Is it time to quit Hargreaves Lansdown?

High fees

Hargreaves charges a platform fee of up to 0.45 per cent on funds for the first £250,000 invested. From £250,000 to £1 million investors pay 0.25 per cent, then 0.1 per cent on the next £1 million, and over £2 million there is no charge.

This annual fee is higher than those charged by Close Brothers and AJ Bell — 0.25 per cent up to £500,000 and £250,000 respectively. Interactive Investor charges a flat £9.99 monthly fee for Isas and £19.99 for self-invested personal pensions (Sipps). If you invested £100,000 in an Isa with each of the above platforms, over 30 years you would lose £121,307 in fees and lost returns with HL, £103,144 with Close Brothers, £102,787 with AJ Bell, and £85,962 with Interactive Investor, according to analysis by Candid Financial Advice. The analysis assumes growth of 5 per cent a year and is based on the funds themselves charging 0.7 per cent.

However, the comparison is not so straightforward because Hargreaves offers cheaper versions of funds that would cost more elsewhere, negotiating these lower charges with the investment managers. For example, the total cost of investing in the popular Lindsell Train Global Equity is 0.95 per cent, of which 0.5 per cent is the fund charge. At AJ Bell the fund would cost 0.9 per cent, of which 0.65 per cent is the fund charge.

The difference in losses is less pronounced with such funds. If you invested £100,000 in the Lindsell Train fund, assuming growth of 5 per cent a year over 30 years, it would be worth £334,225 with AJ Bell and you would have lost £97,970 in fees and lost returns. With Hargreaves, your fund would be worth £329,526 and you would have lost £102,669.

These negotiated deals are increasingly coming under scrutiny, though, because they can restrict customers from moving to rival companies. One customer, from Ilkley in West Yorkshire, who does not want to be named, transferred £850,000 from Hargreaves to Interactive Investor and estimates that he is saving £2,500 a year in platform charges. It took more than four weeks for the transfer to take place, however, because £120,000 was held in funds that had an exclusive deal with Hargreaves. He believes the transfer delay cost him about £3,400.

“Fees are a key consideration when investing,” Justin Modray from Candid Financial Services said. “Paying too much can potentially wipe thousands off your returns over time. Check how much you are paying and don’t be afraid to move.”

Hargreaves said: “We’ve negotiated a discount on about a third of the funds available on our platform, and these savings are passed on to clients in full. Where another provider can’t accept the cheaper fund classes as part of a transfer, we offer free conversions to a compatible share class meaning the client won’t be out of the market during their transfer.”

Families take a hit

Hargreaves’ fee structure means that you must invest more than £250,000 to benefit from lower charges. Other platforms offer them to families in which multiple members are customers. Fidelity charges 0.35 per cent on the first £250,000 invested, then 0.2 per cent up to £1 million, and everyone in a household in which one individual has invested £250,000 can benefit from the reduced 0.2 per cent fee, even if others have less than this saved. They must live at the same address. This particularly benefits younger savers who would be unlikely to benefit from the lower fee individually.

Take a family with two children, in which one parent has £250,000 and the other £100,000 in Isas invested the same types of fund. Their children each have £20,000 invested. The whole family would pay 0.2 per cent with Fidelity, but only one of them would benefit from the lower charge with Hargreaves, the rest paying 0.45 per cent. Assuming the same 0.7 per cent underlying fund charges, the family would collectively lose £456,084 in charges and lost returns over 30 years with Hargreaves. With Fidelity they would lose £382,492. If the family transferred their money to Interactive Investor they would lose £327,827.

Computer systems unable to cope with surge in demand

Day traders were left frustrated when they could not access their Hargreaves accounts after the announcement of a Covid-19 vaccine on November 9 — the company’s computer system could not cope with demand. Some investors claim they lost huge sums as shares soared.

In September Hargreaves customers were angry that they could not trade shares in the car-maker Tesla, again because of a surge in demand. Hargreaves argues that rivals also face computer issues during high demand.

In January some Hargreaves customers reported that it took 15 minutes to get through to its service desk. Those using AJ Bell said they had six-minute delays, while Interactive Investor customers waited up to seven minutes.

Hargreaves’ computer systems could not cope with demand after the announcement of a Covid-19 vaccine

ALAMY

Most recently, customers have complained about the lack of “bed and Isa” service, which Hargreaves has not offered this year even though companies such as Fidelity, AJ Bell and Interactive Investor have. Bed and Isa allows you to transfer funds into an Isa without letting go of them as you sell and then buy them back.

“In light of the continuing pandemic, we’ve taken the difficult decision to temporarily suspend a small number of our services, allowing us to continue offering the core services that our clients rely on,” Hargreaves said. “While the automatic bed and Isa service is currently suspended, clients are still able to achieve the same outcome manually.”

One customer, who does not want to be named, had to pay dealing fees of £11.95 to sell and then reinvest a fund in his Isa this month. “Not only was I able to do this for free in previous years, I’ve had no such issues on investments held on other, cheaper platforms,” he said. “If you’re going to charge a premium rate, at least offer a premium service.”

Hargreaves attributed the rise in complaints received by the ombudsman to increased client activity, and said the proportion upheld last year, at 13 per cent, is below the industry average of 30 per cent. “The number of complaints only accounts for a very small percentage of client interactions and transactions.”

Profiting from cash

Most investment platforms allow you to hold cash in a trading account so you can quickly invest when opportunities arise. As with other firms, savers with Hargreaves earn no interest on this money, but the company makes a small fortune from it.

Its accounts show that its revenue from cash increased by 24 per cent to £91.1 million in the year to the end of June. This is up from £73.2 million over the same period the year before. Cash accounts for just under 12 per cent of assets under management on its platform, or £13.6 billion.

For decades Hargreaves has published a best buy list of funds

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£6 billion in poor-performing funds

As well as offering investments in other companies Hargreaves is a fund manager in its own right, and has ten multi- manager funds that invest in a basket of portfolios controlled by other stock- pickers. Seven of them, with more than £6 billion invested, have been underperformers over the past three years, ranking in the bottom 25 per cent in their sector. The laggards are its Balanced Managed, Equity & Bond, Income & Growth, Special Situations, UK Growth, High Income and Strategic Assets funds. Another, Strategic Bond, has been in the bottom 50 per cent. Two, Asia & Emerging Markets and European, have stayed in the top 50 per cent over three years.

Controversial best buy lists

For decades Hargreaves has published a best buy list of funds it believes to be the best in class, now known as the Wealth Shortlist. It says it uses robust qualitative measures to select the funds, but rivals have accused it of giving preferential treatment to those that offer a discount on fees. It has always denied this. The list has been criticised by financial advisers who believe it encourages people to save in certain funds with no accountability. Again, Hargreaves denies this.

Unlike other platforms, it does not tip investment trusts, claiming its huge influence will distort their value. It denies not doing so because of an annual £45 cap on charges on such investments. There are no caps to the fees it can apply on funds not structured as investment trusts.

Hargreaves was the only big wealth manager to continue recommending the Woodford Equity Income fund when others dropped it from their lists. The fund was discounted for its customers. Its list excludes one of Britain’s most successful funds, Fundsmith Equity, over concerns about transparency, despite Terry Smith, the fund’s manager, operating entirely within the rules on disclosure.

. . . and then there is Woodford

In June 2019, shortly after the suspension of the Woodford Equity Income fund, Chris Hill, the Hargreaves boss, apologised to customers affected by the crisis.

In a two-paragraph statement Hill said he shared the “disappointment and frustration” over the suspension of the fund, which his company had recommended since its launch. However, he emphasised that the shortcomings of one fund “should not detract from the benefits of favourite fund lists”. He said he was confident “in the robustness of how we analyse, research and compile our favourite fund list”. Some customers expected a fuller apology. Hargreaves points out that Hill did not get his 2019 bonus. The company also waived all its own charges on the Woodford fund after its suspension.

“Our charging structure is one of the simplest, best value and most transparent in the market, and it’s an area that we continue to evolve to the benefit of clients. We’ve removed nine fees in the last 18 months and have substantially simplified our fee structure — online clients pay Hargreaves the service fee plus the cost of any share deals and nothing more,” Hargreaves said. “Over the past three years we’ve deliberately invested into our service, its scalability, our brand and technology — in 2020 we added record net new clients. Our strategy, business model and breadth of service have allowed us to continue to deliver the service that our clients needed during this time and manage the record volumes of client activity.”

Denis and Sharon Lee

My pension transfer took 57 days

Denis and Sharon Lee, both 65, have retired, and wanted to ensure they would be getting the most out of the pensions they had saved over a lifetime of work.

They sought help from Candid Financial Advice, which advised them to consolidate their retirement pots into one place, to benefit from lower costs.

Sharon, who was a trainer in the social care sector, had a self-invested personal pension (Sipp) with Hargreaves Lansdown. Denis, who worked for a printing company, had two personal pensions, with Aegon and ReAssure.

The couple, from Potters Bar, Hertfordshire, were advised to move the money to a Sipp offered by Embark, an investment service available through advisers.

Embark charges 0.15 per cent for the first £150,000 invested and then 0.12 per cent on the next £350,000, under a special deal with Candid. It charges 0.1 per cent on sums above that. Hargreaves charges 0.45 per cent on funds up to £250,000, 0.25 per cent up to £1 million, 0.1 per cent up to £2 million, and no charges apply above that amount.

The transfer requests were made on January 20.

It took Aegon 10 days and ReAssure 17 days to transfer Denis’s pots. Sharon waited 57 days for the Hargreaves transfer to be completed.

By moving their money to Embark, they’ll save £1,000 a year in fees compared with consolidating their money into a Hargreaves Sipp, Candid estimates.

“On March 18 I received a letter saying my money had been transferred, but there was no balance on my Embark account,” Sharon said. “After some chasing, it appeared Hargreaves had not given Embark the pension confirmation document needed before the funds could appear.”

Hargreaves said it transferred the funds by March 10, but that a confirmation was not issued to Embark until March 18. It said that over the past year it has hired extra staff because of the increased activity from new and existing clients. “We are extremely busy and our people are working exceptionally hard to reduce response times under extraordinary circumstances. We apologise to Mrs Lee for the delay she experienced.”