After revealing it will charge new fees for holding HSBC index trackers and certain other funds from December 31st, some customers of Hargreaves Lansdown seeking cheaper alternatives are looking more closely at the switching fees it levies for exiting its platform.
We have now clarified with the company that the fee is charged on a per fund basis for ISA and fund & share accounts, but it is a flat £75+VAT fee for SIPPs.
Hargreaves Lansdown switching fees
- £75 plus VAT (flat rate)– SIPP account
- £25 plus VAT per fund – ISA account
- £25 plus VAT per fund – Fund and share account
One Monevator reader has reported that the company told him it may ‘refine’ these charges depending on customer response.
In the case of the per-fund fee account types, you may want to investigate consolidating multiple funds into one fund – or even into cash, if you’re prepared to risk missing a move in the market – before making the switch, to bring down your fees. I’d suggest you check the small print and for look for additional fees – and also give Hargreaves Lansdown a ring – before taking any action.
Personally, I’d also wait for the dust to settle before deciding to move from Hargreaves Lansdown and paying these switching fees.
At the least, do the maths to work out the impact of the new platform fees on your total expenses before making any move – it will be substantially less for larger portfolios, due to the fixed per fund nature of the platform fees.
Also keep in mind that any ultra-low cost platform today is likely to be pricier at some point in the future, as providers seek to recover the revenues they’re set to lose from the end of trail commission following the upcoming implementation of the Retail Distribution Review.
My initial reaction, as someone who is currently investing heavily in trackers, was dismay at this cynical move by HL but then I started thinking. The impact will depend on each person’s circumstances as follows: I currently have £1800 in an HL ISA invested in the HSBC All-Share tracker. HL currently charge 0.5 % per year to hold this fund. From 2012 this will be approx 1.3%. If this was topped up sufficiently then the £ 24 per year will be become relatively cheaper so that a £ 10,000 holding would attract 0.25% charges. Clearly the size of ones holdings will now have a bigger impact than before but before jumping ship (and who knows what other companies will do in the future) it might be worth looking at ways to mitigate these charges as fewer but larger holdings may actually be cheaper than before.
“Personally, I’d also wait for the dust to settle before deciding to move from Hargreaves Lansdown and paying these switching fees.”
I agree. As someone who will be paying £200+ in new platform fees I’m trying to resist a knee-jerk reaction to this news. If this is a prelude to H-L offering Vanguard it may be worth hanging about.
HL don’t charge 0.5% for that particular fund. This is because they receive a renewal commission for it. You can check which funds do attract the 0.5% charge on the HL website in the ‘fund research’ section. Only the funds marked with a ‘*’ in the charges tab attract this additional charge.
I think I may have misled you with my comment you mention above – the conversation I had with HL mentioned possible ‘refining’ of the new platform fees (e.g the £1 and £2 charges) based on customer response. They didn’t make any comment on whether the exit (or switching) fees would be changed.
Thank you for the coverage of HL fee changes on Monevator. This has been a confusing episode, and I am very grateful for the clarity that the postings on here – both in articles and comments – has provided.
I am trying to figure out what to do with my investments from the start of next year in light of platform fees. I cannot see a clear ideal alternative to HL either for SIPPs or ISAs, so, particularly given exit fees, I am going to stay put to see what happens. However, a posting on Citywire has suggested that in the meantime it may be an idea to switch to the Schroeder Managed Balanced fund, with a TER of 0.96% and no platform fee. This seems like an interesting option, which I thought I would share. I would be interested in reactions.
Over the longer term I would be very interested in investing in the Vanguard Lifestyle funds through HL. Even with a £2 platform fee, I think they would still be very competitive. I asked someone at HL yesterday whether this was likely to be possible, and the answer was yes, but with no promises and no time frame.
I would add that I have just discovered the BlackRock consensus funds, thanks to another comment on Monevator. These tracker funds of funds seem like an even better alternative to the Schroeder fund I mentioned above, with a lower TER and no pltform fee.
@Neil I think you can draw comparisons with the ‘Big Six’ energy suppliers – when one puts up their charges the others will follow. We will probably see the other platforms matching platform charges where H-L has lead the way. For this reason I’m trying to take the long view and avoid fleeing from one platform to another gathering switching fees along the way. It looks like this is just the start of a charging shake-up that will continue next year.
If H-L do offer the Vanguard LifeStrategy trackers sometime soon then the platform fee could actually work out quite a good deal.
A word of warning if you are switching away from HL to another platform and have been a customer of HL for some time. You may find that you have ISA money held in different categories:
2) ISA2 – formerly mini
3) ISA3 – formerly PEP
If you have the same fund(s) spread among the different categories and transfer out as ‘stock’, then HL will charge per fund per category.
However, a quick phone call to them and they will consolidate all funds under the category of ‘ISA’, thus only one charge per fund.
Of course, you could sell up and transfer out in ‘cash’ for no charge.
@Steve — Looks like a quick way to save some costs, thanks for sharing!
One idea for the HL situation was to ‘un-diversify’ to bring charges under control
Now if I sell a fund at a lower price than I bought it I mkae a loss
But, if I sell a fund at a loss and then buy another fund that has made a greater loss – have I made a loss?
Or have I just sensibly rebalanced?
Its all so confusing – curse you HL for making me this way…
I have switched funds within H-L’s platform.
The execution times always just happen to coincide with the most unfavourable between the two prices.
Maybe I’ve been always unlucky but it makes one wonder if there’s a deliberate misinformation to clients in order to pocket any difference.
Exact timings of transactions are not given. They should be.
Perhaps we should pool our experiences of switching on H-L and see if this is another ‘hidden’ charge?
There’s an interesting article on the citywire website today about the new HL charges http://citywire.co.uk. In addition to the £2 they’ll be charging individuals holding HSBC funds, HL will also be getting trail commission of between 10 and 15 basis points from HSBC.
On the face of it, it was always clear HL were getting a trail commission from HSBC, otherwise they would have levied their 0.5% charge on the funds. We also saw that Fidelity got 0.1% of the 0.25% charges for the same group of funds fed their way too as they publish that info online. It would be reasonable to assume HL get the same deal.
I think HL are prob right that they shouldn’t be running some accounts at a loss, the money generated from a small investor in tracker funds would be negligible and almost certainly not cover their costs. However, their solution feels very much like a ‘botch job’. Its just a bit crude slapping a seemingly arbitrary £1 or £2 on a sub set of their low TER funds. As with all botch jobs – its really not worked well (for some of their customers). They should have implemented something more sophisticated. If they have the money to spend on developing a bespoke iphone app then surely they could have spent a bit more brainpower on this as well?
I still think HL customer service is unusually good for the industry – in this instance, however, they have got it wrong…
What do platforms do for their trail comm……this is the question.
Why not go to the company direct and not pay platform fees???????
@Brian — Historically the only way to get any rebate of the ludicrously high initial charge and hefty annual fees on managed funds has been to go via a discount broker or platform.
Yes, mad as it sounds going direct to the provider is generally more expensive! Welcome to the crazy world of financial services. 😉
You can sign up for index funds direct with the likes of HSBC etc, of course, but you’re not getting the SIPP wrapper in that instance.
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