If you’ve got a portfolio full of index funds with Hargreaves Lansdown [1] then you’re faced with a dilemma. Its platform fees [2] knock back small investors like a thumbs down from Simon Cowell.
It’s a bitter pill that Hargreaves Lansdown have sugared with a sweet range [3] of low-cost Vanguard index funds.
Is the price of staying with Hargreaves Lansdown [1] worth the reward of the Vanguard funds?
Frankly, Hargreaves Lansdown is not the only place you can buy Vanguard. The sheer popularity [4] of the funds has ensured their spread to other brokers, despite a slow start.
The terms vary from firm to firm but if cost is king then there are only a few scenarios where it makes sense to stay with Hargreaves Lansdown.
Your calculations may well be beset by the burdens of inertia, convoluted financial affairs, or a profound belief in Hargreaves Lansdown’s customer service, but for sanity’s sake I won’t grapple with any of that.
My main assumptions will be:
- Cost is the trigger to switch platforms.
- All Vanguard funds incur a £2 per month platform fee on Hargreaves Lansdown.
- Hargreaves Lansdown portfolios only contain index funds costing £2 a month.
- You stick with your broker for a minimum of one year.
[5]
The Vanguard runners and riders
When choosing your Vanguard platform [6], there are two main costs to look for:
1. The management charge for holding Vanguard funds – this may be known as an annual management charge (AMC), a custody fee, or a platform fee.
Whatever the name, it amounts to the same thing: a regular charge that covers the costs of servicing your account.
2. Dealing fees – a charge levied every time you buy or sell a fund.
Hargreaves Lansdown [1] is the only broker that charges per index fund owned. Whether it’s worth you taking that on the chin boils down to YOUR:
- Portfolio composition: You need to work out how many Vanguard funds you can hold before Hargreaves Lansdown’s pay-as-you-go fees cost more than the all-you-can-eat deals offered by rival platforms.
- Trading habits: You need to figure out whether the waiving of dealing fees by Hargreaves Lansdown compensates you for its other costs, compared to the rival brokers.
The rival Vanguard-friendly platforms in the mix are Bestinvest, Sippdeal and Alliance Trust. You can find out more about their Vanguard costs here [7].
The short answer is that the fewer funds you own, the more likely it is that Hargreaves Lansdown [1] will come up trumps. Hargreaves Lansdown’s deal gets even sweeter if you trade often. The type of account you want is important, too.
I’ve tried to make the summary below as simple as possible, but be warned it’s like comparing mobile phone deals.
Stocks and shares ISA: Is it worth staying with Hargreaves Lansdown?
Hargreaves Lansdown only wins for ISAs if your portfolio consists of a single fund.
In that case, the £24 platform fee undercuts all rival offerings and you can trade all you like.
Happily a diversified portfolio of one fund can be devised using Vanguard’s LifeStrategy funds [8].
Here’s the full range of ISA scenarios depending on the number of funds held in your portfolio:
1-2 funds = Hargreaves Lansdown
3+ funds / up to 8 x £1.50 regular trades = Alliance Trust
3+ funds / 8 or more trades of any type = Bestinvest
Note: Alliance Trust online regular investment purchases are £1.50 a throw. If you expect to sell even once (perhaps to rebalance [9]) then Alliance Trust’s low AMC advantage is wiped out by its £12.50 dealing charge.
SIPP: Is it worth staying with Hargreaves Lansdown?
Hargreaves Lansdown does a bit better with its SIPP:
1-2 funds = Hargreaves Lansdown
3-4 funds = HL or Sippdeal. If you trade more than 2-4 times respectively then it’s HL.
5 fund / less than 7 trades = Sippdeal
5 funds / more than 7 trades = HL / Bestinvest dead-heat
6+ funds / more than 7 trades = Bestinvest
Note: Sippdeal charges £150 (plus VAT) to set up income drawdown and £75 (plus VAT) annually to administer income drawdown payments. Hargreaves Lansdown and Bestinvest charge nothing for the same.
Standard account: Is it worth staying put?
Scenario is currently the same as for ISA accounts.
Minimum investments
Bear in mind, your platform of choice may also depend on whether you can make the minimum investment contributions. On Vanguard funds these amount to:
- Hargreaves Lansdown: £1,000 per fund, or £50 per fund in the regular savings plan.
- Bestinvest: £100 per fund.
- Alliance Trust: £50 per fund.
There’s a couple of other quirks, too. Hargreaves Lansdown [1] charges 0.5% (plus VAT) per year on any ETFs, gilts or investment trusts [10] you hold (capped at £45 or £200 in SIPPs).
Meanwhile, Alliance Trust [11] wants £5 to reinvest dividends automatically (you can avoid this by using accumulation units or just reinvest divis yourself).
Strangest of all, Alliance Trust also charges £10 every time you want to withdraw cash. Does it also own those money-grabbing cashpoints in service stations?
Take it steady,
The Accumulator