Price war looms for DIY investing rivals

Hargreaves Lansdown has such clout in the direct-to-consumer market that when it finally released its charging structure as part of the RDR requirements, the results come under close scrutiny.

Two weeks ago, the company revealed its charging structure for investors buying into its funds, breaking down the charges for its platform, and the average AMC. This was followed 22 January by Fidelity, which announced its own range of charges, which were slightly lower.

Hargreaves announced that its charge for using its platform would be 0.45 per cent for those with less than £250,000, and an average AMC of 65 basis points on their preferred funds.

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Independent experts claim this was a respectable price. Mark Polson, principal of consultancy the lang cat, said: “Hargreaves Lansdown hasn’t started a price war, they are standing on the side and shouting a bit. They are offering 45 basis points when you can easily achieve 25 in the market.

“I don’t think their price is outrageous but they’re not close to the leaders.”

Fidelity, which controls 7 per cent of the market, announced its fee would be 0.35 per cent for investments up to £250,000 for its direct-to-consumer platform and an average AMC of 0.64 per cent on its Select List of 140 funds.

Hargreaves and Fidelity are two of the most high profile direct-to-consumer platforms making their charges clear as part of the requirements of the RDR.

The adviser platforms had to publish their charges in April last year, due to the changes that advisers had to make; the FCA decided it was only fair that the direct-to-consumer platforms had to do so as well.

The issue has to do with rebates. The FCA, as part of the RDR, decided that charges should be unbundled because it was unclear what money was going where and how the money was feeding back to the client.

So, for example, a conventional fund charging 150 basis points in total to the investor, pre-RDR, would pay 50 bps to the adviser, 25 bps to the platform and the balance would go to the fund manager. But if the platform was selling a lot of that fund then it would receive more basis points from the fund manager, perhaps 35 or 40 bps, and some of that would go back to the client.

The problem was that this was completely opaque and down to the discretion of the platform, hence the need to unbundle charges for the investor. What this has meant is that now, platforms are transparent on price, and to compete for business they are now negotiating tougher deals with fund managers to get cheaper “clean” share classes on the expectation of scale of business coming from clients.

Mr Polson said this was particularly relevant to Hargreaves Lansdown, as it acts as both “adviser” and platform to its clients.

It filters out many of the thousands of funds available making it easier for investors who are not receiving advice to decide which funds to go for. It has devised its ‘Wealth 150’ list of favoured funds, which receive a better price.