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The Platforum’s Holly Mackay: What we think of Hargreaves’ Wealth 150+

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This weekend Hargreaves Lansdown announced the terms it has negotiated for clients on a core list of 27 funds that it calls the Wealth 150+.

This is a much anticipated move and the second part of announcing a redesigned business model in response to the changes imposed on ‘platforms’ by the regulator.

All the UK’s main players have announced what they will charge for their services now that they are no longer allowed to take commission payments from fund managers. That doesn’t stop the platforms from negotiating better pricing from fund managers on behalf of their clients and as one of the largest distributors in the country, Hargreaves Lansdown has used its buying power to do exactly that.

The list of 27 is as follows: 

  Standard AMC HL AMC HL Saving Standard TER HL TER HL Saving

Fund

%

%

%

%

%

%

Aberdeen Latin American Equity

1

0.6

0.40

1.25

0.85

0.40

Artemis Income

0.75

0.66

0.09

0.79

0.7

0.09

Artemis Strategic Assets

0.75

0.66

0.09

0.84

0.75

0.09

Artemis Strategic Bond

0.5

0.41

0.09

0.58

0.49

0.09

Axa Fram Managed Balanced

0.625

0.5

0.125

0.685

0.56

0.13

Fidelity Moneybuilder Income

0.4

0.3

0.10

0.56

0.46

0.10

First State Asia Pacific Leaders

0.85

0.8

0.05

0.91

0.86

0.05

GLG Japan CoreAlpha

0.75

0.65

0.10

0.91

0.81

0.10

Invesco Perpetual Tactical Bond

0.625

0.45

0.175

0.73

0.63

0.10

Lindsell Train Global Equity

0.65

0.45

0.20

0.84

0.64

0.20

Lindsell Train UK Equity

0.65

0.45

0.20

0.79

0.59

0.20

M&G Recovery

0.75

0.65

0.10

0.9

0.8

0.10

Marlborough Multi Cap Income

0.75

0.6

0.15

0.77

0.62

0.15

Marlborough UK Micro Cap Gwth

0.75

0.7

0.05

0.79

0.72

0.07

Morgan Stanley £ Corp Bond

0.4

0.15

0.25

0.47

0.22

0.25

Newton Asian Income

0.75

0.62

0.13

0.84

0.71

0.13

Newton Emerging Income

0.75

0.55

0.20

0.93

0.73

0.20

Newton Global Higher Income

0.75

0.62

0.13

0.81

0.68

0.13

Newton Real Return

0.75

0.62

0.13

0.79

0.66

0.13

Old Mutual UK Alpha

0.75

0.65

0.10

0.85

0.75

0.10

Rathbone Income

0.75

0.49

0.26

0.81

0.55

0.26

Royal London £ Extra Yield Bond

0.75

0.32

0.43

0.88

0.45

0.43

Schroder Managed Balanced

0.5

0.3

0.20

0.63

0.43

0.20

Schroder Tokyo

0.75

0.5

0.25

0.92

0.67

0.25

SLI UK Smaller Companies

0.85

0.65

0.20

0.97

0.77

0.20

Threadneedle European Select

0.75

0.65

0.10

0.94

0.72

0.22

Threadneedle UK Equity Income

0.75

0.65

0.10

0.86

0.69

0.17

             

Averages

0.71

0.54

0.17

0.82

0.65

0.17

Is this good news for investors?

The news rules governing the way that funds are sold to consumers have led to lower costs for using platforms like Hargreaves Lansdown and now for buying funds as well.

However, Hargreaves Lansdown’s headline rate for holding funds is 0.45 per cent which is higher than the 0.35 per cent fee that is rapidly becoming established as the industry benchmark used by competitors like Fidelity Personal Investing and Barclays Stockbrokers, with several charging even less. That means that Hargreaves Lansdown is actually reliant on the new fund discounts – and channelling customers into this narrower range – to bring their charges close to their competitors.

Clients who shop outside of the Wealth 150+ will be paying a clear price premium verses competitor services. There have been cheaper alternatives previously but it’s now more clear that there’s a premium to be paid for Hargreaves Lansdown’s highly rated service for those customers who do not ‘buy into’ the new core list of funds.

Further to that, some clients will feel that Hargreaves Lansdown have sacrificed an element of impartiality by having recommended fund lists that are influenced by commercial terms. 

Is the Wealth 150+ any good?

This question can arguably only be answered over the course of time – evidencing good fund selection is notoriously difficult. In the absence of a crystal ball, The Platforum has analysed the new core list against the buy lists of 6 rival direct platforms to see how it compares. This is for illustration only and makes all sorts of assumptions about the underlying quality of these buylists. Nonetheless some clear points of commonality – and of difference – appear:

At fund group level –

  • No Blackrock funds
  • No JPM funds
  • No Jupiter funds
  • No Henderson funds
  • Only one M&G fund appears – and not the typical suspects

And then at fund level:

  • No Aberdeen Asia funds
  • No Marlborough Special Situations
  • No Standard Life GARS
  • No Threadneedle Latin America

Of the 27 funds, nine appear on Bestinvest’s shortlist, 11 appear in Charles Stanley’s Foundation Fund List, 12 appear in the Chelsea Core list and 5 in Fidelity’s preferred list. On average, across six rival direct platforms, 9.5 of the core 27 funds appeared.

Of the blockbuster funds which are consistently rated and supported by the direct platforms, the Hargreaves list includes:

  • Fidelity Moneybuilder Income
  • First State Asia Pacific Leaders
  • Schroder Tokyo
  • Threadneedle European Select and
  • Threadneedle UK Equity Income.

This shortlist certainly delivers some of the UK’s most popular funds to investors at preferential prices although we note a few names conspicuous by their absence. For existing customers, given that these funds have already been promoted via the Wealth 150, it’s probable that most customers will hold at least a few of these names and will see some savings which will bring their Total Cost of Ownership down. Nonetheless it’s unlikely to be by the full 17bps average lower cost cited.

This change is more likely to benefit those new customers who are happy to be guided by the Hargreaves team and hold these funds exclusively. At that point the savings become more meaningful. Time will tell if the list of funds selected is the right one and we’d like to see Hargreaves publish performance data for its core list against the broader industry peer group moving forward. Of course we’ll have to wait a few years until this data becomes meaningful.

How does Hargreaves stack up against its peer group?

Announcing the changes this weekend, Peter Hargreaves said, “Across four decades we have constantly reduced the cost of investing, and this is the next stage.” This is a fair comment but what remains to be seen is whether HL will be able to use its buying power to hold onto exclusive pricing deals. If it doesn’t, some of the consumer’s benefit will come at the expense of HL’s profit margins.

You can bet that, as we speak, discretionary managers and other institutional buyers will be on the phone to the named fund managers in question. What remains to be seen is whether these deals are preferential pricing for Hargreaves or part of a general margin squeeze which will drip feed through to other channels and customers. For Hargreaves – unlike its customers – price today is a relative, not an absolute, issue.

Holly Mackay is managing director at The Platforum

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Comments

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

  1. I suspect that any and all other platforms will now be expecting the same charges on the listed funds as Hargreaves has secured. Evidently it demonstrates what discounts the relevant groups will consider and which ones might be desperate enough to have to offer them perhaps, if that is the criterion for listing here! Other investors might flee from these funds/groups if they believe they are also not able to secure the keenest terms possible, on an integrity perspective. What if the FCC comes-out and raises that flag of ‘TCF’! Is it a tad like the platform groups being prepared to negotiate lower costs to their customers if they complain or threaten to leave….

    All power to the fund management groups which resist the ‘price only’ brigade generally – price is not all yet it seems to be the tail wagging the dog, going from one previous excess to another. A fair price should be the objective and not the cheapest as things have to be compromised for that.

    Price also drives the commodity which you buy – and there is a price worthy of the job being performed and if it is too low, the job is not worth being done for the money offered and economies of scale don’t compensate. Could that be leveled at the funds on this list now? Cheaper fund managers, cost-cut custodians, fewer investment decisions and transactions as that makes managing the fund cheaper or what?

    Is it just the old arrangements being recycled (but much more transparently following the FCC’s rulings about ‘backhanders’ to the platforms)? We’ll include you on our list as long as….. and if you don’t conform you won’t be on it.

    Well, our own discretionary management service for clients and other advisers will be sticking at 1.5%pa (including primarily funds as we choose too but most have been Investment Trusts whereby the narrowing of discounts over the last five years has brought investment returns to clients in excess of all of our and the funds’ charges alone, before considering market outcomes. If price is all someone wants to consider, then cut -off your own nose to spite your face.

  2. As a platform HL still charge far too much. This is just an attempt to hide that from investors. Transparency is alive and well with smoke and mirrors.

  3. correlationstreet 3rd March 2014 at 11:33 am

    @Philip 10.54 am – the first thing that crossed my mind as I read this was TCF. How can it be acceptable for fund groups to permit dual pricing of their offerings in the market – particularly within the universe of what I would describe as major outlets.
    The problem with this unhealthy over focus on price is an under representation of what is most important, or should be, namely good risk management. Who cares if you invested in the cheapest US Equity fund/ETF if you remained in the asset class as it collapses (not a prediction)

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