- Business and Employment
Hargreaves Lansdown Discount Stock Broker and Fund Supermarket
Hargreaves Lansdown: Discount Fund Supermarket
In my search for a good low-cost UK stockbroker I have discovered several, each with their own strengths and weaknesses. Hargreaves Lansdown is one of the best for fund investing (unit trusts, OEICs or Mutual Funds) whereas Interactive Investor and Selftrade are more geared towards active investors or those who favour exchange traded funds (ETFs) or Investment Trusts. All of these brokers provide low-cost ISAs and personal pensions/SIPPs
Perhaps the biggest drain on investment returns, when buying managed funds, is the fees charged by the financial services industry: over-generous investment management fees, trading fees and advertising costs initial sales commission and annual commissions paid to the original adviser who sold you the product. By investing with Hargreaves Lansdown you can at least reduce or eliminate the last two charges (Hargreaves Lansdown return all or most of the initial sales commission at time of purchase and most of the annual commission in the form of a loyalty bonus (in an ISA, but not in a SIPP)
Hargreaves Lansdown have reduced the charges on their ISA, SIPP and share dealing accounts (as from August 2011) making them even more competitive. The annual charge on shares, ETFs, gilts, bonds etc. has been capped at ÃÂ£45 for the ISA (still ÃÂ£200 for SIPPs) and online dealing costs range from ÃÂ£5.95 to ÃÂ£11.95 depending on dealing frequency. Although as from 31st December 2011 they will be imposing a "platform fee" of ÃÂ£1 or ÃÂ£2 per month, on funds that don't pay them a trail commission, replacing the existing 0.5% fee for some and 0% fee for low cost trackers (such as HSBC trackers which were previously held for free). This caused a lot of anger, although two weeks after that they launched their own competing tracker fund that has an annual management charge of just 0.07% (or 0.11% total expense ratio, TER)
Announced January 2014: The charging structure changes again to conform with new RDR rules: Fund management fees will drop significantly for new purchases of Unit Trusts and OEICs, but with a new 0.45% fee on top which will also be imposed on Investment Trusts and Shares held in the ISA and SIPP accounts. Existing holdings will continue with high fees, but with an increase loyalty bonus to compensate. The Â£1 or Â£2 per month platform fee for inexpensive trackers will be dropped. Superficially this should result in lower overall fees for most people who invest in managed funds, unless they have large holdings of low cost tracker funds (i.e. those for whom 0.45% a year is more than Â£2 per month) Investment Trusts or individual shares
Disclaimer: Information in this and other linked articles is unregulated and for general information only and is not intended to be relied upon in making specific investment decisions. Appropriate independent advice should be obtained before making any such decision.
Fund Supermarkets and Discount Brokers
Hargreaves Lansdown: Discount Fund Broker
There are many discount brokers now available to investors in the UK, but still a lot of people invest via an advisor who will get payed up to about 6% commission from you initial investment (and each time he advises you to switch funds) then a continuous 0.5% commission until you sell again (it may not sound like that much, but this is a huge drain on your finances. Please see the examples in my article here...) Some brokers suit active investors better than others, some have a huge range of funds or give advice, but the most important thing for most investors is getting the best price.
After much research I have think Hargreaves Lansdown gives the best combination of range of funds available, broking services and most importantly the discounts and loyalty bonuses that return the majority of the commission to the investor when buying unit trusts and OEICs. It is important to point out however, that if you want to trade individual shares or other types of managed fund, such as Exchange Traded Funds (ETFs) or Investment Trusts you may get a better deal elsewhere (e.g. SelfTrade or Interactive Investor) Hargreaves Lansdown have however recently reduced the charges on their ISA, SIPP and share dealing accounts (as from August 2011) making them even more competitive. The annual charge on shares, ETFs, gilts, bonds etc. has been capped at Â£45 for the ISA (still Â£200 for SIPPs) and online dealing costs range from Â£5.95 to Â£11.95 depending on dealing frequency, so if you want to hold funds and shares etc. all in the same account Hargreaves Lansdown is probably the best option.
A typical unit trusts or Open Ended Investment (OEIC) will charge an outrageous 5% initial fee that mostly goes to the "advisor" who sells the investment (e.g. Â£10,000 investment who get him Â£500 for an hours "work") This makes his advise virtually worthless because he will always advise products with high commission. He will also get perhaps 0.5% "trail commission" (or Â£50) a year forever or until you sell or he will advise you to switch after a year (and get another Â£500 on top of that: Â£550 a year for an hours work - not bad and what if it was Â£100,000 or even Â£1 million?) The trail commission comes out of the fund management fee which. The managament fee may still be over 1.5% which is the main downside of investing in this type of managed funds, but the only way to avoid that would be to invest in other, cheaper types of managed fund.
Hargreaves Lansdown will refund all of the initial fee and most of the annual "trail" or "renewal" commission (in the form or a cash loyalty bonus) and won't charge for the switching of fund for a large range of funds if you buy through their Vantage ISA or Fund account (but if you invest in a SIPP you will not get the loyalty bonus) Be careful about which funds you buy though, because not only will Hargreaves Lansdown only pay a loyalty bonus on funds that pay a "trail" or "renewal" commission, but if the fund doesn't pay this commission they will hit you with an additional fairly large 0.5% charge (this charge also applies to equities, Exchange Traded Funds (ETFs) and Investment Trusts) but this is now capped (as from August 2011) at Â£45 per year or Â£200 for the SIPP. I have low cost index tracker unit trusts from HSBC as part of my ISA holding and I had to phone Hargreaves Lansdown to confirm that these would not incur an extra charge, they don't but there is no loyalty bonus because they pay such a small commission. Unfortunately as from the end of 2011 they will charge me Â£2 per month per tracker fund.
UPDATE: As from 31st December 2011 Hargreaves Lansdown will be imposing a "platform fee" of Â£1 or Â£2 per month, on funds that don't pay them a trail commission, replacing the existing 0.5% fee for some and 0% fee for low cost index tracker unit trusts (such as HSBC trackers which were previously held for free). In addition to this, if you have multiple holding of these low-cost trackers e.g. in two ISA accounts (old PEP accounts by default became ISA accounts, but weren't merged with any new ISA investments) you have to pay for each holding! I shall be moving my low-cost trackers to another broker.
Other Inexpensive Brokers
SelfTrade and Interactive Investor
And other inexpensive stock-brokers
If you want to be more active with your investments or want to invest in shares directly or with inexpensive funds (i.e. passive trackers or funds with far lower fees) other brokers may provide a cheaper alternative service to Hargreaves Lansdown e.g. SelfTrade or Interactive Investor who will charge a fee per trade, although this may be as low as Â£1.50 for regular trades and will not charge a fee to hold ETFs or Shares in your ISA (SelfTrade has introduced an annual fee, but in exchange you get three free trades) unlike Hargreaves Lansdown who charge a percentage of the part of the investment that is in shares etc.
Other inexpensive brokers to consider are BestInvest, Cavendish Online, The Share Centre and TD Direct Investing.