Fund supermarket Hargreaves Lansdown came under fire this week after claiming credit for charge cuts on its influential list of favourite funds, while keeping its own charges high, according to The Times Online.
Senior figures in the fund management industry say that Hargreaves own charges remain the industry’s second highest, which has allowed it to enjoy juicy profit margins of about 65 per cent.
They are also concerned about the exclusion of some funds from the approved ‘Wealth 50’ fund list, such as Terry Smith’s top-performing Fundsmith Equity fund.
Hargreaves charges 0.45 per cent, more than any other investment platform except Chelsea Financial Services, which charges 0.55 per cent.
Analysis by Boring Money, a financial website, found that for a £100,000 portfolio of Isa investments, allowing eight deals a year, and including fund fees of £600, Hargreaves’s charges were the 16th highest out of 17 platforms at a total of £1,050.
Hargreaves has negotiated reductions in the annual charges of the 50 actively managed funds (plus 10 tracker funds) on its Wealth 50 list however.
Mark Polson of the Lang Cat, a financial services consultancy, says “This shouldn’t absolve Hargreaves from cutting its own costs. To start with, half the money invested through its platform is not in funds with a discount, so doesn’t benefit from the reduced prices,” he says.
“As Hargreaves pushes the cost of Wealth 50 funds down, but leaves its own charges untouched, we have the bizarre situation where it is becoming common to find that the platform charge is bigger than the fund charge.”
Why no Fundsmith Equity fund?
This fund, managed by Terry Smith, has returned 272 per cent since its launch in November 2010, putting it top of the 150-plus funds in its sector over three and five years. Commentators say they are puzzled that Hargreaves cannot find a place in the Wealth 50 for this stellar performer when it continues to hold Neil Woodford’s Equity Income fund, which has lost 9 per cent over the past three years and stands 216th of the 217 funds in its sector for performance over that period.
Suspicions remain that Smith’s fund was denied a place because it would not cut its standard annual charge of 0.95 per cent. Polson says: “All the evidence suggests that Smith’s refusal to cut his charges for Hargreaves was the clinching reason.”