Hargreaves Lansdown revealed its long-awaited revamped pricing structure last week. Henry Brennan gauges reaction from rival platforms and finds out where the D2C market is heading.
Execution-only giant Hargreaves Lansdown finally unveiled its unbundled pricing structure last week, complete with super-clean share class deals.
Hargreaves, with a 28% market share, is the largest direct-to-consumer platform in the market. Now that its charging structure has been disclosed, what are the repercussions for rival platforms?
A large part of the Hargreaves announcement was to do with the preferential share class deals it had agreed with fund houses, amounting to an 11bps discount on the Wealth 150 funds and 16bps on the 27 funds in the Wealth 150+.
What to make of Hargreaves’ pricing structure
Rival platforms have confirmed that they will expect the same terms from the same fund managers, not just as a point of principle, but in order to ensure operations in the direct-to-consumer market are not affected to the detriment of the consumer.
The Share Centre chief executive Richard Stone said: "There is no reason why a customer should pay a lower annual management fee to a fund house because they buy that fund through one platform or another. We would look to have that preferential pricing across the market. We would expect to go to those fund houses and see whether we can't get the same terms.
"Otherwise, it is unclear from the customer's perspective what impact the classes will have on transfers."
It is a long-running argument that other platform providers might not only want the same preferential terms but feel they need the same terms in order to prevent re-registration issues causing undue delays for consumers.
The argument that the general running of the market could partly depend on the availability of super-clean share classes to all is not one that stands to hold much sway with the fund houses.
Distribution capabilities are far more likely to drive negotiations and Hargreaves is essentially unrivalled in this sense.
As many in the advisory space were when super-clean share classes were first announced, many in the D2C space are simply dismissive of super-clean altogether and say it distracts attention from where consumers should be focused. This in turn highlights the other areas where rival platforms are preparing to refine their charges in order to be more competitive.
Nutmeg chief executive Nick Hungerford said: "I think [super-clean] is a massive distraction. It is a lot of hype over nothing. It is moving focus on assets which are not necessarily going to be in the customer's best interest.
"[Hargreaves] have missed a really good opportunity to simplify the charging structure. There are more than 70 lines of charges they now have on their fees page. Most people would give up."
Clubfinance director David Scrivens said super-clean deals do not reflect the total costs to the consumer.
He said: "We expect that over time other platforms – including ours – will negotiate lower fund charges. However, even with the lower fund charges, Clubfinance has competitive platform offerings at every portfolio level up to £500,000 even when an average 11bp advantage for Hargreaves in terms of fund charges is taken into account."
It may be then that rivals prefer to look elsewhere in their charging structure in order to stay competitive. There are signs this was already starting to happen within a few days of the Hargreaves announcement.
Axa Wealth followed the Hargreaves announcement with the decision that they are willing to sacrifice a few percentage points in an attempt to appear more competitive.
Axa Self Investor is dropping the charge on holding funds in a stocks and shares ISA until 1 May 2015 – after which it will be reintroduced at 0.5% per year.
Alliance Trust Savings, shortly after it announced a hike in its own charges, said that it will be offering £150 cash back to customers who open a new account and transfer their investment from another provider to an Alliance Trust Savings ISA or IDA (Individual Dealing Account).
Alliance Trust Savings managing director Patrick Mill said: "To help remove barriers and cover some of the exit fees being charged by other providers, we are offering this special cash back offer. It aims to support platform mobility for customers who believe our clear, fair, flat-fee approach to pricing is relevant to them."
There was little doubt that once Hargreaves had announced it would be pushing for preferential share class deals, it was going get them. Whether or not rival platforms will be successful in obtaining the same deals remains to be seen but Hargreaves' distribution capabilities will have counted for a lot in their negotiations.
What is clear is that providers are prepared to make further adjustments to their charging structures in order to stay competitive. Further activity in the sector can be expected, especially since the release of Hargreaves' structure means that the rest of the execution-only market can now see exactly what they are up against.
Partner Insight: For Blackfinch, the arrival of its IHT portfolio services was a 'natural evolution' in the group's offering and points to an established track record of returning cash to investors.
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