Investments  

Hargreaves defends post-rebate ban pricing criticism

Hargreaves Lansdown has responded to a storm of criticism unleashed following the announcement of its tiered pricing structure and preferential rates.

Yesterday (15 January), the discount brokerage and execution-only platform operator revealed a new pricing plan by which clients would pay different amounts depending on the size of their portfolio.

At the same time, HL boasted that as the result of negotiations with fund groups, the 90 funds on the Wealth 150 list would be available at an average annual management charge of 0.65 per cent, compared to an average of 0.76 per cent if an investor bought the standard clean fee share class.

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However, some commentators criticised HL for not being transparent enough with their new prices. Others claimed customers may still not know how much they are paying for extras such as the print Investment Times magazine.

Danny Cox, head of financial planning at Hargreaves Lansdown, responded: “We will reveal the full results of our negotiations on 1 March and we will be able to tell you which equity fund we have secured at 0.30 per cent and which corporate bond fund at 0.15 per cent.

“Fund managers’ costs need to be squeezed and we are doing the squeezing.”

“There have been some incorrect reports that we have brought in many new charges. Note that in the brochure we sent to clients, in the interests of transparency we listed all our Vantage charges, existing and new.

“The brochure... makes clear which are new charges, and that is the small minority.”

David Tiller, head of adviser platforms for Standard Life, asked if existing clients would enjoy any benefits of the new pricing system and asked if they would be automatically switched.

He said: “By offering a dual pricing system for existing and new customers some platforms appear to be prioritising commercial interests over client outcomes.

“Rather than asking both new and existing clients to share the load evenly, some platforms appear to be protecting revenues by leaving existing clients in bundled funds. Client inertia over the next two years can maximise revenues for as long as possible, leaving clients accessing the same funds at a higher price.

“It would appear to be an inherent conflict of interest for any platform keeping rebate revenue on legacy business where a better alternative exists. Clients will benefit from converting, but leaving them in bundled share classes protects revenue.

“If, as the FCA have explicitly stated, a conversion should not go ahead if it is detrimental to the client, then surely failing to convert clients that will benefit is just as undesirable? I’m not sure whether this is really treating existing customers fairly. It certainly is not treating them consistently.”

Mr Cox replied: “There is a difference between a switch and a conversion and this terminology is important.

“As a self-directed service we cannot arbitrarily change client’s investments. We are giving our clients the choice. If they do nothing their existing inclusive funds will have a significantly increased loyalty bonus to 0.75% or more from 1st March. Or they can convert to the new unbundled units. There is no charge to conversion or tax to worry about.