Does Hargreaves Lansdown’s success mask a UK Isa crisis?
Tuesday, April 30th, 2013

Hargreaves Lansdown’s boss Ian Gorham gave a presentation to journalists this morning with two fairly big pieces of news (covered here by me) for Mindful Money. The first was an announcement that HL is working on bringing down the minimum investment at which it will offer advice from about £50,000 to £20,000 and the second that Gorham wants a cap put on the charges that insurers can levy on transfers saying 6 per cent of a portfolio is phenomenally high. And so it is.

Both are big news of course especially the reduced minimum which could be a game changer. If HL can make it work maybe others can too. It is certainly the first time I have heard that the advice gap might just have narrowed a little. It seems to be driven by the fact that some people simply won’t self select.

The second issue on transfers is very interesting too. HL may be the biggest consumer platform, but platforms together are starting to become a very significant lobbying group (well when they are not arguing with each other). I think the pressure may be on insurers’ back books in a way they underestimate though of course they would lobby forcefully against any change. Gorham’s arguments about competition not working are difficult to refute, particularly if you look at the issue from the point of view of the individual consumer, policyholder and investor. The insurers’ riposte will, of course, be about how those books must be managed collectively to make sure all policyholders are looked after and to maintain the integrity of their business in those policyholders’ interests. True, up to a point, but perhaps less true than it was in the past. The engine of the insurer is much less likely to be a with-profits life fund or three these days. Big life funds do sit beneath the closed life offices, of course, but Gorham singled out some of their practices for criticism for example suggesting wet signature requirements were obstructionism rather than any real concern for the customers’ interest. It wouldn’t hurt to test closed life offices’ assumptions about transfer penalties from time to time even if a big regulatory intervention isn’t on the horizon yet. The OFT examination of workplace pensions might even help Hargreaves case if it looks at reasons why money can’t move around.

Listening to the national journalists’ questions, almost all seemed to be focused on the future pricing policy, except where they were interrogating the make up of the Wealth 150 and those questions had a price element too. This is a perfectly legitimate line of questioning. But the occasional question about how we might increase the overall numbers of people investing might not go amiss.

Gorham’s view is that is that the key is pension policy. He pointed out that it was one significant difference with the US and Sweden for example, and he has hopes for auto-enrolment. But the Isa figures are striking. While HL has grown Isa share significantly, the numbers investing have dropped. In 1999/2000 4.57million people applied to invest in stocks and shares Peps/Isas. In 2011/2012 there were 2.9m applications –  a fall of 36 per cent. That feels like an Isa crisis and surely they can’t all be refugees from the TMT bubble? It might be good if national newspaper journalists asked why more people don’t have the confidence to invest. People like Mr Gorham may well have some of the answers.
Will platform charges ever become a client issue?
Wednesday, April 24th, 2013

The Money Debate wonders if we have found a candidate for graph of the year. The Platforum, analysing platform charges on Money Marketing accompanying Tranact’s charging shake up is well worth a click because it provides a simple outline comparison of platform charges by portfolio size. It also shows very clearly which platforms are on the cheaper side and which platforms are better for bigger and smaller pots given their charging structures. It may raise an awkward question or two for clients whose portfolios have grown to a size where a different platform becomes demonstrably cheaper. The question may not, quite, be at the point of crossover because of the expense and hassle – but if all things are equalised – does it suggest advisers should consider moving clients. Alternatively, does a well-run, well financed platform, with reasonable charges provide enough justification for IFAs in particular not to have to think about moving. And will we ever get to stage where clients will start to ask if they could be on a cheaper version or not?
Why is so much money in high charging trackers?
Wednesday, March 13th, 2013

Bestinvest’s list of what we might call uncomfortably high charging tracker funds representing more than £6bn of assets demonstrates that at least some things change in financial services. Something that might have looked like reasonable value for money in 1999, or at least could be presented as such in a clever marketing campaign, certainly does not look cheap now.
No-one would dare run an advertising campaign suggesting “low charges of just one per cent” in the current cold climate, yet that was the tone and the content of advertising on London Underground and the nation’s billboards a decade and half ago which is presumably how those assets were gathered in the first place.
The argument that active fund management was too expensive in comparison to one per cent charging trackers sounds totally
anachronistic, given that some of today’s fierce arguments, which tend to revolve around matters of basis points, hidden or not.
It is probably instructive that the largest fund in Bestinvest’s list is Virgin’s £2.4 billion Virgin UK Index Tracking, charging 1 per cent. It was quite a marketing campaign and IFAs will remember that Mr Branson’s marketing campaigns came along with some tough talking about them as well as active fund managers.
It may also be no surprise that the steepest charge is levied by the £366 million Halifax UK FTSE All Share Index Tracker C, with a remarkable 1.5 per cent AMC.
I can’t remember if this fund was advertised widely, but it speaks volumes about once mighty bank distribution.
The list is instructive for another reason. It is more than of passing historical interest because this money belongs to today’s investors even if it formed part of an Isa or maybe even Pep allowance from very many years ago.
We should ask why is this money so sticky when a host of very cheap alternatives whether rival tracker mutual funds or ETFs are now available and marketed far and wide.
One even has to wonder whether even as self-assured a direct marketing operation as Bestinvest will provoke many of these investors to switch though the firm should get huge credit for raising the issue again.
Unfortunately the people invested here may not get the mailer nor read the money pages.   That is even with as clear and easily understood a message as one that says you may be paying more than double what you have to.
It also begs the question of whether many investors are still dutifully paying in to these funds? What is also concerning is that these tracker funds are readily identified as not great value but they may be representative of a lot more poor value investment management stuck on legacy books across financial services.
One would hope that any IFA client would have been switched a long time ago and even where some of their money is stuck in an old style policy protected by penalties, they at least know it is stuck and manage their other investments around it.
But the fact that this money is in trackers on a presumably voluntary basis suggests that some parts of the population are being seriously neglected when it comes to advice and information.
Finally are we entitled to ask whether the firms that are still creating and selling new funds might consider bringing down those charges on these old funds more into line with the new ones? People buy vintage cars though not for the fuel economy or motorway driving. People might even buy vintage investment trusts if they are still performing, but what exactly is the purpose of a vintage tracker?