed on the Wealth 150 and never have been. The investment decision is made irrespective of the commercials. When we move to unbundled units where there are no rebates, there is an arguement to say the price of a fund we can obtain for a client might have a bearing on whether we promote a fund, if all other things are equal (including HLs charge), for example if we are comparing two very similar funds, the fund group which offers the client the best deal should be promoted. Happy to discuss.”

    Interesting that the word promote is used. I thought the Wealth 150 was about publishing “independent” research. Perhaps naive little me is confused?

  18. Interesting reply from HL to James.
    To say that “the decison is made irrespective of the commercials” is surely not quite the same as saying there emphatically is no conflict of interest arising.
    I thought the whole point of conflict of interest disclosures was not that the “interest” in the thing being promoted was necessarily the factor that caused it to be promoted, but rather that the client ought to have the option to take into account the possible conflict so as to weigh the advice/promotion being made.
    Weve previously made a decision NOT to use a certain platform because we WOULD then have a conflict of interest which we felt would be confusing for the client – but I never felt that we would have been able to avoid disclosing the conflict on the basis that we didnt take the “interest “into account when deciding whether or not to use them.
    This might crop up again for us (and others no doubt) so Id be mighty interested in the view of someone with far more legal/regulatory expertise on this one.

  19. I imagine all those on here talking about price drive Dacia cars, watch Beko TV’s and holiday in Bognor Regis. Price isn’t the only consideration in our decisions.

    As IFA’s we all bang on about our great service and how clients are happy to cough up for it. In the same breath we criticise a successful company because it seeks to make a profit on what it does.

    HL are brilliant at marketing and PR. Their system is accessible and easy to use. Do you think clients are really going to care if it costs 0.25% more than someone elses? I doubt it.

    Many many IFA’s have built successful business models from client inertia. HL will actively promote the value of what they do to their clients and their clients will pay up.

    Everyone is happy; client, HL, shareholder. What’s the problem?

    PS I don’t work for HL and would regard them as a competitor.

  20. @ Soren

    But I’m sure there would be an unhappy face if you then found out you had paid Jag, Samsung and Barbados prices.

    Being happy doesn’t mean you’ve been treated well or fairly…

  21. @Grey Area

    Using your logic

    Most know that Waitrose is more expensive than Asda for beans

    An Audi is basically the same as a Volkswagen but dearer

    Kuoni holidays cost more than the same one with Thomson


    I shop at Waitrose, drive an Audi and use Kuoni for my holiday

    And like most HL clients – I actually don’t care and am entirely happy !!

    Those that do care can come to you – but don’t hold your breath

    PS Like Soren, I too don’t work for HL and they are a competitor !

    Market forces and all that !

  22. @ Dick Sprinkler

    The fly in your logic is the bit where you suggest ‘most know’.

    That applies to Waitrose but not financial services.

    I guess I shoule declare I don’t work for HL either and also consider them a competitor.

    And an Audi is any different to a Dacia?!

  23. @ Grey Area

    Now you have disappointed me. Your posts have often been logical and apposite. But your latest to Dick Sprinkler smacks of just being argumentative for the sake of it.

    I hope your comment concerning Dacia/Audi was tongue in cheek. If not it does display a breath-taking ignorance of automotive topic. In which case I guess you are the sort then who regard a car as a domestic appliance. (This is said from the perspective of a committed petrol head).

    Also I did sigh in exasperation concerning your comment “Being happy doesn’t mean you’ve been treated well or fairly…”
    As they say – “when ignorance is bliss, it is a folly to be wise”. I’m sure many of us endeavor to ensure we have happy and satisfied clients. Naturally if we can achieve the whole set – well, fairly and happy – then no doubt we have cracked it!

  24. @ Harry Katz

    Thanks for the veiled compliment, I enjoy most of your posts too!

    Ref Audi/Dacia, completely tongue in cheek. I drive a Jag with a ‘R’, that should tell you what you need to know if you’re in the know.

    I have had the unfortunate experience of dealing with many cases of fraud and theft from clients. I have had to visit their homes and tell them about it when they didn’t know themselves. I’ve seen more than most and my comment stands. But I’ll concede that your comments are true for the honest majority of advisers…

  25. Since my first stock-market-linked investment (a PEP about 25 years ago), I have held investments with quite a few execution-only companies, not to mention my bank and several IFAs.

    All except one have disappointed in various ways: time consuming and sometimes costly mistakes, failure to deal with communications promptly, hard-to use online platforms, failure to provide tax certificates and suitable statements, and even breaches of confidentiality and trust in the case of one IFA.

    The exception is Hargreaves Lansdown. The quality of service is exceptional, the platform is easy to use and informative, and, in more than 15 years, I have never experienced an administrative mistake. They also pro-actively provide me with up-to-date research and news on my investments.

    The only time I complained was when I bought as into an HL Technology ISA which was highly promoted just before the bubble burst. I had a long and detailed reply from Peter Hargreaves himself. I still thought the benefits and risks had not been stated in a balanced and fair manner, but I did feel that I had been listened to and given a personal explanation.

    That’s why, over the years, I have moved almost all my relevant investments to Hargreaves Lansdown, even if charges for some transactions have been marginally higher.

    Price – in the shape of commission and now charges – is very important, of course. But so is my time, and as long as HL are pretty reasonable, why would I change?

    Surely being prepared to pay more for a better service is the heart of the IFA advised proposition? Why do those commenting here think it should be different for HL versus its competitors?

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