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Hargreaves Lansdown slaps new fees on index funds

The well-known financial services provider Hargreaves Lansdown is about to sting investors with a new charge on many of its funds, including the UK’s most popular index funds.

A number of Monevator readers were quick to sound the alarm about this new platform fee that will doubtless slip under the radar of many other people with Hargreaves Lansdown accounts.

Hargreaves Lansdown inflicts new cost pain on passive investors

The damage

The new fee headlines are:

  • A platform fee that will cost £1 to £2 per month per fund affected. Not so bad, you might think, but it soon adds up (more on this below).
  • The entire range of HSBC index funds face a platform fee of £2 per month or £24 per year.
  • These charges are heaped on top of any other fees you might expect, like the Total Expense Ratio (TER).

The platform fee comes into force on December 31st and in some cases it replaces the 0.5% plus VAT that Hargreaves Lansdown currently slaps onto unfavoured funds in ISAs and SIPPs (This 0.5% charge stays in place on ETFs, investment trusts and other investments that don’t pay trail commission).

While that softens the blow slightly, paying additional fees will be an entirely new and unpleasant experience for investors in HSBC’s low-cost index funds.

The impact

If you held the seven index funds that comprise the Monevator Slow & Steady passive portfolio then you’d pay out £156 per year on platform fees.

That’s 0.78% knocked off a £20,000 portfolio per year – a substantial cost to bear.

Worse, the Slow & Steady portfolio was designed so that small investors can build a low-cost portfolio with regular contributions over time.

Hargreaves Lansdown’s platform fees would swallow 2.6% of our portfolio’s £6,000 contributions in year one1 – a horrendous drag on growth. Like tying Mr Creosote to the back of a Lamborghini.

Evasive action

Keeping costs low is a crucial part of any passive investor’s strategy. But there’s no need to be passive about this charge when other platform providers offer a cheaper deal.

You can get a similar range of index funds and ETFs from:

  1. Interactive Investor: No extra charges to pay on ISA or fund trading accounts.
  2. TD Waterhouse: No extra charges on ISA accounts worth more than £5,100, but £30 + VAT annual charge on accounts worth less.

Those are just two lower cost alternatives. There are others but the permutations vary depending on your needs. Hargreaves Lansdown was far from the cheapest platform out there, even before this move.

Switching fees

(Updated 21 November) If Hargreaves Lansdown’s platform fee really has pushed you too far then be advised there’s one last pound of flesh to pay – a switching fee, which varies according to account type:

  • £75 plus VAT (flat rate)– SIPP account
  • £25 plus VAT per fund – ISA account
  • £25 plus VAT per fund – Fund and share account

Note we didn’t find Hargreaves Lansdown’s website particularly clear about these switching fees, but we have clarified with them that the fee is charged per fund for ISA and fund & share accounts, but it is a flat £75+VAT fee for SIPPs.

Clearly, if your decision is purely cost-based then you may be better off paying the switching fee than leaving your funds to be moth-eaten by unnecessary charges.

Take a look in the comments below for some reader ideas on reducing switching fees.

Take it steady,

The Accumulator

  1. Assuming flat growth over the year, which is quite an optimistic assumption right now. []

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{ 90 comments… add one }
  • 51 Alex November 25, 2011, 10:22 am

    @Admirer
    @Gadgetmind

    Re the BlackRock funds – they appear to have a bid/ask spread of about 4.5 – 5.5% from what I can see this morning on the HL website. Surely this makes them as costly as any of the other options?

    Alex

  • 52 The Investor November 25, 2011, 10:23 am

    Now I realise why so many people just leave all their pensions with an expensive life insurance company!

    To be fair, while these new fees have caused an awful faff and generally spoiled everyone’s week, provided you’ve got a reasonable sized pot of cash there’s no comparison between the larcenous charges levied by the old-style pension industry and these flat fees from HL.

    If switching to shave off the last few pounds is going to turn you right off investing, I say pay a few pounds more than you’d like to and leave be. The main thing IMHO is to remain aware of the costs (and the competitive offers) and to be ready to switch if/when ‘the last few pounds’ becomes too substantial.

    I say that not because it’s ideal, but to be pragmatic. I fully expect the platforms to play the kind of silly games that banks do with bonuses on savings accounts and so forth over the next couple of years as RDR filters through, and you could find yourself moving your money more than once, or even back to where you started!

  • 53 Rob November 25, 2011, 3:18 pm

    I’m another who’s sitting tight till the new year at least to see how this all pans out. The introduction of the new BlackRock trackers is a positive move, especially if they stay fee free.

    Alex, I believe the ~5% bid-offer spread is how the 5% initial charge on the fund works. HL discount all of the initial charge. In my experience (with both HL and Fidelity) the way they do the discount with the fund manager is by reducing the spread so you buy at/near the cheaper price. I’m no expert, but that’s how it always seems to have worked in the past when I’ve looked at the transaction details.

  • 54 Jonny November 25, 2011, 11:39 pm

    Just wanted to say I’ve found the all the comments an interesting read, despite not currently using HL, or even owning a SIPP.

    I have been investigating opening a SIPP, with low (compared to others) initial contributions, and have found myself in a similar position to Alex.

    All i could come up with is sticking with my S&S ISA until i can put aside enough contributions to justify the SIPP charges, with hopefully one of the vanguard lifestyle offerings.

  • 55 Ben November 26, 2011, 2:00 pm

    @Rob

    Could you explain the bit on spreads and initial discounts in a bit more detail? not sure I’ve understood it…

    I think that you get the 5% initial charge refunded by HL but that you are still hit by the bid spread. This seems to me to effectively be a further ~5% charge on the investment?

    Hope I’ve go it wrong as my current understanding would make them seem pretty unattractive in terms of cost.

    I have read BlackRock prospectus and this seems to reinforce the fact that they look expensive

  • 56 The Accumulator November 27, 2011, 9:12 am

    HL double-charging (taking trail commission plus the new platform fee) according to Citywire story that was picked up on one of the other threads: http://www.citywire.co.uk/money/hargreaves-lansdown-charges-investors-and-fund-managers/a545698

    Suggests other platforms have room for manoeuvre.

  • 57 William November 27, 2011, 4:23 pm

    Thank you Monevator for bringing this to my attention. I am also thankful for the quality of commentators. Personally I am disgusted that HL will introduce this Platform charge on the HSBC Tracker funds whilst receiving commission payments from HSBC as confirmed by HSBC. I will look to transfer all my family members SIPP’s from HL to Commshare using the Skandia Self Select SIPP with a annual charge of £68.50. They offer or will shortly offer all the Blackrock Tracker funds (Institutional class) with TER’s similar to HSBC. Hopefully they will also offer the HSBC trackers. HL hopefully will lose alot of customers – they have had their ‘Ratner’ moment and have done themselves untold damage. Costs are a major factor in longterm investment going forward as % returns look likely to be lower in the future. Bye bye HL.

  • 58 Rob November 27, 2011, 8:07 pm

    @Ben
    Have a look at http://www.hl.co.uk/__data/assets/pdf_file/0016/32542/The_HL_Guide_to_Fund_Prices,_Savings_and_Yields.pdf – this has quite a detailed explanation of how the discount works for dual priced funds.

  • 59 Ben November 28, 2011, 11:28 am

    @rob

    thanks for the link

    I admit that I’m slightly sceptical about it. It would be difficult to know what discount you got until you’d actually taken the plunge and could compare what you paid against the offer price at the point in time that the deal was made.

    I think another call to HL is required to allay my fears…

  • 60 IH November 28, 2011, 12:13 pm

    If anyone does hear that H-L have started doing Vanguard funds do be sure to post it up here in the meantime. I’m not sure whether H-L would advertise the fact that they’d started offering Vanguard funds for fear of en-masse switching to them. They might keep it low key – in the same way that they’ve always offered HSBC trackers (for free once!) without promoting them.

  • 61 The Investor November 28, 2011, 12:30 pm

    @IH — As well as Monevator’s formidable and eagle-eyed readership, if Vanguard funds go onto HL, I guarantee we’ll write it up as an article on the blog. I think it’s fair to say my doughty co-blogger’s articles on Vanguard in the UK have always been doggedly up with events! 🙂

  • 62 IH November 28, 2011, 2:04 pm

    @The Investor – I have no doubts at all!

  • 63 Steve November 28, 2011, 4:03 pm

    Hi,
    I have recently opened a SIPP with HL and so the £2 platform fee is certainly significant to my portfolio! I am astounded by the size of the charge.
    I was looking at changing provider to BestInvest as they don’t appear to have any platform charges for Tracker funds or an AMC.
    Does anyone else have any info on this and their charges?
    cheers.

    Steve.

  • 64 Gadgetmind November 28, 2011, 4:44 pm

    Bestinvest have a £100+vat fee per annum for Vanguard trackers but not for others, however, post RDR, this could all change.

  • 65 IH November 28, 2011, 5:18 pm

    @Steve – Hi, there is no one Sipp provider, as far as i can tell that is a clear cut choice over the rest as they all charge for trackers (especially Vanguard). I have Sipps with H-L and Sippdeal and found that Sippdeal is the cheaper of the two – they charge £50 a year for as many Vanguard and other “non-listed” funds as you wish to hold. Bestinvest charge £120 and we all know about H-L now. I’m trying to avoid all the expense and hassle of moving out of H-L (as you would face too, having just joined them) by waiting until January (early!) to see if they really do start to offer Vanguard funds or whether it’s just empty talk.

  • 66 An Admirer November 29, 2011, 10:29 am

    Alex is totally correct about the BlackRock retail trackers – good spot – I missed this first time around in the excitement. The spreads are horrendously expensive. I’d avoid these.

    I’ve run the numbers again and worked out I’d be paying £28/month (!!) in platform charges, which is about 1.2% for me – partly because H-L tell me that my PR and non-PR holdings are each charged separately. This is crazy and I cannot afford it.

    I wrote a complaint email to H-L last Monday and only heard back from them today.

    They’ve written a detailed and thoughtful reply and reiterated that they hope to be able to offer Vanguard soon but with no promises.

    I made it clear that I was happy to stay with H-L and pay the platform fee for Vanguard (LS) but not otherwise. I requested them to waive my transfer out fee. Instead they have offered to waive my platform fee until the position on Vanguard becomes concrete. I think this a positive gesture.

    It seems they would rather turn us “tracker freeloaders” into low-paying customers than lose us completely, although obviously, the more money they can squeeze from you, the better.

    If there ends up being no Vanguard offering from H-L, then leaving is still an option but I haven’t lost anything.

  • 67 Gadgetmind November 29, 2011, 10:44 am

    @ an admirer – PR will be ending soon, so hopefully the pots will merge. (Now you’ve got me worried – I haven’t checked whether the Bestinvest platform fee is charged to PR and non-PR!)

    Well done on getting HL to waive the fees!

  • 68 IH November 29, 2011, 11:11 am

    @An Admirer – I didn’t realise they would charge the fees again for the PR section within the Sipp – it just gets worse!!! Well done for unearthing that one!

    Like you I just want to get the whole lot into a Vanguard LS fund, pay the lowest fee I can find or if there’s not much in it pay H-L’s fee… and get on with earning it whilst I still have a job!

  • 69 William November 29, 2011, 11:37 pm

    Dear All,
    See below cost of going via CommShare.
    Summary of charges for Skandia’s CRA set up via CommShare
    Establishment charge – free
    Annual platform fee – £68.50 p.a. (this fee pays for all accounts held on the platform per investor)
    CommShare’s fee – 0.25% of the pension fund value each year
    Annual management charges for HSBC tracker funds – 0.25%
    Annual management charges for other funds vary and trail commission of 0.5% is generally available.
    Fund switches – all free
    Both HSBC trackers are available along with the BlackRock trackers (institutional class = lower TER than offered by HL).
    If HL will see sense then I could be tempted to stay as their customer service is a known quantity.

  • 70 The Accumulator December 3, 2011, 12:50 pm

    HL have just listed their first Vanguard funds. They’ve put up a couple of the gilt funds: http://www.hl.co.uk/funds/index-tracker-funds/view-index-tracker-funds

  • 71 IH December 3, 2011, 6:07 pm

    Wonder if the others will follow – principally Life Strategy?

  • 72 William December 3, 2011, 11:26 pm

    HSBC have launched three new funds of funds investing in tracker funds and ETF’s. They have retail class 4% initial and AMC of 0.5% and a X class with 0% initial and AMC of 0.5%. They are HSBC World Index Cautious Portfolio, HSBC World Index Balanced Portfolio and HSBC World Index Dynamic Portfolio. I have emailed HL to establish whether these will be available with HL – if so what class offered, any saving on initial charge and whether they will be subject to platform fees. A possible solution to reduce platform fees and still benefit from passive investments. I believe the HSBC offering to be far cleaner than the BlackRock offerings. I do feel that other platforms will introduce similar new charges with the advent of RDR.

  • 73 IH December 4, 2011, 7:11 pm

    @William – Yes the Blackrock bid / offer spreads are off putting.

  • 74 Alex December 5, 2011, 11:58 am

    There’s a full complement of Vanguard index funds, including their LifeStrategy offerings listed on the HL index tracker page:

    http://www.hl.co.uk/funds/index-tracker-funds/view-index-tracker-funds

    From my point of view one of the LifeStrategy funds might be the thing to do for the moment, although I’d still be getting clobbered on the platform fee (plus the 0.2% initial charge!). While offering vanguard is a good step forward, it’s still a shitty deal for the smaller investor.

  • 75 IH December 5, 2011, 12:25 pm

    @ All (and especially Alex – who beat me to it – my word we’re sharp here!)
    H-L have started offering Vanguard funds and like Alex, I may well switch most of my holdings to the LS 60% Equities fund. I know it’s a little higher on the TER at 0.31% (from memory), but then you do get the equity / bond mix and automatic rebalancing (as mentioned here previously) all in one fund – so the added laziness factor has got to be worth it!

  • 76 Ben December 5, 2011, 12:58 pm
  • 77 IH December 5, 2011, 2:14 pm

    I spoke earlier today to H-L who confirmed that they will charge a second platform fee for funds within the PR part of a Sipp. When I queried the change in legislation regarding Protected Rights he assured me that when this happened (next April) then H-L would stop charging the second lot of fees. For better ‘pr’ (sorry) they should just waive the second set of charges now, but then there’s a potential five months’ charges to be had for them. If you’re switching to just one tracker fund then it’s another £10 to add to the equation. I wouldn’t transfer out for that, but I certainly will if nothing changes in April.

  • 78 Ben December 5, 2011, 2:19 pm

    @IH

    what is PR?

  • 79 Jonny December 5, 2011, 3:06 pm

    Have I missed something here?

    I could get a SIPP with HL, with a single LifeStrategy fund, with zero charges on monthly contributions, all for just £24 per year?

    Assuming I haven’t missed anything obvious, ppening a SIPP is starting to look affordable again with low contributions (and the HL is starting to look attractive again)

  • 80 Steve December 5, 2011, 3:20 pm

    Hi,
    But there is a 0.27% dilution charge with (?)every purchase with the Vanguard LifeStrategy fund also to bear in mind……….

  • 81 gadgetmind December 5, 2011, 3:24 pm

    @jonny – having the option of Vanguard LifeStrategy on HL is a game changer. If I hadn’t already decided to move to Bestinvest, HL would be a strong contender. OK, BI let me choose my own mix rather than going for the LS 80% or whatever, but BI want £120pa for a SIPP.

    The dilution charge is no big deal for a long-term investor as it avoids the higher tracker error of other trackers that try and hide the stamp duty etc.

  • 82 Ben December 5, 2011, 4:43 pm

    yes – the Monevator Vanguard article needs an update now in light of the changes at HL – in some instances HL will be the cheapest way to purchase these products, especially on the SIPP side.

    I see Scottish Widows are bringing out a some very low cost trackers as well, 0.11 TER UK FTSE All Share – again available through HL

  • 83 The Investor December 5, 2011, 6:20 pm

    @All — Wow, lots of comments on this article now. I sometimes wonder whether we should introduce a forum on Monevator; on the other hand it’s nice to have so much wisdom attached to the actual posts in hand.

    For those of you interested in keeping up with the latest comments, don’t forget you can click the ‘Discuss’ link in the very top right of the page, which takes you here: http://monevator.com/discuss/

  • 84 Jonny December 5, 2011, 6:37 pm

    Ohh, I didn’t know about that link 🙂

    I’ve often thought a Monevator forum would be nice (perhaps as an addition rather than a substitution for blog comments). I have loads of general questions I’d love to ask those in the know.

    Starting with ;): with regards to the £2 per month charge, how is that taken. Do you need to keep a cash balance for it, is it taken by DD, or in some other (non transparent) way that only the financial industry would do?

  • 85 gadgetmind December 5, 2011, 7:09 pm

    The MoneySavingExpert site uses links from articles to forum discussion threads, but it amounts to the same thing.

    Of course, I regularly post links back here as that Martin guy can’t be getting the whole cake to himself!

  • 86 Ben December 6, 2011, 9:58 am

    @ the investor

    a useful addition would be a search box on the ‘discuss’ page that just searches local to the monevator site

    that way you could help find that old post or comment you want to revisit, otherwise it can be a bit tricky remembering where everything is

  • 87 The Investor December 6, 2011, 10:05 am

    @ben — there’s a search box halfway down the sidebar on the right! I think it may need to move higher up.

    @gadgetmind — thanks for the thought, and those plugs on MSE. Very helpful for a smaller independent site like ours when readers spread the word! 🙂

  • 88 Ben December 6, 2011, 10:29 am

    @ investor

    cheers, had spotted that but thought it was just searching t’internet, now realise its monevator specific below all the google ads. Nice one

  • 89 Ben December 6, 2011, 6:02 pm

    @Jonny

    In response to your question, the platform fee will be taken at the beginning of each month, based on the funds held in your account on the last day of the previous month. The platform fee will first be taken from the cash in your income account. If no cash is available in your income account, the fee will be taken from your capital account. If no cash is available in either of these locations we would create a ‘Fees’ account, which we would then pay off when the cash became available in your account to pay the fee. No adjustments would be made to your direct debit mandate to accommodate the platform fee and no interest is charged on any outstanding fees.

  • 90 Jonny December 6, 2011, 8:41 pm

    @ Ben

    Thanks for that information, it’s good to know.

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