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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 }
  • 1 Guy November 20, 2011, 10:55 am

    This is the first I’ve heard of this and it is not good news! At the moment HL caps the 0.5% charge you mention at £45/year (revised down from £200 earlier this year, from memory) – do you know whether these new charges will be limited in the same way?

    Great website, by the way, one of my favourite reads – keep up the good work!

    Guy

  • 2 Steve November 20, 2011, 11:41 am

    Thank you for bringing these changes to people’s attention.

    One small (but perhaps not insignificant detail): While the new monthly £2 platform fee replaces the old 0.5% additional charge for some funds, the old charge was included in the annual account cap (£45 for ISAs, £200 for SIPPs). The new platform fee isn’t capped.

  • 3 Filipe November 20, 2011, 12:23 pm

    Hi,
    Funny enough while I was reading this article I just finished to read the article from
    http://blogs.thisismoney.co.uk/2011/11/hargreaves-lansdown-we-dont-promote-investment-trusts-unless-they-pay-commission-that-is.html

    I am a customer of HL and altough I must confess their service is exceptional, I start to feel being pushed to one type of investment and when that happens, I normally say bye bye 😐
    So now it is not only a quest of avoiding expensive fund manager… it is now also to avoid stock brokers!!!

  • 4 Antony November 20, 2011, 12:38 pm

    Are you CERTAIN it is £75 per Fund for the exit charge? The way I read it was a flat fee of £75 per SIPP account which amounts to a significant difference if you say have 10 funds within your SIPP at H-L.

    Can you confirm how came to this conclusion please by posting the exact, clear and categorical quote from H-L as I can only find this:

    “Transfer out to UK scheme:
    £75 + VAT”

    …found on page: http://www.hl.co.uk/pensions/sipp/charges-and-interest-rates

  • 5 The Investor November 20, 2011, 1:12 pm

    @Antony — There does seem to be some ambiguity here. We have removed that section of the article and will contact the platform provider as soon as we can on Monday to let readers know of the exact costs of switching.

  • 6 Gadgetmind November 20, 2011, 1:15 pm

    Providers usually charge per fund/share/whatever for moving “in specie” but zero (or at least less) for moving as cash. Which to use depends on whether you think avoiding spread and stamp duty is worth the exra charges.

    Note that as part of RDR, transfers in future (next year?) will have to be free, but I’m sure there will be strings attached.

  • 7 Antony November 20, 2011, 1:31 pm

    Gadgetmind – if that is in fact the case, and I am still unconvinced as that would be an extraordinarily large fee for someone with say £2,000 in 10 funds in a H-L SIPP. It would be an exit charge of £750 (!) against a pot size of £20,000 or 3.75%!

    However, if IT IS the case then the key before exiting would be to consolidate the funds you have on the current platform from say 10, to 1 balanced fund, and then issue the exit instruction before re-allocating back to your desired asset allocation when you get to the new platform. It would be essential to not pay initial charges when doing this however otherwise it could quickly become very costly. Even with possible bid/offer spreads this could be expensive which is why I typically only use single-priced funds.

  • 8 ermine November 20, 2011, 1:55 pm

    There seems to be a nasty trend for ISA providers to start degrading their services and charge for what used to be free at the moment.

    I don’t personally understand why people would use HL as I don’t believe there is ever a reason to put up with the cheekiness of annual account fees or holding fees. Happy to pay trading fees, that’s all.

    However, it seems that ISA platfom providers are starting to want to profit from servicing charges as well as trading charges. It’s good news that the RDR may force ISA switching to be free, as it looks like there may be a need to do more of this in future 🙁

  • 9 Ben November 20, 2011, 2:16 pm

    @antony

    i’ve been thinking about exactly that as the HL charges will make my accounts prohibitively expensive to run. My thoughts were to either sell and exit holding only cash or maybe just switch to just one fund then exit. I’ll speak to HL about it as the T&Cs they send out are incomprehensible (as all good T&Cs should be).

    I calculated that HL would charge me £336 per annum for my ISA and SIPP which is highly uncompetitive. Another way of looking at it is that 3.1% of my monthly contributions would be going to this new platform fee.

    I’m torn as to where to move to – if you pick the cheapest platform are you likely to suffer a similar fate in the short term. Its hard to predict which is the cheapest *over the long term*. I don’t really want the hassle of having to actively manage my platforms, having chosen not to actively manage my underlying assets.

    I’m tempted by Alliance Trust for my ISA, still completely undecided on the SIPP – any top tips or insights gratefully received…

    @ermine

    could I ask who your platforms are?

  • 10 david stuart November 20, 2011, 2:35 pm

    the very worrying thing about a platform fee is that they could increase it year on year.

    will have to switch from 5 tracker funds to two tracker funds to bring down costs

    wheres the customers yachts?

  • 11 Antony November 20, 2011, 2:45 pm

    @ Ben,

    The largest risk during transfering is being ‘out of the market’ for however long a SIPP Fund transfer-out takes hence my comment on consolidating all the funds into one before doing so. I did this from L&G to H-L around 3 years ago and it took around 4 weeks or so and had to be done in cash rather than ‘in specie’. I expect another move to take at least that time again.

    From my initial scan of the options, I believe BestInvest or Fidelity will be receiving my SIPP account. BestInvest appear to reimburse up to £300 for new SIPP clients so you may not be worse off by transfering (and significantly better off once there a you correctly calculated).

    My ISA’s (funds) are with Fidelity BUT this is because my wife used to work for them. They have the HSBC range of index trackers which are good enough for our purposes. I have a couple of Self-Select ISAs from this latest tax year with TD Waterhouse which I have been happy with to date. Perhaps not the cheapest dealing on offer but they do offer a broad range of markets to trade…more than the standard European, US & Canadian ones (includes Asian markets mainly). I will continue to invest with Self-Select TD Waterhouse ISAs next year too. Can put funds or ETFs in there too, I think. One thing to note with TD is that they charge a fixed custody fee if your account is below something like £8,200 (of the possible £10,680 for this tax year). May have the numbers slightly off there but the level is one to check to see if it is of concern. I invested my full ISA allowance so would only be concerned if the account showed a 25% drop in value from initial investment. They are not cheap if you want to move the shares out either, I believe, but who is these days it appears!

  • 12 IH November 20, 2011, 2:58 pm

    Funnily enough I had spent some time last week looking into re-organizing my portfolios using mainly low cost tracker funds – that’s when I stumbled upon the new fees from H-L for these funds. Coupled with the fact that you can not get Vanguard funds with H-L,this has tipped me to saying goodbye to them in the near future. I know their service is good but they are one of the most expensive platforms for a SIPP / ISA. Does anyone have any better ideas?

    Ben – Sippdeal also charge for trackers but at least it is 12.50 per quarter per account (SIPP or ISA), you can get Vanguard funds and hold as many of them as you want within that charge.

    Excellent website here

  • 13 westy22 November 20, 2011, 3:05 pm

    I am going to let the dust settle for awhile as I suspect that other providers may well follow H-L’s lead in the coming months. I only have a SIPP with H-L but it is a significant sum and mostly in HSBC trackers so I will be affected by these charges. What I might do is consolidate some tracker funds e.g. I have large sums in HSBC All Share, Index 250 and Index Pacific but also have a little in Index 100 which could go into All Share and a little in Japan which could go into Pacific.

  • 14 david stuart November 20, 2011, 3:44 pm

    i think alot more customers are using tracker funds and providers are now looking at ways to charge.HL has taken the lead.

    full yearly tax allowance £11280 starting 2012

    many like myself divide this 50%cash/50% stocks isa

    £5640

    platform fee–£24 a year

    each tracker adds 0.43% to cost on top of t.e.r.

  • 15 Antony November 20, 2011, 5:26 pm

    re: David’s post above:

    “i think alot more customers are using tracker funds and providers are now looking at ways to charge.”

    I blame Mr. Monevator!!! 😉

  • 16 Ben November 20, 2011, 6:02 pm

    the following link is quite interesting comparing fund TERs and the commission platforms get:

    https://www.fidelity.co.uk/static/pdf/investor/research_funds/Fund-supermarket-table.pdf

    note the 4% HSBC tracker commissions vs 50% or more for most actively managed funds.

  • 17 Ben November 20, 2011, 6:24 pm

    I’ve trawled a few platforms today to get a better handle on charges, this may be of use to those who use HL and need to find an alternative due to the new prohibitive charging structure:

    https://docs.google.com/spreadsheet/ccc?key=0Alfn3E871awWdHkwS1Rxa2YwOFI5VXZFcGw2OU9STHc

    the document should be open for editing if anyone wants to add to it or correct any errors…

  • 18 The Accumulator November 20, 2011, 6:37 pm

    @ Ben – I don’t think it follows that if you move to the cheapest platform now then you are more likely to have to move again. HL’s brand recognition gives them more room to manoeuvre with fees. A cheap platform that competes on price will still have to remain very keen in any post-RDR shake-up.

    Thanks for the cracking commissions link btw. That clearly shows why some of the L&G funds are incurring half the fee of the HSBC index funds. Much more bunce included.

    @ Antony – chortle. We’ll gladly (though wrongly) take that blame. Thanks for the benefit of your SIPP transfer experience. Good food for thought. You’re right about being able to put funds and ETFs in a TDW ISA – see the article for the no-fee threshold. Dealing charges are fine if you use the regular investment scheme – £1.50 a throw.

    @ Ermine – I’ve no doubt that if the RDR results in free switching that the platforms will find another way to recoup the cost. Probably by bumping up the AMC.

    @ Anyone – iWeb is also worth a look if you’re after a cheap ISA. Very no frills.

  • 19 westy22 November 20, 2011, 6:44 pm

    @ Ben
    The chart shows a commission of 0.1% from HSBC’s 0.25% – that makes 40% by my reckoning not 4%. Interestingly H-L have always publicly stated that HSBC is a non-commission paying fund – OK, 40% of 0.25% isn’t very much, but its not zero commission either.

  • 20 Gadgetmind November 20, 2011, 7:12 pm

    @ben – many thanks for the trawl. I notice you comment that BestInvest doesn’t have the L&G EM Tracker but they *do* have the Vanguard tracker, which works well if you hold other Vanguard funds and are prepared to take the custody fee hit. BestInvest *might* also have the Blackrock Global Property Securities, but it depends on which of their search tools you use.

    With Fidelity, they do have the HSBC trackers, but you have to use the L&G EM, the Royal London Index Linked gilts, and GOK which property fund as they don’t have the Blackrock. Regards fees, I even have their paper info pack, and info on fees is slim even there. No setup, no annual, no switching, but what about transfers our and drawdown?

  • 21 Ben November 20, 2011, 8:07 pm

    @westy

    Yep, my mistake

    Still quite nice to be able to see what goes on behind the scenes

  • 22 An Admirer November 20, 2011, 8:09 pm

    Seems to be some momentum also over at MSE forums on this topic.

    I’m probably one of the harder hit out of this – I hold 9 fee chargable funds in H-L – that’s £18/month and close to 1%. My portfolio size is small but on the tipping point where AT/BI are now cheaper and will probably switch to them.

    I’ve found AT decent for the ISA service, not the cheapest but at least they are clear on charges. Their web portal is a bit barebones but is functional.

    At the very least, as a gesture of good will H-L should waive their transfer out fees for anyone who wants to move as a result of this – I think this is least they can do.

    I’m very unhappy. Not the Sunday morning I wanted to wake up to!

    I appreciate I’ve been getting a “free ride” so far on H-L but ramping up the costs to uncompetitive levels, poorly publicised and at very short notice sends a clear message and I won’t be doing business with them anymore – vote with your feet.

  • 23 K November 20, 2011, 9:30 pm

    Please read the November HL times magazine – it actually seems the new charges continues to be on the minority of funds (notably, HSBC ones).

    AFAICT, my existing handful of funds won’t be affected by this – please correct me if I’m wrong though!

  • 24 The Investor November 20, 2011, 9:36 pm

    @All — In time as passive funds become more popular, it is inevitable that providers are going to have to find ways to capture some sort of revenue from those of us holding them, even disregarding RDR. You could even argue it’s a welcome reflection that the passive message is getting through. 🙂

    That said, there should be plenty of scope for a low-cost index fund only SIPP provider to come up with a bare bones wrapper. We may have to accept a more limited range of funds per platform, however.

    Whether a per fund fee — a fee which may well increase in time — is the best model is a matter for individual choice. As I said on the other thread, some passive investors (e.g. from memory Mike at Oblivious Investor, and if I recall correctly Harry Markowitz, the father of modern portfolio theory!) get by with two index funds (actually the Markowitz split may be apocryphal).

    Personally I’d be happier with a fixed flat fee for using a platform to hold / manage all my passive funds, so I could evaluate other aspects of the platform against what I was paying for it — rather than this sort of per fund charging structure that potentially influences (/mucks with) my asset allocation or rebalancing operations.

    A note of caution: If you’re someone with a pretty large fund in a HL SIPP — which many will, given the nature of the beast — and you’ve been happy with the service so far, then I’d be cautious about making a knee jerk move on the back of these new fees.

    If you’ve got say a £100,000 pot, even split across say 6 index funds, then you’re ‘only’ going to increase your annual TER by 0.144%. And larger SIPPS then this are probably not uncommon, at a guess.

    True, 0.144% p.a. is more than you were factoring in yesterday, and I realise that there is no ‘only’ when it comes to total expense paid by wise passive investors, but in my opinion there is more to investing then shaving every last penny off your costs.

    The six index fund portfolio as stands at £2 a fund will cost £144 per year. For substantial pension pots, platform reliability, customer service and peace of mind might be three variables that make that worth paying. Obviously you’d reconsider if/as the fees were increased.

    Smaller pots — clearly a different matter.

  • 25 The Investor November 20, 2011, 9:40 pm

    @David Stuart writes: wheres the customers yachts?

    Hargreaves Lansdown floated on the stock market a couple of years ago, and is now a FTSE 100 company valued at £2.2 billion. 🙂 To be fair to them though, I’d imagine they’ve saved their clients a lot more money then they’ve cost them so far, thanks to their charge rebates etc.

    Indeed, that perhaps explains some of the disappointment mixed into the reactions to this news…?

  • 26 Lemondy November 20, 2011, 10:44 pm

    Wow, holy moly, etc.

    So isn’t the point of the RDR that those funds will have to *stop* paying the trail commission to the platforms? And hence, the TERs of the funds to be charged the “platform fee” could – and should – lower accordingly? i.e. we investors having been bearing the costs here anyway, but now the platform + fund manager will have to be explicit about what they are? Maybe someone should ask HSBC.

    I seem to recall the managers were all talking about introducing new unit classes for the RDR-ready funds, or something like that.

  • 27 david stuart November 21, 2011, 2:32 am

    the word is CHARGE REBATE

    id rather have a total upfront fee disclosure what im paying than some unknown quanity return in the future.

    i think its fair to say the small investor with monthly contributions will be priced out as there not valued anymore

  • 28 Ben November 21, 2011, 9:48 am

    I have spoken with HL this morning

    The exit fees for the ISA are £0 if you cash everything in. Otherwise its £25+VAT per product if you want to stay ‘in the market’

    For the SIPP it is a flat fee of £75+VAT regardless of the number of product you hold or whether you ‘cash in’ or not

    New platform fees come into effect on the 31st Dec

    Hope that clears it up a bit

  • 29 Rob November 21, 2011, 8:26 pm

    I’ve just been going over what I’ve got with HL and working out my true TER based on these additional charges… not pretty. However it’s not the end of the world:

    I noticed a couple of new Blackrock fund-of-funds that may be of interest – ‘BlackRock Global Consensus’ and ‘BlackRock Balanced Consensus’. They’re still tracker funds, but the HL website says there is NO platform fee for them. The TER is 0.62%.

    The asset allocation isn’t quite the same as what I’ve got with separate HSBC trackers, but I can use one of these to consolidate most of it into one fund and cut charges by a lot.

    Also, someone posted an email response from HL on Citywire’s forums… it talked about offering Vanguard funds in the near future (http://citywire.co.uk/money/hl-to-charge-2-per-month-for-hsbc-index-trackers/b543715#543897) With Vanguard’s developed world fund or their lifestyle funds, you could do something similar and stick it all in ONE passive fund that fits your asset allocation.

  • 30 Byron November 22, 2011, 12:25 pm

    Rob. Thanks for the link which shows HL saying they expect to offer Vanguard funds in the near future. I spoke to them a fortnight ago and they told me they had no idea of when they might begin to offer Vanguard funds!

    If HL offer Vanguard funds at £2/month then they will be cheaper than Alliance Trust if holding two funds but start to become more expensive once three or more funds are held. Interesting. In issue 89 of HL’s Investment Times they suggest that the platform charge will be in addition to the capped 0.5% charge they make in a SIPP/ISA if you hold any investment that pays them little or no commission. If so then the cost for holding two Vanguard funds would reach £93 for and ISA £248 for a SIPP.

  • 31 Rob November 22, 2011, 6:55 pm

    Byron, the platform fee replaces the 0.5% charge for funds. Shares and ETFs still have the capped 0.5% charge. So if you just held two Vanguard funds it would be £48 (assuming they do actually offer them in the future).

    This is taken from HL’s website, at the bottom of the page of an affected fund: “Additional annual charge of 0.5% is applied to this fund when held in the Vantage ISA (capped at £45 per account) and Vantage SIPP (capped at £200 per account). This additional charge is not accounted for in the Total Expense Ratio quoted above. Please note: This 0.5% charge will be replaced with the ‘Platform Fee’ from 31st December 2011.”

  • 32 Byron November 22, 2011, 8:07 pm

    Thanks Rob, I am sure you are correct. I left out the words “and an ETC” from my post… As I split my my investments evenly between Stocks, Gilts and gold I believe I would be charged the platform fee for the two Vanguard funds VVUKLD and VVUKEQ plus the 0.5% charge on my gold ETC making an annual charge of £93 for and ISA £248 for a SIPP. Currently I use Alliance Trust for my standard fund and HL for SIPP/ISA (using HSBC trackers). I will probably wait for RDR to be implemented before making any decisions. Cheers.

  • 33 Gadgetmind November 22, 2011, 8:11 pm

    Sitting put makes sense. I’ve only given things a stir as I needed to put some cash into a new SIPP (with different PIP to current) to use some old carry forward.

  • 34 An Admirer November 24, 2011, 3:00 pm

    Following on from Rob’s tip-off above about BlackRock funds – there appear to be a bunch of BlackRock trackers on H-L’s website today with *no* platform fee and TER around 0.55% which now look relatively competitive if you have “small” holdings. Not sure if these are new – I’ve not looked for a few months.

    The offering largely mirrors HSBC (e.g. UK Index, American Index, Japan Index etc.) and the performance/indices look similar. Doesn’t seem to be an index-linked gilt tracker or Europe tracker, though.

    Seems odd they are still offering the L&G funds with the £2 platform fee which charge the same TER – why would anyone buy these, except out of ignorance?

  • 35 Ben November 24, 2011, 3:36 pm

    @admirer

    this looks like the solution to me – thanks for the tip off

  • 36 Alex November 24, 2011, 3:37 pm

    Monevator,
    Thanks for this article – truth be told if I weren’t a subscriber I would probably have missed this and be scratching my head sometime next year.

    To say that I am underwhelmed by this news doesn’t do it justice – quite frankly I’m very frustrated by it. By way of an outline of my current predicament:

    I’m 24 and have a SIPP with HL which I’ve been contributing towards for just over a year (about 15 months I think). Naturally I am a disciple of asset-allocation and low-cost trackers, however given the constraints of contributing about £100 (before relief) per month or thereabouts combined with the minimum monthly contribution of £50 for most funds, I’ve found it a bit of a challenge to work out how to go about allocation. Indeed, in my travels online I’ve found that most advice is tailored to the more mature investor who has a larger lump to deploy. Anyway that aside, I’ve chosen thus far to have 100% equity exposure (no doubt some will think this ludicrous; I am young, equities are in the doldrums, and I’d appreciate them going down further so I can buy them more cheaply!), with my portfolio today at about 90% FTSE All Share and 10% S&P (both HSBC). Bonds clearly will form a part of the allocation in the future, but for now I don’t mind if my portfolio shrinks a lot.

    However in light of the recent news, I’m at a bit of a loss what to do. There are several options:
    1. Do nothing; consolidate to 1 fund (UK index) and pay the fees – which would immediately add a hurdle of say 2% to any new money invested. Diversification not really possible unless I have a second account elsewhere (is it possible to have 2 SIPPs?), and although an ISA might work I wouldn’t get tax relief.
    2. Change to another fund in HL; I have heard rumours of Vanguard sometime in the future. There was mention of some funds being just under the 1% mark. However I would be out of the market for a short time, and would probably have to invest it all in short order, so wouldn’t be as well £ cost averaged as previously.
    3. Transfer elsewhere. I have heard that Bestinvest would cover the £75 fee, but again I would be out of the market for a fair while during the transfer.

    My gut feeling is to consolidate and sit tight (as well as voicing my polite displeasure over the phone and by way of a letter…), but it strikes me that moving from a % model to a flat fee is ridiculous, and stacked against the smaller investor or younger investor as it penalises diversification and small contributions. I appreciate HL exists to make a profit, but what the hell’s the point of offering index funds if the true cost is 1.5% or more? We might as well grab some darts and throw them at the list of active fund managers.

    Needless to say, I would appreciate anyone’s thoughts on the above. Clearly if I stay with HL, then the prospect of asset allocation is unlikely – the biggest frustration of which is that you can know all the theory about how to invest passively and successfully, but are prevented from doing it one way or another by arbitrary fees or lack of suitable funds etc.

    Monevator – I don’t know what you have in the pipeline, but I think it would be great if you perhaps did a piece addressing how to go about building an asset allocation for those with quite modest contributions – I know the slow and steady is a bit like this, but still that is an order of magnitude larger than most young people are able to do today.

    Cheers,
    Alex

  • 37 Gadgetmind November 24, 2011, 3:40 pm

    I’m pretty sure they are the retail blackrock funds, which have higher TERs than the institutional class d ones, so HL are getting some trail.

    All my paperwork is now with Bestinvest. It’s £100+vat pa but they have all the Vanguard trackers available.

  • 38 IH November 24, 2011, 5:11 pm

    Gadgetmind –
    Trying to decide whether to sit it out until H-L start offering Vanguard (which they tell me is iminent) or transfer to Sippdeal who charge £50 a year custody for Vanguard. Just checked out Bestinvest but their custody charge is £100….but they say they’ll refund your transfer-out charges (which are £75 from H-L). Sippdeal charge £9.95 per trade on Vanguard funds whereas Bestinvest don’t charge for buying them, but the point of Vanguard funds is that they’re supposed to be ‘buy and hold’ funds anyway, so you wouldn’t want to be dealing in them very often.

  • 39 Gadgetmind November 24, 2011, 5:47 pm

    It was a toss-up with me between sippdeal and bestinvest, but I decided to go for the latter to avoid dealing fees on rebalancing switches, because they’ll pay for my exit fees on a few other pensions, and they’ll give me £300!

    BTW, the bestinvest fee is £120 as you need to add VAT.

  • 40 The Investor November 24, 2011, 6:06 pm

    @Alex — Yes, your frustration is typical of many I suspect. There is talk of the Vanguard funds coming to HL which may ease the blow due to their low AMC (assuming no minimum investments etc) but no confirmation yet.

    Your savings are currently modest as you say, which leads me to suspect you’re not a higher-rate tax payer? Assuming your employer is not contributing to your SIPP (you don’t suggest it is) then remember that ISAs are also very valid savings vehicles.

    The pure tax benefit for pensions isn’t quite as good as many people think, if you”re a lower rate taxpayer.

    See this post for more:

    http://monevator.com/2010/04/28/pensions-versus-isas/

    (Note: If your company is doing matching contributions or similar to your pension contributions, bite their arm off!)

    One strategy if you’re a lower rate payer might be to accumulate savings tax free in an ISA now, and then move them into a pension to collect 40% tax relief should you become a higher rate tax payer in the future. There are limits as to how much you can move across in a year, which are sure to change by the time you come to do it, but at least at present fairly substantial amounts can be moved like this over a period of years. Remember though that you can only get tax relief on tax you actually pay, so you’ll need to be earning a fair whack to benefit.

    I don’t see a problem with being 100% in equities at your age, provided the money you have at risk is money that you consider locked away for the very long-term, and you can stomach the volatility. (I’ve been well over 90% in equities myself for the past three years, FWIW).

    As I periodically remind all readers I am not qualified to give financial advice nor do I know your exact details so please take this as food for thought not specific financial advice.

    We’ll definitely have a think about a £50 a month style investment plan. Incidentally, the post above was by my brilliant co-blogger ‘The Accumulator’, but I don’t think he’ll mind me chiming in! 🙂

  • 41 An Admirer November 24, 2011, 6:23 pm

    Gadgetmind – I strongly suspect you are correct about the BlackRock trackers – these are the retail ones.

    Still, I’m half tempted to switch to these – at least for smaller portfolios you can trade off basically paying a % TER increase rather than the £2 flat fee, which what’s really crippling for small holdings.

    Alex – this might be worth considering for you too e.g. in the short/medium term.

    After a knee-jerk reaction initially, I’ve decided – like IH – to sit this out for a few months, minimise my fee paying tracking holdings and maybe switch into these BlackRock trackers for a few months. Mucks my equity balance up a little but then again, I’m not very good at that, so I might even end up making a few quid out of it 🙂

    If H-L don’t/won’t offer Vanguard then I’ll most likely leave – probably to ATS. I’ll wait a few months but not much longer. I really don’t trust H-L given all this stuff and from what I read in the press, the Vanguard “offering” is still very much in play – H-L have gone down this route before and nothing came of it, so I’m not holding my breath. Either they will make a deal soon, within a month or two, or not at all and it’ll all go quiet.

    My portfolio is at the point where the costs are about the same either way (around 0.5%) and I think ATS are more obvious/transparent with their fees (even if pricey), which I would hope (fingers crossed) would discourage them from mucking around too severely in future (post-RDR). I’m also happy with them for my SSISA.

    Very disappointed with H-L. Still toying with registering a complaint to the FSA/Financial Ombusman – worst they can do is to tell you to Foxtrot Oscar which is the same position I’m in right now anyway…

  • 42 Alex November 24, 2011, 6:57 pm

    @Monevator

    Thanks for your reply – to answer your question, I’m not currently a higher rate tax payer, but anticipate that may well change in the not-too-distant future. Along with that there’s a strong chance of receiving pension benefits, which was part of the reason I set up my SIPP originally (as you say that’s a no-brainer!).

    It looks as though the BlackRock funds might provide a decent interim solution (and the ability to have at least some diversification) for a not-too-unreasonable 0.60% TER (@ Admirer thanks for pointing that out).

    @Accumulator – apologies for not addressing you in the first instance! Keep up the good work.

    Alex

  • 43 Gadgetmind November 24, 2011, 7:15 pm

    @alex – I’m very impressed by your clarity of thought and wish I’d been as proactive and informed at your age.

    Any flat rate fee is going to deter younger investors, and I think you need to let HL know how it affects you, and that without attracting starters, they won’t have future business as every one of us started with zero.

    Regards 100% equities, holding some bonds will let you do asset rebalancing, which can let you buy more equities when they are cheap, but your regular payments can also do this, and bonds are a trifle frothy right now! Keep an eye on it.

    The Monevator article on drip feeding into Vanguard still seems to be accurate, and either sippdeal or bestinvest might be better for you, but there is no rush to change.

  • 44 The Accumulator November 24, 2011, 8:42 pm

    @ Alex – have you considered a stakeholder pension? I found a cheap Aviva one through Cavendish Online about 18-months ago. AMC 0.55%, a choice of index funds that would cover your needs and no SIPP fees to pay. I don’t think a SIPP is always the way to go when it comes to DIY pensions. Thanks for the article suggestion, reckon I can rustle something up along those lines.

  • 45 Ben November 24, 2011, 10:42 pm

    @ Investor

    re: minimum investments for Vanguard with HL

    The normal minimum investments will apply as and when HL offer the funds, e.g. £1000 lump sum or £50 monthly

  • 46 Ben November 24, 2011, 10:47 pm

    just to put it all in perspective though, I’ve lost more in the last week than a whole year of the new super-duper-fees…

    …I love it!

  • 47 IH November 24, 2011, 11:07 pm

    No market data available for Black Rock tracker funds on H-L’s website – it says you have to phone them to trade…I wonder if this means some other catch waiting in the wings for these funds? I’ll find out tomorrow.

  • 48 Ben November 24, 2011, 11:48 pm

    @IH

    the market data’s up for some, but not all. They’re prob in the process as they’re new to the platform

    I have it in writing that they don’t intend to slap platform fees on these trackers

    Looking at the commission trails you can see why as they generate 3 times the revenue of the HSBC trackers. 30 basis points from the 55 the punter has to stump up

  • 49 IH November 25, 2011, 10:13 am

    @Ben

    On losing more in the last week – I don’t even want to look at performance, statements or anything that reminds me how much my pension has lost recently (this last 9 months in fact). I’m glad I don’t invest in equities outside my pension.

    @An Admirer

    I’ll give H-L until January and if there’s still no definite news on Vanguard funds I’ll transfer the whole lot (what’s left of it anyway!) to either Sippdeal (which will mean all eggs in one basket) or Bestinvest…or AT? Or TDW (I don’t think they do Vanguard though).

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

  • 50 Gadgetmind November 25, 2011, 10:21 am

    @IH – you just need to keep reminding yourself that dips can work for you. As long as you keep buying, then you’re buying at a lower price, and when you rebalance, your bonds and gilts are worth move so you trim them back and get even more equities. Yes, it takes a heart of stone, nerves of steel, feet of clay, and a knob of butter, but that’s what investing is all about.

  • 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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