How to profit from the fund price war

Increased competition between platforms is welcome – but the overhaul of charges won’t be a game-changer


IN WHAT some are calling a price war, yet another investment platform (Barclays Stockbrokers) has unveiled sweeping changes to its pricing structures. It all began on 15 January, when Hargreaves Lansdown announced that it would overhaul its charges. Axa, Fidelity, and others have since followed suit.

The fund supermarkets are changing their pricing structures in response to the latest stage of the Retail Distribution Review, which has forced them to adjust their revenue models. Previously, fund supermarkets charged investors a single annual fee for holding a fund with them – some of which would go back to the fund manager, the rest to the platform. Investors must now pay an explicit annual charge to each, in an effort to increase transparency.

The UK’s biggest investment broker, Hargreaves announced an annual platform administration charge of 0.45 per cent for customers investing less than £250,000, and an annual fund management charge of 0.54 per cent for the 150+ range of its favourite funds. It represents a reduction in the typical fee paid by a customer for owning a fund from 1.33 per cent to 1.1 per cent. Importantly, the broker has also persuaded some fund managers to reduce their annual management charges from an average of 0.75 per cent to 0.65 per cent. But even with the new fees, it isn’t the cheapest broker. Charles Stanley and Cavendish Online charge 0.25 per cent to administer funds through their platforms.

Elsewhere, Alliance Trust Savings is now offering £150 cashback to those who switch their portfolios to its service. Fidelity has undercut Hargreaves, announcing a 0.35 per cent annual administration charge. A typical investor putting £10,000 into an Isa through its platform will pay £99 in these charges a year, down from £175. Barclays Stockbrokers has now matched that, and claims its new charging structure would see someone with £25,000 invested in funds saving on average £72.50 a year.

So as we approach Isa season, investors have an extra incentive to review their holdings. “We’re seeing different platforms making remarkably consistent changes. But there are subtle differences deep in the small print. Investors need to look at their circumstances and decipher whether they might be better off elsewhere,” says Ben Smaje of Kennedy Black Wealth Management.

The response to the fund supermarket battle has been mixed. Gina Miller of the True and Fair Campaign thinks Hargreaves has missed a golden opportunity to simplify charges. Nick Hungerford of investment manager Nutmeg agrees. “The Vantage tariff has no fewer than 73 lines relating to different charges.” His company has one management fee for its customers, which varies between 0.3 per cent and 1 per cent depending on how much is invested.

Others have suggested that, while increased competition should benefit consumers, there won’t be big changes in terms of financial figures. “There has been a lot of focus on the platform market, but really we’re talking about a basis point here or there for the core investor investing in active funds (and in particular the active funds the supermarkets promote),” says Smaje.

Additional fees, like the £25 fee Hargreaves is charging to close an account (at Barclays it’s £30), should be a consideration. So too should the fact that these alterations will leave some consumers worse off. Those investing only in index-tracking funds, for example, may lose out.

Likewise, investment trusts previously carried the same dealing charges as shares or bonds, but they will now fall into a distinct category. “This means if you invest in an investment trust as well as other listed assets you will pay a service charge of 0.45 per cent on both sets of holdings,” says Emma Wall of Morningstar. Through Barclays Stockbrokers, however, savers in investment trusts and shares will pay dealing costs, but the flat annual charges will work out cheaper than the annual percentage fees charged by some of its rivals.

Of course, it is difficult to compare like-for-like, as the fee you pay will vary according to the size of your investment portfolio and the investments you pick. One option, therefore, is to speak to an IFA. “It is the saving of 0.1 per cent here and there that could make quite a difference to the size of your pension pot when you retire,” Sleep says. Those investing £11,520 in an Isa over 30 years with a 0.5 per cent annual charge would see their investment grow to £75,475, assuming 7 per cent growth. With a 1.5 per cent annual charge, that would fall to £55,900. Savings like that are well worth the research.


Hargreaves says 80 per cent of clients will pay less or the same after price changes

According to Axa, if £10,000 were invested in an Isa, after five years and assuming 5 per cent growth annually, charges at Axa would total £225; at Hargreaves £246; AJ Bell would charge £214

Smaller investment houses, like Bestinvest and Chelsea FS, have yet to make a pricing announcement