Jump to content
House Price Crash Forum
wish I could afford one

Hargreaves Lansdown

Recommended Posts

H-L today announced their 2010 preliminary results for the year ended 30 June 2010. I've captured my full thoughts on my blog http://retirementinvestingtoday.blogspot.com/2010/09/low-fee-mantra-look-at-results-of.html but a few points that I found quite amazing.

- They have £17.5 billion of assets under management from which they generated revenues of £159 million. This is a bit approximate but extrapolating this to an average customer means that H-L are taking 0.91% of the average punters assets every year. Of course this is more than trading fees and management charges on the assets. They also offer services like for example financial advice which you can pay for but not necessarily have assets under management. However IMO only one person ends up paying for this, the customer, no matter where they end up investing so I am probably not to far wrong as an average. This is not all. If you buy ETF's or other funds then you also have to pay the providers of those products fees as well. Given the damage fees can do over the long term when combined with compound interest it appears as though the average punter is doing himself some damage.

- On that £159 million of revenues they generated an adjusted operating profit margin of 56.5%. I find that quite staggering.

Have I missed something?

Share this post


Link to post
Share on other sites

Have I missed something?

Yes, the distinction between a business and a charity.

Of course charges reduce growth or even amplify losses depending on results, but they are clear and explained up front and "the average punter" takes his or her choice. Investing can't ever be free. Hargreaves Lansdown offer a pretty good service all in all, it's not unreasonable that they should make money doing so.

Share this post


Link to post
Share on other sites

I have to agree with the VOR.

I used to be an IFA and have worked for a number of firms with different charging models/platforms.

I moved all my parents pensions and ISAs to HL as they are hard (impossible?) to beat if you want a good fund choice and low fees.

But the 56% margin really is some no?

Share this post


Link to post
Share on other sites

Yes, the distinction between a business and a charity.

Of course charges reduce growth or even amplify losses depending on results, but they are clear and explained up front and "the average punter" takes his or her choice. Investing can't ever be free. Hargreaves Lansdown offer a pretty good service all in all, it's not unreasonable that they should make money doing so.

Hi VoR

You say the distinction between a business and a charity. Of course businesses need to make a profit but what business, outside of financial services, makes profits of 56.5%? I don't know any.

Agree investing can't ever be free but I think it can be lot lower cost than what we here in the UK suffer. One only has to look at Vanguard in the US who seem to do low cost with style. An S&P500 tracker with an expense ratio of 0.18% to name but one.

Share this post


Link to post
Share on other sites

I have to agree with the VOR.

I used to be an IFA and have worked for a number of firms with different charging models/platforms.

I moved all my parents pensions and ISAs to HL as they are hard (impossible?) to beat if you want a good fund choice and low fees.

But the 56% margin really is some no?

I don't deny they provide a good service. I also hear some pretty good things about them from places like the Motley Fool. It's more the margin that suprised me along with the percentage that they make for every pound invested. They are big numbers.

Share this post


Link to post
Share on other sites

OK, firstly an apology for the slightly 'short' initial response. It was based on your post, but now I've read your blog and have a different perspective on your point.

I know a bit about investing for retirement and I agree with many of your points about asset allocation, tactical positions and keeping fees low. I think your approach seems a strong one, but I also think it's far out of reach of most people intending to invest for their retirement. Most people don't have the knowledge or the time or even interest to understand and invest in the way you say, and they turn to Hargreaves Lansdown and to Insurers and others to help them.

With that in mind, the HL approach might be more expensive but when you're getting someone else to manage your money that has a cost involved. I actually think what's far more of a problem with the HL approach to retirement investing is the lack of guidance as to what might be suitable for the individual. HL offer a massive range of funds and shares and, as far as I know, relatively little support on what to choose*. For most people this is likely to be far more dangerous and result in a far worse outcome than an extra 0.5% per annum management charge. Many have banged the SIPP (Self Invested Personal Pension) drum for a while now but forget that the 'self invested' bit is a big responsibility that most are ill equipped to handle when saving for retirement.

Agree that the margin seems very high, economies of scale must play a big part in that as they are the major market player as far as I know.

*unless you pay for it, which is an extra cost and probably a considerable one.

Share this post


Link to post
Share on other sites

OK, firstly an apology for the slightly 'short' initial response. It was based on your post, but now I've read your blog and have a different perspective on your point.

I know a bit about investing for retirement and I agree with many of your points about asset allocation, tactical positions and keeping fees low. I think your approach seems a strong one, but I also think it's far out of reach of most people intending to invest for their retirement. Most people don't have the knowledge or the time or even interest to understand and invest in the way you say, and they turn to Hargreaves Lansdown and to Insurers and others to help them.

With that in mind, the HL approach might be more expensive but when you're getting someone else to manage your money that has a cost involved. I actually think what's far more of a problem with the HL approach to retirement investing is the lack of guidance as to what might be suitable for the individual. HL offer a massive range of funds and shares and, as far as I know, relatively little support on what to choose*. For most people this is likely to be far more dangerous and result in a far worse outcome than an extra 0.5% per annum management charge. Many have banged the SIPP (Self Invested Personal Pension) drum for a while now but forget that the 'self invested' bit is a big responsibility that most are ill equipped to handle when saving for retirement.

Agree that the margin seems very high, economies of scale must play a big part in that as they are the major market player as far as I know.

*unless you pay for it, which is an extra cost and probably a considerable one.

Agree with you VoR.

I admit that investing for retirement is also a hobby for me. That's one reason why I blog about it. Probably a bit sad I know :)

Let's though have a look at the US as a comparison. I know nothing about investing and I want to retire in 2040. I can buy a Vanguard Target Retirement 2040 Fund for 0.2% annually. I have to do nothing else but pay into it and come back in 2040. It's easy for the punter and low cost.

I guess what its saying is:

- that there is very little real competition in the UK for H-L, and

- the general public don't know the damage that fees can do and so don't actively focus on them when investing

Share this post


Link to post
Share on other sites

Agree with you VoR.

I admit that investing for retirement is also a hobby for me. That's one reason why I blog about it. Probably a bit sad I know :)

Let's though have a look at the US as a comparison. I know nothing about investing and I want to retire in 2040. I can buy a Vanguard Target Retirement 2040 Fund for 0.2% annually. I have to do nothing else but pay into it and come back in 2040. It's easy for the punter and low cost.

I guess what its saying is:

- that there is very little real competition in the UK for H-L, and

- the general public don't know the damage that fees can do and so don't actively focus on them when investing

I only partly agree with that. Several insurance companies offer pension plans targetting a retirement year (in some cases even the specific retirement date of the member) with an investment approach managed to some degree or other for a cost far less than most HL funds. Charges of 0.5% per annum are quite possible, higher than the US example you cite, granted, but still fairly low.

The main problem with these sort of insurer offerings are that they can't be bought direct, in most cases an adviser must be involved. That means there's an advice cost or at the very least a transaction cost in addition to the product charge, which makes the exercise more expensive. The fault there lies with UK regulation really, despite media comment to the contrary UK companies are actually scared to do anything with consumers, far from actively ripping them off as some would suggest. Insurers will only market via advisers because it's safer for them for someone else to take the risk of complaint.

I also think a good management fee is worth paying. If a fund charges 2% per annum but outperforms the stock market by 5% per annum on average then you have a better outcome than a tracker charging 0.1% per annum and tracking the index perfectly. I think the general public are slow to move from poor funds and poor solutions though, but who's fault is that?

Share this post


Link to post
Share on other sites

I only partly agree with that. Several insurance companies offer pension plans targetting a retirement year (in some cases even the specific retirement date of the member) with an investment approach managed to some degree or other for a cost far less than most HL funds. Charges of 0.5% per annum are quite possible, higher than the US example you cite, granted, but still fairly low.

I'm aware of these types of funds in the UK but nothing like as low as 0.5%. Out of interest who is offering this type of product with these types of fees?

The main problem with these sort of insurer offerings are that they can't be bought direct, in most cases an adviser must be involved. That means there's an advice cost or at the very least a transaction cost in addition to the product charge, which makes the exercise more expensive. The fault there lies with UK regulation really, despite media comment to the contrary UK companies are actually scared to do anything with consumers, far from actively ripping them off as some would suggest. Insurers will only market via advisers because it's safer for them for someone else to take the risk of complaint.

That's I guess the problem. Too may fingers in the pie all skimming a bit and before you know it you are at 1.5% or worse.

I also think a good management fee is worth paying. If a fund charges 2% per annum but outperforms the stock market by 5% per annum on average then you have a better outcome than a tracker charging 0.1% per annum and tracking the index perfectly. I think the general public are slow to move from poor funds and poor solutions though, but who's fault is that?

I think this is one place where we are going to differ. I'm with Bogle here and don't buy in to the outperforming the stockmarket in the long term by active investment. People will always mention Bolton but was he skilful or just lucky? If he had run his fund for another year would he have out performed again? We'll never know. After all there always has to be someone at +3 standard deviations and someone at -3 standard deviations. IMO the problem is that you never know until after the fact.

Edited by wish I could afford one

Share this post


Link to post
Share on other sites

Agree with you VoR.

I admit that investing for retirement is also a hobby for me. That's one reason why I blog about it. Probably a bit sad I know :)

Let's though have a look at the US as a comparison. I know nothing about investing and I want to retire in 2040. I can buy a Vanguard Target Retirement 2040 Fund for 0.2% annually. I have to do nothing else but pay into it and come back in 2040. It's easy for the punter and low cost.

I guess what its saying is:

- that there is very little real competition in the UK for H-L, and

- the general public don't know the damage that fees can do and so don't actively focus on them when investing

I thought the HL sipp was free essentally if you buy the funds that they get renewal commision. So in effect you only pay the fund manager fee so how can you arrange a sipp with lower costs. I have an aegonplan and pay .75% for nothing and then have to buy their funds or pay higher fees for additional choice like Artemis etc. So HL looks very cheap in comparison Whatsthe profit margin of aegon then???

Share this post


Link to post
Share on other sites

Not much extra that I can add to the above. As a recent customer of HL, I am slightly surprised at the margin. Having visited their office, I can confirm that it is mega busy there on an average working day.

I think that they are very good (the best?) for funds to place in your ISA and SIPP. I have never used their advice service nor portfolio management so no comment. They are pretty much ideal for your budding fund investor.

I am really sceptical about funds with all their hidden costs but at least HL keep the upfront costs to a minimum. Their service for UK stock trading is pretty good too.

Edited by Cash with Nowhere to Go

Share this post


Link to post
Share on other sites

I thought the HL sipp was free essentally if you buy the funds that they get renewal commision. So in effect you only pay the fund manager fee so how can you arrange a sipp with lower costs. I have an aegonplan and pay .75% for nothing and then have to buy their funds or pay higher fees for additional choice like Artemis etc. So HL looks very cheap in comparison Whatsthe profit margin of aegon then???

Hi yekim1967

That's what I thought until I dived into the research. That only seems to hold for 'high cost' funds. If you're looking for low cost tracker fund products then H-L are adding an additional annual charge of 0.5% + VAT. Example here http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/f/fidelity-moneybuilder-uk-index-accumulation/

They also don't offer all funds. Vanguard for instance are missing.

If you go for low cost ETF's they are also charging you on top of the ETF charges.

I've run the numbers for myself here http://retirementinvestingtoday.blogspot.com/2010/08/lowest-cost-low-cost-sipp.html and I think Sippdeal and Alliance Trust are better options for me.

Of course always do your own research.

Edit: Links corrected

Edited by wish I could afford one

Share this post


Link to post
Share on other sites

Not much extra that I can add to the above. As a recent customer of HL, I am slightly surprised at the margin. Having visited their office, I can confirm that it is mega busy there on an average working day.

I think that they are very good (the best?) for funds to place in your ISA and SIPP. I have never used their advice service nor portfolio management so no comment. They are pretty much ideal for your budding fund investor.

I am really sceptical about funds with all their hidden costs but at least HL keep the upfront costs to a minimum. Their service for UK stock trading is pretty good too.

Hi CwNtG

Thanks for the anecdotal.

Interesting you say good for ISA's. Did you consider companies like TD Waterhouse?

Similarly Sipp's. How about Sippdeal or Alliance Trust?

I would be really interested in why you went with H-L at the expense of these other companies.

Share this post


Link to post
Share on other sites

Hi yekim1967

That's what I thought until I dived into the research. That only seems to hold for 'high cost' funds. If you're looking for low cost tracker fund products then H-L are adding an additional annual charge of 0.5% + VAT. Example here http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/f/fidelity-moneybuilder-uk-index-accumulation/

They also don't offer all funds. Vanguard for instance are missing.

If you go for low cost ETF's they are also charging you on top of the ETF charges.

I've run the numbers for myself here http://www.h-l.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/f/fidelity-moneybuilder-uk-index-accumulation/ and I think Sippdeal and Alliance Trust are better options for me.

Of course always do your own research.

Thanks for the advice on the ETF funds. But excluding the funds that dont charge that .5% management fee, I think these fund prices are the same across all SIPP providers as these are the charges by the fund managers not the SIPP provider, is that correct? So you cannot find a better deal for the same fund, or can you? I am looking to move my pensions away from Aegon, because I feel the fees are not worth it, I pay .75% for nothing (management fee/IFA fee), and a fund fee as well for a poor list of funds, so I end up paying 1.5% anyway, and if I want a Schroder funds or something like that, its more like 2+%. So for the same fees or less, I could have better choice and invest in a SIPP. I will investigate SIPP deal.

Cheers,

Share this post


Link to post
Share on other sites

Thanks for the advice on the ETF funds. But excluding the funds that dont charge that .5% management fee, I think these fund prices are the same across all SIPP providers as these are the charges by the fund managers not the SIPP provider, is that correct? So you cannot find a better deal for the same fund, or can you? I am looking to move my pensions away from Aegon, because I feel the fees are not worth it, I pay .75% for nothing (management fee/IFA fee), and a fund fee as well for a poor list of funds, so I end up paying 1.5% anyway, and if I want a Schroder funds or something like that, its more like 2+%. So for the same fees or less, I could have better choice and invest in a SIPP. I will investigate SIPP deal.

Cheers,

Please don't consider anything I say as advice. I'm not a financial planner or equivalent. What I've said probably has the value of what you paid for it. Nothing. :) I'm just an average guy who has made mistakes in the past and I'm sure (unfortunately) will make mistakes in the future.

Personally I'm not after the type of funds you describe. I'm after index tracking low cost funds and low cost ETF's only. This is why H-L fell out of the running quickly for me. If you go on to each of the sites though it's pretty easy to find the fund lists which show how much the TER is plus how much they are rebating (if anything) or adding.

Share this post


Link to post
Share on other sites

Hi CwNtG

Thanks for the anecdotal.

Interesting you say good for ISA's. Did you consider companies like TD Waterhouse?

Similarly Sipp's. How about Sippdeal or Alliance Trust?

I would be really interested in why you went with H-L at the expense of these other companies.

Hullo, by ISAs I meant the range of funds available and the discounts available on these funds are really quite good with HL. Sure, there are other competitors but I would not mind recommending HL to a budding fund investor. There is much to choose from.

I am not a fan of SIPPS, preferring ISAs or no wrapper at all. In fact, the overall cost for dealing often in individual shares within an ISA or SIPP are pretty high, so HL would not be good for that. It's good for people who wish to buy into a few funds within an ISA (or maybe SIPP I don't know) and leave them there. The choice is good, upfront costs are low and advice is available should you require it.

I have a few ETFs within an ISA with HL and have no problem with their charges. 1% is nothing when you're trying to combat double-figure inflation, is it?

As a small but potentially big issue, HL have a reputation for being reliable during online / telephone share dealing. Important for the day-to-day share account. The others, such as iii, Barclays, Tdw et al have all had rather big hiccups over the last year or two. That being said, HL do not allow online foreign share deals and that is starting to annoy me; I may well move the day-to-day account elsewhere.

Overall, I started with HL and am pleased with the service I received and its cost. As things expand and I learn how to diversify, HL is starting to feel a bit restrictive and I may move part of my stuff over to someone else. I would recommend HL to vast majority of my friends (who generally cannot even understand bond yields) as a starting point.

Edit to add: Oh yes, and all of this advice is worth what you paid for it, IMHO, DYOR, etc etc :rolleyes:

p.p.s. I am now going to look at their accounts, this may be one share to buy!

p.p.p.s. I am also annoyed that about the lack of limit orders. I don't use stop losses but others may also be annoyed at the lack thereof. Hmmm maybe I will move after all.

Edited by Cash with Nowhere to Go

Share this post


Link to post
Share on other sites

Regarding insurance companies with low cost investment options targetting a specific retirement date/age:

Scottish Life

Scottish Widows

Standard Life

probably others

WICAO, you may not like their solutions though because they operate the investment management and oversight themselves within that cost base. I get the impression you'd prefer to do it yourself.

To yekim1967, a note of caution when moving from Aegon to a SIPP. Bear in mind the responsibility of 'self investment' that I mentioned earlier. A wide range of funds might be a good thing but can you choose and actively monitor and review your choices from now until retirement? Is doing so a good use of your time? The answer to both questions might easily be 'yes' in which case a SIPP might be for you, but some will answer 'no' to one or both of the above.

Share this post


Link to post
Share on other sites

...

I am not a fan of SIPPS, preferring ISAs or no wrapper at all. In fact, the overall cost for dealing often in individual shares within an ISA or SIPP are pretty high, so HL would not be good for that. It's good for people who wish to buy into a few funds within an ISA (or maybe SIPP I don't know) and leave them there. The choice is good, upfront costs are low and advice is available should you require it.

...

I'm definitely a fan of pensions with 35% of my net worth tied up in them. This is mainly because of the deal my employer gives me where they match my contributions plus as I salary sacrifice they also give me the employers NI that they would have paid if I didn't. This combined with me being a 40% tax payer today and worst case a 20% tax payer in retirement or best case living elsewhere having transferred my pension via a QROPS. These positives more than make up for the "high" fees of the pension.

I ran some detailed analysis here http://retirementinvestingtoday.blogspot.com/2010/03/are-pensions-good-retirement-planning_07.html a little while ago. I'm similar to the Average Joe in the example (except for the contribution numbers which were just an example, I contribute a lot more than that to secure my early retirement) and it compares with a S&S ISA. A no brainer for me however I also ran an analysis for a ficticious Average Bob just to show that in some instances it looks like some people could actually potentially be better off with ISA's over pensions (before you even discuss the negatives like limited access, annuities, USP, ASP etc). You really have to crunch the numbers to know.

Of course I don't put all my eggs in the pensions basket as governments have a habit of tinkering so you never know what tomorrow will look like. Also if my strategy holds I will retire in about 6 years in my early 40's when I can't get access to my pension so need some assets outside of the pension wrapper.

Share this post


Link to post
Share on other sites

Regarding insurance companies with low cost investment options targetting a specific retirement date/age:

Scottish Life

Scottish Widows

Standard Life

probably others

WICAO, you may not like their solutions though because they operate the investment management and oversight themselves within that cost base. I get the impression you'd prefer to do it yourself.

...

Thanks for the details VoR. You're right I probably will DIY but I'll still have a look as I want to be sure I always make a well informed decision in everything I do.

Share this post


Link to post
Share on other sites

Regarding insurance companies with low cost investment options targetting a specific retirement date/age:

Scottish Life

Scottish Widows

Standard Life

probably others

WICAO, you may not like their solutions though because they operate the investment management and oversight themselves within that cost base. I get the impression you'd prefer to do it yourself.

To yekim1967, a note of caution when moving from Aegon to a SIPP. Bear in mind the responsibility of 'self investment' that I mentioned earlier. A wide range of funds might be a good thing but can you choose and actively monitor and review your choices from now until retirement? Is doing so a good use of your time? The answer to both questions might easily be 'yes' in which case a SIPP might be for you, but some will answer 'no' to one or both of the above.

Voice, Buying the exact same funds between Aegon and HL, Aegon is more expensive (in most cases between .2 and .5% more and even higher on some), although with Aegon the extra cost comes with "free" advice. I won't be too active in investing via the SIPP, I am just using it for lower cost really as Aegon was too expensive for doing the exact same thing. So I will pay less with HL, plus have the added benefit of better service and more choice. Aegon advice was not very good anyway, and with HL, I can choose some good fund managers. I am not comfortable going with the basic Aegon funds which charge .75%

Share this post


Link to post
Share on other sites

It sounds like you have done your research and fair play to you.

SIPPs do not sit with my general strategy in life. My aim is similar to yours (retire early). However, there are several reasons why I do not go with SIPPS, I will list some generic ones rather than those pertaining to me:

1) We live in interesting times, perhaps very interesting.

2) There is no guarantee what is going to happen in the next 10 years, much less 30-40, or even 50 years.

3) Even if UK plc still exists by then, what is to stop any government changing the rules by the time you try to withdraw your SIPP? Let your imagination run a little on this one.

I aim to stay relatively agile within the system, so locking any money away for decades is anathema, despite the generous tax breaks. I did not run much of a detailed analysis, the opportunity cost and exposure to the future are enough negatives for me.

I wish you best of luck whatever you choose to do.

Edited by Cash with Nowhere to Go

Share this post


Link to post
Share on other sites

It sounds like you have done your research and fair play to you.

SIPPs do not sit with my general strategy in life. My aim is similar to yours (retire early). However, there are several reasons why I do not go with SIPPS, I will list some generic ones rather than those pertaining to me:

1) We live in interesting times, perhaps very interesting.

2) There is no guarantee what is going to happen in the next 10 years, much less 30-40, or even 50 years.

3) Even if UK plc still exists by then, what is to stop any government changing the rules by the time you try to withdraw your SIPP? Let your imagination run a little on this one.

I aim to stay relatively agile within the system, so locking any money away for decades is anathema, despite the generous tax breaks. I did not run much of a detailed analysis, the opportunity cost and exposure to the future are enough negatives for me.

I wish you best of luck whatever you choose to do.

Cash in regards to 3) I definitely agree with you, and that does worry me, although, the 67% tax uplift I get on higher tax relief, and the possibility of transferring the pension overseas on retirement kind of offsets my worries. If I knew where I could get an easy 10% return I would opt out of the pension, but 10% is hard these days, and the gov't tax incentive on higher rate tax relief for pensions is too good of a deal that cannot be passed up, especially in this environment.

Cheers,

Share this post


Link to post
Share on other sites

...

1) We live in interesting times, perhaps very interesting.

2) There is no guarantee what is going to happen in the next 10 years, much less 30-40, or even 50 years.

3) Even if UK plc still exists by then, what is to stop any government changing the rules by the time you try to withdraw your SIPP? Let your imagination run a little on this one.

I aim to stay relatively agile within the system, so locking any money away for decades is anathema, despite the generous tax breaks. I did not run much of a detailed analysis, the opportunity cost and exposure to the future are enough negatives for me.

I wish you best of luck whatever you choose to do.

I agree with those points. They plus many others were certainly a consideration but the upside was just so large. No thanks to the government or pension companies, it was simply my generous employer. For me I decided to take the risk.

With a fair wind everything needs to hold together for about 6 years and then I will QROPS the pension to a sunnier climate. Even if I end up still in the UK then I think it was still worth the risk.

I am hedging though by only targeting about 1/3 of my assets in a pension, as I mentioned above, even though the upside is so large for me personally.

I also wish you much success moving forward.

Share this post


Link to post
Share on other sites

From the results:

"On 15 February 2010, we successfully moved into our new offices, One College Square, Bristol; the culmination of many months of hard work by a number of our staff. The new working environment is of a high quality, befitting of one of the larger employers in the city."

I walked by it the other day, not realising that they had moved offices. I saw their logo on top of this large building - blimey they really have moved up in the world. Not quite the size of say, KPMG, but the office does reflect the growing success of the business.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

  • Recently Browsing   0 members

    No registered users viewing this page.

  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



×
×
  • Create New...

Important Information

We have placed cookies on your device to help make this website better. You can adjust your cookie settings, otherwise we'll assume you're okay to continue.