The UK's largest broker, Hargreaves Lansdown (HL), is slashing fees with around half a million UK ISA and pension online investors likely to gain from reduced charges. The move, forced by new rule changes, could spark a price war from other brokers.
From March, Hargreaves savers with up to £250,000 will be charged a basic admin 0.45% fee a year. How much of a saving is this really?
How big a deal?Potentially, it's considerable for existing HL investors with substantial portfolios. Currently the broker typically charges 1.3% in its overall management fee, incorporating a variety of expenses, including fund manager charges.
The new total fees are generally lower than had been anticipated, reducing to around 1.1% overall. The Guardian claims SIPP pension fees for someone with £47,000 - the average HL investment pension pot - invested would fall from around £273.50 to £136.30 a year while ISA investors who use their full annual allowance would see charges clipped from almost £74 to £33.41.
Long-term deteriorationHowever, the new fees are still higher than some other rivals. For example, Cavendish Online charges 0.25% regardless of how much is invested. Other players like Alliance Trust Savings also represent very good value, in comparison to other operators, if you have large sums to invest.
But invest in a fund with an ongoing charge of 1.67%, for example, "your return would be reduced to £23,344 – meaning £9,000 of your growth goes on charges." And that's not even factoring other costs, like transaction costs.
Less than £25,000The HL move has been forced on all brokers by the new Retail Distribution Review, pushed by the financial regular. Digging into the broker's own data, HL acknowledges that 56% of clients have less than £25,000 invested.
The new percentage-measured fees should, in theory, be fairer to smaller investors, claims the company. HL, which has £40bn in retail invested assets, says 80% of its clients will either pay less or the same.
"Taken together with other tariff changes, our net investment in, reducing client charges costs HL estimated £8 million per annum." However founders Peter Hargreaves and Stephen Lansdown have both been made billionaires by the company's soaring share price in recent years.