‘Why Hargreaves’ u-turn on charges is simply a gimmick’
The UK’s biggest fund shop, Hargreaves Lansdown, unexpectedly backtracked today on charging an additional fee for investors who buy investment trusts rather than open-ended funds.
After announcing last month that it intended to charge investment trust holders a separate 0.45% fee on top of the charge for holding other shares, Hargreaves Lansdown did an about-turn following backlash from customers.
However, while the investment platform’s announcement has been broadly welcomed, it may not benefit as many people as the fund supermarket claims, according to one adviser.
Customers buying investment trust or shares via Hargreaves Lansdown’s Vantage platform will be charged a single annual fee of 0.45%, which will be capped at £45 for ISA customers and £200 for SIPP customers, but charges for holding investment funds will not be capped.
Scott Gallacher, a chartered financial planner at Leicester-based IFA firm, Rowley Turton, says while in theory investors could switch from holding investment funds to investment trusts to noticeably reduce their platform charges he doubts many will.
In fact, as fund purchases will mean bigger profits for Hargreaves, Gallacher thinks the platform will be incentivised to continue to push funds over investment trusts.
“I would argue that if all, or even a significant number, of Hargreaves’ clients were to replace their investment fund holdings with investment trusts on 1 March, then Hargreaves’ business would no longer be viable and they would be forced to remove the charge cap entirely,” he says.
“I think this is simply a gimmick by Hargreaves Lansdown, which is now facing challenging times with one of the more expensive platforms.”
Other points of contention are that Hargreaves has failed to tackle its high exit fees and its discount model which is based on assets held per account rather than overall assets held, something the platform has been criticised over in the past.
Hargreaves Lansdown says the feedback it has received from clients about today’s announcement has been “exceptionally good” but it has “no plans to make other changes to our new pricing”.