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 [1].
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.
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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.
- L&G’s Global Emerging Markets index fund [3] will cost £1 a month extra while its index-linked gilt fund will cost £2 a month more.
- These charges are heaped on top of any other fees you might expect, like the Total Expense Ratio [4] (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 [5] 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 [6] – 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 [7]. But there’s no need to be passive about this charge when other platform providers [8] offer a cheaper deal.
You can get a similar range of index funds and ETFs from:
- Interactive Investor [9]: No extra charges to pay on ISA or fund trading accounts.
- TD Waterhouse [10]: 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
- Assuming flat growth over the year, which is quite an optimistic assumption right now. [↩ [15]]