Can it ever be worth spending £250k in fund fees? THE PRUDENT INVESTOR on whether it’s worth leaving Hargreaves Lansdown for another platform
- Hargreaves Lansdown is to scrap the £25 per fund charge for transferring out
- But it will not cut the 0.45 per cent a year charge for holding investment funds
- Rival platforms Fidelity and AJ Bell offer alternative fee structures
What? How much? You want me to give up a quarter of a million pounds?
I have been a Hargreaves Lansdown customer for more than two decades, valuing its customer service. But events this year, including the Woodford debacle, led me to reassess.
What concerns me most is its refusal to cut the basic charge of 0.45 per cent a year for holding investment funds.
Hargreaves is to scrap the £25 per fund charge for transferring out, and eight other charges but not the basic charge of 0.45 per cent a year for holding investment funds
Last month, Hargreaves announced the scrapping of the £25 per fund charge for transferring out, and eight other charges. So it’s time to do some sums.
Hargreaves argues that its holding fee is offset by lower fund charges. So I went through my investments, adding the platform charge and fund charge, to compare the cost of investing with Hargreaves against Fidelity and AJ Bell. The results made uncomfortable reading.
If I live to an average age for a man, I can expect to lose more than a quarter of a million pounds as a result of charges.
Hargreaves offers a good website and a decent app for my phone. But my cycling app costs £10 a year, so the thousands I am paying for an investment app feel a little stiff.
The firm charges 0.45 per cent on the first £250,000 of fund investments, compared with AJ Bell’s 0.25 per cent.
Hargreaves charges 0.25 per cent from £250,000, then 0.1 per cent over £1 million. AJ Bell charges 0.1 per cent and 0.05 per cent.
Both treat each account separately, with the top charge applying on the first £250,000 no matter how much is invested.
A couple who each have a Sipp and an Isa could be charged the top rate on the first £250,000 in each. That would be £4,500 in fees for Hargreaves, against £2,500 at AJ Bell.
Fidelity charges 0.35 per cent on the first £250,000 but if one customer holds more than this, then all living in that household pay 0.2 per cent.
A husband and wife each holding £250,000 in both a Sipp and an Isa would pay £2,000 on the £1 million invested.
Most couples split investments between them and hold some money in Isas, Sipps, and possibly a separate investment account.
As far as Mrs H and I are concerned, this is a fair figure for comparison. But what of lower fund charges? Let’s take the popular Lindsell Train Global Equity fund, for which Hargreaves charges 0.5 per cent, AJ Bell 0.65 per cent and Fidelity 0.65 per cent.
Add that to the platform charge and you could pay £95 a year for every £10,000 held with Hargreaves, £90 with AJ Bell and £85 with Fidelity’s household pricing.
It’s a similar story with other funds I hold, such as Threadneedle European Select and JP Morgan Emerging Markets.
Hargreaves may have a lower fund charge, but in most cases this is not enough to wipe out the cost of its higher holding fee.
With some, such as Fundsmith Equity and Baillie Gifford American, the fund charge is the same at all three firms. With the latter, for every £10,000 it would cost £72 a year at Fidelity, £77 at AJ Bell and £97 at Hargreaves.
Hargreaves may have a lower fund charge, but in most cases this is not enough to wipe out the cost of its higher holding fee
Things get more complicated for investment trusts, exchange-traded funds and shares where firms operate an overall cap on the charge.
AJ Bell charges a maximum £30 a year on Isas and £100 on Sipps against Hargreaves’ £200 on pensions and £45 on Isas. Fidelity adopts a £45 overall cap.
I hold a number of investment trusts including Scottish Mortgage, some ETFs (which track the UK and U.S stock markets) and some individual shares including Fevertree, which I bought when the price lost its fizz over the summer.
I am paying the maximum £245 a year to hold these at Hargreaves, and Mrs H is paying a similar amount. Switching would save us a four-figure sum on our total charges every year.
The key thing to consider is that every £1 not invested this year is missed future investment growth.
This accumulates with the pounds not invested next year. If we lose £100 a year in charges, the lost investment growth over 20 years would be around £3,300, assuming our investments return 5 per cent a year.
So £1,000 extra charges a year means £33,000 of lost growth.
When I add platform and fund charges together, the potential lost growth stretches way beyond £250,000 over the next 20 years —and somewhat more if our investments grow as I hope.
Surely I must do what I can to reduce these.
There are other charges to consider, too — but because most of us buy and hold for long periods, these are, therefore, the most significant.
I won’t be taking my money to AJ Bell because the firm still has exit fees.
But I am planning to shift some money to Fidelity to test the water. If I’m happy with the service, then the rest will follow.
Hargreaves says: ‘There are no other planned changes to our charging structure.’
AJ Bell says: ‘We’d like to see any changes [to exit fees] made by the regulator applied to the whole industry, not just the platforms.’