Hargreaves Lansdown is the biggest financial brokerage in the country for small investors, whose low costs and discounts drew hundreds of thousands of customers and propelled it into the FTSE 100; the company is now valued at more than £5bn. But a new report reveals that Hargreaves is now among the most expensive brokerages in the UK, charging investors, in some cases, 10 times more than low-cost rivals.
The report, by respected Edinburgh consultancy Lang Cat Financial, sets out the charges from all the providers of investment services, from traditional stockbrokers through to online-only services, for running and administering an Isa, pension or shares. It shows that Hargreaves is the most expensive investment platform of 19 surveyed for people who hold relatively large amounts of pension money with the company, and among the most expensive for holding large portfolios of Isas. It came out much better for investors with small amounts of money but was still pricier than the very best value offerings.
Lang Cat tested the providers for portfolios worth £5,000 through to £1m. Each of the providers has different charging systems – some have a flat fee, which suits investors with large portfolios, while others charge a percentage fee, which is better value for small investors. No single provider comes out cheapest – although iWeb from Halifax nearly always features at the top or very near the top of the table.
Lang Cat assumed investors would move their investments around during the year – dumping a poorly performing fund and buying another – and estimated how the costs would add up. This is what it found:
Investment Isas
Cheapest for small investors are Cavendish Online and Charles Stanley Direct. Their fees work out at 0.25% a year, which means someone with a £5,000 Isa who switches five times in a year (admittedly an unusually high figure for such a portfolio and not to be recommended) will pay as little at £13 a year. Note that there are additional charges to pay to the fund manager, such as Invesco Perpetual or Jupiter, who runs the fund. What we are talking about here is the fee for buying and holding it on an investment platform. Hargreaves would charge £23, with the most expensive being Alliance Trust Savings at £200.
From £20,000 onwards, iWeb joins Cavendish as the cheapest, and from £50,000 upwards it beats all comers. Hargreaves starts to become very expensive once someone has £100,000 or more in Isas. It would charge £450 a year for holding £100,000-worth of Isas, compared to £50 at iWeb and £100 at Interactive Investor. A number of other providers, including Alliance Trust Savings, Halifax Share Dealing and the Share Centre are around half the price of Hargreaves at this level of investment.
Pensions
The report looked at the charges for running a “self invested personal pension” (Sipp), where sums invested are typically higher than in an Isa. They are likely to become much higher profile from next year as pension savers are no longer herded into annuities. Best value for smaller Sipps are BestInvest, Barclays Stockbrokers and Close Brothers, but here Hargreaves Lansdown is not far behind. Only on sums above £100,000 does it become poor value, and is the highest charging for sums of £250,000. Best value for large pots are once again Interactive Investor and iWeb.
Share dealing
The report calculated figures based on someone trading in shares 25 times a year – so we’re talking about a fairly regular trader who understands markets. This would cost a flat £125 at iWeb, but between £321 and £344 at Hargreaves Lansdown. But Hargreaves are by no means the most expensive – some share dealers charge more for large portfolios. BestInvest, for example, comes out cheaply in some of the pension and Isa tables, but charges £2,688 for 25 trades by someone with a £1m portfolio because it uses a percentage-based charging system. That makes it eight times pricier than Hargreaves and 21 times the price of iWeb. Apart from iWeb, other low-cost share dealing services highlighted by the report are from Fidelity Personal Investing (£230 for 25 trades), Interactive Investor (£250) and ClubFinance (£183 but rising to £300-plus for portfolios above £100,000).
So are Hargreaves Lansdown charging their small army of investors too much? The report concludes: “There is a lot to admire about Hargreaves. The service reputation is justified from what we hear, and the range of information on offer on the site must also be the envy of many of its peers.” But it adds: “All the information and marketing comes at a premium. The platform isn’t as competitively priced as you may think. The fixed-fee gang beat it at the higher asset sizes, and many of the percentage-based crew undercut it at the lower end. We have to also mention exit fees, as at £25 per shareholding, they are excessive.”
We put these concerns to Hargreaves. Spokesman Danny Cox said: “Price is only part of the story. Investors need to decide what type of service they want … whether they want access via mobile apps, investment research, telephone support, guidance and whether things like the option of independent financial advice (for a fee) is important to them and perhaps most importantly, consider the financial strength of their platform.
“Hargreaves Lansdown’s heritage over the last 33 years is in helping investors to make more of their money … We have saved clients over £1bn in charges in the last 10 years and have trailblazed discounted super clean inclusive share classes, using our negotiating power to reduce the cost of investing. Lang Cat also awarded us ‘best for beginners.”
Finding the best deal
Small investors can download the “Come and Have a Go” Lang Cat report – which contains a guide for people who know little about investing as well as sophisticated traders – without charge at langcatfinancial.com. It looks at service, support, size, products and online facilities as well as costs and charges.
Putting these factors together, it makes the following recommendations for different types of investor. Couple in their 40s, pensionable job and with £50,000 in Isas: The report calls these the “Mr and Mrs Jogging Prams” of Britain and shows that while iWeb is cheapest, reckons that because they are “time poor” they will be drawn to Hargreaves, Fidelity and Barclays Stockbrokers, which at this level it says are “all reasonably competitive on costs”.
Individual in 50s with £500,000 pension pot: Again iWeb is cheapest, but Lang Cat assumes the individual isn’t confident dealing with investment markets without more support. It recommends the person heads to the Share Centre or Interactive Investor.
The share-trading hobbyist, £225,000 portfolio: It’s really all about cost here, says Lang Cat, and makes no hesitation about recommending iWeb, whose charges in this instance of £250 are nearly half the level of the next cheapest, Fidelity and Interactive Investor.
How to switch
Regulatory changes have allowed a light to be shone on charges. But moving your money from one platform to another is not without cost. The exit penalties at Hargreaves are particularly contentious. Fidelity has vowed to pay the exit fees (up to a maximum of £500) of anyone switching from Hargreaves or any other platform that charges them. These fees can certainly add up. Fidelity calculates that a customer with five funds within a stocks and shares Isa worth £11,520 would typically incur exit charges of almost 1% of their money, or £112.
How to track down the best funds
How do you possibly know which funds are best to invest in asks Lisa Bachelor. It’s a question that plagues both novice and experienced investors who have about 3,000 funds from which to choose.
Brokers’ “best buys” are supposedly neutral recommendations, but they have come under fire from the City watchdog. Some companies are now publishing narrower best buy lists that they claim are based on totally independent research.
FundCalibre, from Chelsea Financial Services, is the latest to identify “elite” funds it believes have a high probability of beating the market. “Funds are ‘elite rated’ thanks to their own merits, not the deep pockets of a fund company,” says Darius McDermott of FundCalibre. It aims to identify the funds that, based on past performance, have more than a 60% chance of beating the market in the future. Fund managers who make this cut are then interviewed to analyse their strategy. The result is, at present, 114 funds from 39 companies. Competitors to FundCalibre include Hargreaves Lansdown’s Wealth 150, and Fund Health Check from Trustnet Direct.
