Bristol giant’s cost smashing will bring pressure to bear

The firm itself has seen intense scrutiny as journalists, several specialist wrap and platform consultants and a host of rival firms pored over its unbundled offering. But the most important question for investment advisers is: what does it mean for them and the market they operate in?

For advisers, Hargreaves Lansdown has always been if not quite the elephant in the room, then the elephant in the room next door.

But perhaps it is banging its trunk against the wall. The HL repricing is one clear example where the RDR reform – or at least a subsequent related chapter – has brought down the cost of investing.

For advisers, Hargreaves Lansdown has always been if not quite the elephant in the room, then the elephant in the room next door.

Admittedly we don’t quite know all the funds but broadly, clients will pay platform fees of 0.44 per cent and annual management charges on funds on the Wealth 150 of around 0.65 per cent (and on the even cheaper Wealth 150+ of around 0.54 per cent). The price has come down.

There have been some complaints about charges levied to hold investment trusts, which are now charged separately from a charge for holding shares, and indeed a few brickbats have been thrown about charges to transfer accounts. What we won’t know for a while is how much of a determinant the cost will be between the wider wealth funds and the wealth plus range. Will the cheaper funds see bigger fund flows?

Yet it will surely be clear in the public’s mind that the direction of travel in terms of investing is that it has become cheaper for an execution-only investor.

That could prompt some questions about costs from clients of investment advisers, and indeed from the regulator about the costs of fund management as it is accessed by advisers too.

All eyes will be on the advised wraps and platforms and, of course, those with both adviser and direct divisions, to see if they have been able to achieve similar competitive charges. We also know that some other fund buying businesses are concerned that they may not get these rates.

There won’t necessarily be straight comparisons with the Bristol giant. The waters are muddied not just by that fact that advisers are, of course, providing advice, but also by the choice and type of investment, whether the adviser is restricted or independent and the various solutions on offer. Many planners offer a mostly passive solution and will be more than sure of their case when it comes to the price of fund management.

Clients will be able to compare costs where advisers are recommending well-known active fund managers. So although it is not quite a benchmark, it probably is fair to suggest that too steep a gradient between one and the other may eventually be unsustainable.

One message most investment advisers will want to get across is that they can obtain value across the various services, products and expertise they offer as result of their advice.

A strategy for keeping the cost of execution down sits easily with the concept of the adviser as agent of the client, too. That will give most advisers who are sure of the value they are adding with their advice a strong argument. But HL’s move to cut costs by a significant, if not spectacular, amount will surely bring some pressure to bear elsewhere.

John Lappin blogs on industry issues at www.themoneydebate.co.uk