Hard Lucks and Let down

Are you a customer of Hargreaves Lansdown? Happy with their customer service and glad that they save you big on Funds & Trusts? But now angry that you didn’t money out of Golden Boy Woodford?

Read on…

Hargreaves Lansdown is having a hard time of late because they were previously big cheerleaders for Mr. Woodford and his fall from grace has tarnished their reputation.

HL graph
Hargeaves Lansdown shareprice – 20% off recent peaks

For clarity, I’ve for years used and I have money invested through Hargreaves Lansdown; overall I have found them to be very good to use. However, I’ve also given them hundreds if not thousands of pounds in (excess?) fees over the years. I’ve tried to keep it to a minimum and I have moved my SIPP from them in 2017 to AJBell YouInvest (saving of £80 a year). I moved my ISA to (£20 a year) but I still have a Fund and Share account as there is no fee on holding in that account. In fact, I planned to use that as my non-ISA/SIPP share account until I discovered a better way.

Hargreaves Lansdown have their fans but they’ve gone from being low cost/fee 20 years ago to now being a bit expensive. The trade-off is the excellent customer service.

How fees erode your wealth

Very simply, if you pay 2% in fees, after 50 years someone else has all your money.

Fees come in all shapes and sizes.

  • Monthly/Quarterly/Annual account charges
  • Account set-up fees,
  • If you want to move; transfer fees, or account closure feeds.
  • Stamp duty
  • Share Dealing fees
  • Fund fees
  • Ongoing management fees
  • SIPP drawdown fees

These fees and charges end up costing you. Buying £1000 of a share with Hargeaves Lansdown a month will cost you £11.95. That’s 1.2% + 0.5% stamp duty. Hold that in your ISA and there’s another 0.45% a year charge. That’s over 2% in a year without even considering the many ways companies like HL retain customers by making it difficult to move.

Paying an extra even 0.5% in fees can easily rack up over time. On a £100,000 investment it’s £500. Compounded over 20 years that could add up an extra £30,000 in fees. Try this tool to see how much fees are eating of your assets.

Cutting your investment fees is probably the easiest way to start investing better.

The Next Generation

Hargreaves Lansdown were a breath of fresh air to the investment industry 20-30 years ago and for many average people, it was a vast improvement on what was on offer elsewhere. Particularly if you wanted to set-up a SIPP or ISA, HL were a good choice. Low cost, high choice, great customer service. They were able to demonstrate how you could DIY and save money with them – remember that many funds were charging 5% to buy them and 1%+ a year to run. HL cut out those commissions and saved you money!

The trend in investing has been for the cost to consumers to reduce over time. Low cost trackers like ETFs have put pressure on the industry and OCFs have dropped with the competition. The graph below gives you an idea – charges are coming down but Active Funds are still more expensive.

The gap between 0.11% and 0.84% in a low interest rate/growth world is a lot. 0.73% is over a thousand pounds for a £150,000 portfolio. It’s money that is yours and it’s being paid out in fees for people who don’t do a better job than the market at large.

Image result for average fund charges graph

However, there are new companies coming which aim to do the same as HL do with their “Wealth Builder Funds” or whatever the call them but do it cheaper. HL has great profit margins and makes a lot of money per client – no wonder others wanted to get some of that money. Also, the loyalty of many investors in their platform has meant that once you have people onboard they tend to stay.  They also send all sorts of rubbish in the post to you – full or things with articles like “with tech stocks looking hot, where’s best to invest your nestegg”. It’s all very nice but does not constitute advice (as it says) of any sort and it’s really just an advertising piece for their partners’ funds. But it gives reader the illusion of informed choice.

On new platforms, I have benefited from these new guys. People like Nutmeg were giving away nice bonsues if you joined. I did, paid in, waited to fulfill the requirements and then withdrew my investment. I’m now using Trading212 which allows me to trade virtually for free in large or small sums (I bought £80 of an ETF just the other day for a spread of just 8p – that sure beats almost anything else you can find.

Why people can’t trust Hargreaves Lansdown or any broker

I think that it comes down to this: financial success is due to personal savvy and financial failure is someone else’s fault.

My main point is that there are a number of reasons to like HL and other brokers and there are a number of reasons to not like them – but them championing the wrong horse in the case of Woodford is not a good enough reason to hate them. When Woodford was doing well and people were throwing them their money and holders could smugly say that he was making them all rich, they loved him. When he flew too close to the sun, they now hate him.

You can’t harte HL too much for what’s gone on with Woodford. True, they did a bit too much cheering and advertisement but it’s not like they were making lots of money out of it and it’s what they users wanted. They wanted to feel like they were choosing a safe pair of hands that would make them rich.

I know a friend who invested in WPCT and thought that it was investing in medical/pharma stocks because it was called “patient” and Woodford knew a lot about these stocks and it would maybe double in 5 years. More recently he’s been anything but patient and sold everything for a big loss.

It appears that stockpicking is very difficult to do well – and putting your trust in a messiah is beginning to look foolish. Individual shares is hard enough but if you can’t even trust your fund manager or your broker? The truth that we have very little control is discomforting and it’s this revelation that is hurting middle-England. After Woodford I’m not sure of what else there is to believe in.

The scary answer is that there might not be any way for us to escape the manic-depressive highs and lows of the markets. Paying a reassuring name or friendly face to give us a feeling of trust will not change that. If it makes you feel better, then fine – but it’s an illusion that you pay for.

Thanks, GFF.

Advertisements

5 thoughts on “Hard Lucks and Let down

  1. I agree HL can be very expensive – additionally, I found their service wasn’t even that good. Nowhere near good enough to justify the fees. And their recommendations are very influenced by kick backs, which is all coming out with the Woodford situation now.

    However we all need to use a broker, so it’s much a case of picking the lesser evil I feel!

    Like

  2. The fee on purchasing £1000 of shares a month could be reduced to £1.50 if you used HL’s regular investment facility, which is how I’ve kept my fees as low as possible.

    I’ll continue to keep my HL accounts for now, happy with them as I have investments with other platforms where it’s cheaper, so I’ve diluted my costs rather than minimize them (mixing and matching as it were.)

    I’ve also spread the risk so not all my investments are with the same platform/provider. As I edge towards the FSCS max £85k cover, I will look for another provider to open up with.

    I’ve chucked a few quid to hoover up some cheap WPCT but I’m not sure it’s quite bottomed out yet… Also, chucked a few at HL – I don’t hate them!

    Like

    1. that’s true – I was considering just automating our investments on a monthly basis – and pay that £1.50 in one account at a time – because £1.50 per month per ISA, SIPP, trading account for two people = over £100 a year.

      Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s