Imagine if Sainsbury’s or Tesco made you pay to enter their supermarkets and buy their milk and bread, but promised that the milk and bread would be much cheaper than before.
That slightly dystopian vision is what occurred to UK money management industry last year, after regulators decided the relationship between suppliers and distributors was a little too cosy.
Today the industry’s most popular fund supermarket, Hargreaves Lansdown, marched down to the London Stock Exchange to reveal how much it will charge to shop in its store.
From 1 March, punters will pay a 0.45 per cent charge on their money, if you invest less than £250,000 (Nearly 60 per cent of Hargreaves’s customers invest less than £25,000).
An ISA with a maximum amount of cash allowed in it – £11,520 – means you pay about £52 a year, or less if you choose super-cheap funds.
“We have put our prices down considerably,” chief executive Ian Gorham told the assembled press pack. “We’re being transparent about it and we continue to try and drive down the cost of investment.”
Paying more money is never nice but the upside is that the things you buy are supposed to be cheaper.
Hargreaves is a big player in the fund space. It has the same market cap as Marks & Spencer and, like an M&S, can negotiate good deals with its suppliers to cut prices.
The wily negotiators at the company have got certain fund managers to agree charges on actively run funds to as low as 0.3 per cent. On a cheaper tracker fund the charges are as low as 0.06 per cent.
If you invest in one of Hargreaves’ preferred funds – which are supposed to offer superior performance – you can get an annual management charge of about 0.65 per cent.
Add this to the 0.45 per cent tariff to use Hargreaves’ store and the company says punters will be better off – and could save as much as £650 over ten years.
Hargreaves is taking an £8m hit to lower its costs but it is banking on getting more money through the door to offset this.
Other bigger financial players are still to reveal their hand on pricing – Fidelity and Barclays are two main rivals – but it’s likely to kick off a pricing war as aggressive as anything seen in a big four slugfest.