Hargreaves Lansdown has made major changes to its advisory service in an effort they say to democratise advice.
It has dropped the independent label and will now only offer ‘restricted’ services. The changes are effective immediately.
Hargreaves Lansdown says that the downside of being an independent adviser is that it is obliged to research investments that its clients rarely hold and that are, they think, either overly complicated, opaque, expensive, or carry excessive investor risk.
By restricting the advisory service it offers, the firm says it can now focus all its advisory research and resources on the areas that actually matter to its clients. They plan to improve the advisory services they offer, simplify their fee tariff and remove the minimum portfolio size for advice.
The firm’s advisors will now change to the restricted model. There is no change to the HL Vantage Service.
Hargreaves Lansdown aims to democratise advice and has laid down the groundwork to develop a telephone-based advice proposition. The size of an individual’s portfolio won’t matter, but they will be subject to a minimum fee of £495.
Head of Communications at Hargreaves Lansdown Danny Cox said: “This change will set the groundwork for us to simplify and reduce our advisory charges, develop our telephone based service and increase the use of technology to improve the efficiency of the advice process. At the same time we want to ensure everyone who wants personal advice can have advice and are removing our minimum portfolio requirement.
“In reality investors will see very little change in what we advise over. We shall continue to offer the same broad range of investment advice, including portfolio management, investment and pension advice, retirement planning and inheritance tax mitigation as we do now.”
Excerpt from HL Statement:
The differences between the independent and restricted services
Definition of independence – We will advise and make a recommendation for you after we have assessed your needs. Our recommendations will be based on a comprehensive and fair analysis of the market.
To maintain the independent status, we have to be able to research and recommend complex and expensive product types, even if we do not believe in these products or, there is no demand for them.
The definition of a restricted service is essentially any advisory business which does not meet the definition of independence, although the nature of the restriction could be small or large.
Through our Vantage and portfolio management services we offer an unrivalled choice of investments, including more than 2,500 funds from over 200 different fund management groups, and we shall continue to advise over these as we do today. Where there are more specific requirements we will continue to use other 3rd party providers and products which have been carefully researched and selected.
The key difference to our service is that now we do not have to provide the systems, processes, research and controls in place to advise clients on complex and expensive product types we do not believe in and importantly that our clients don’t want or need.
Changes to charges
The advisory fee tariff has been simplified and capped. For many clients this will mean lower costs for advice. We are also simplifying the charging for our range of annual Review Services. Charges are based on the portfolio value we advise on:
|Investment Advice||On the first £1 million – 1%||1%|
|On the excess – 0%|
Complex financial planning
|On the first £200,000 – 2%||On the first £200,000 – 2%|
|On the next £800,000 – 1%||On the next £800,000 – 1%|
|On the excess – 0%||On the excess – 0.5%|
|Review service||On the first £1 million – 0.365%||0.365% – 0.5% *|
|On the excess – 0%|
Minimum portfolio size
A minimum fee for advice of £495 for telephone advice and £1,495 for face to face advice, plus VAT applies.
*depending on the type of service selected
Simpler charging for the Portfolio Management Service
Our sister company, Hargreaves Lansdown Asset Management, is also simplifying the charges for the Portfolio Management Service (PMS).
PMS blends together a range of Hargreaves Lansdown Multi-Manager funds, third-party funds and cash. From 1 December 2015 the charges will be simplified with the following changes:
- We are removing the annual 0.75% +VAT Discretionary Charge that applies where we use third-party funds in PMS. The proportion of third-party funds used in PMS varies between portfolios, so this charge currently represents between 0.05% and 0.07% of the overall portfolio value per year, depending on the portfolio.
- We are adjusting the annual PMS fund charge in each account as follows:
- On the first £250,000 the charge will change from 0.45% to 0.51% per annum.
- For assets between £250,000 and £1 million, the charge will change from 0.25% to 0.30% per annum.
- We will remove the 0.10% currently charged for assets between £1 million and £2 million.
The net result of removing the Discretionary Charge and adjusting the Annual Portfolio Management Service Fund charge means that the majority of clients will pay no more than now, and some will pay less. A minority of clients will pay up to 0.007% more for this service.
These figures are correct as at 24 September 2015 and will change as the portfolio holdings and weightings vary over time.
Capped charges for our Review Service
Currently, PMS clients pay an ongoing advice fee of 0.365% + VAT per annum for access to an annual advisory review service. From 1 December 2015 this charge will be capped such that the ongoing advice fee will apply on PMS portfolio values up to £1 million, with no further charge on PMS assets above £1 million.
This means clients with PMS portfolios of less than £1 million will pay the same as they did before. Clients with PMS portfolios over £1 million will pay less.
There are no other changes and services such as fund dealing remain free of charge. New Terms and Conditions will be enclosed with November valuations and statement.
HL Vantage Service
The HL Vantage service and charges are unaltered and remain the same.