Last checked at 15 Jan 2014 07:00
Hargreaves Lansdown Retail Distribution Review Pricing announcement
Today Hargreaves Lansdown ("HL") announces that it has communicated details of:
· "unbundled" and discounted funds that will be available on its Vantage service
· Retail Distribution Review ("RDR") related charges
· some changes and improvements to other services it provides to clients
Unbundled and discounted funds to be available on the Vantage service
We are pleased to announce that following successful negotiations with fund management groups Hargreaves Lansdown clients will be able to benefit from lower fund annual management charges (AMCs), particularly for funds on the Hargreaves Lansdown Wealth 150 list, from 1 March 2014.
From 1 March 2014 the average AMC for a Wealth 150 fund will fall to approximately 0.65%. These average AMC charges will compare favourably to the standard market annual management charge of 0.76% for the same funds, an average discount of 0.11% for Hargreaves Lansdown clients.
Within the Wealth 150 list we have also selected 27 favourite funds, which we refer to as the Wealth 150+, where the average annual management charge will be even lower at 0.54% (standard market AMC 0.70%, an average discount of 0.16%).
At the same time the level of "loyalty bonus" (rebate) passed to clients on their existing fund holdings will be significantly increased, often to around 0.75% per annum.
Changes to charges for clients holding funds
As a result of the RDR, various changes have been made to our client charges. The key change is the introduction of a tiered fee on fund investments, details of which are shown in the table below:
New annual fee for holding funds:
Fund Investments | Tiered Fee (per account) |
Up to £250,000 | 0.45% p.a. |
From £250,000 to £1m | 0.25% p.a. |
From £1m to £2m | 0.1% p.a. |
From £2m | No charge |
Please note that these charges apply to each account separately for both Vantage and PMS clients. Charges are tiered within bands so the charge is 0.45% of the first £250,000 of funds within an account, 0.25% on the value of funds between £250,000 and £1m, and 0.1% on the value of funds between £1m and £2m.
This charge will apply to all clients, accounts, existing and new fund holdings. The new tariff applies no fund dealing charges for clients placing fund deals, nor charges for holding an account with Hargreaves Lansdown. Charges for online, telephone and paper based accounts will be the same except for a £20+VAT per annum charge for clients choosing not to use our online paperless service.
Overall client impact
As a result of these changes, most clients will pay less for their investments when investing through the Vantage service. Although clients will pay an annual charge for holding funds on the Vantage Service, when the competitive level of this charge is combined with the substantial reductions on the fund annual management charges, most investors will be better off.
Revenue and asset gathering implications
Taking into account predicted reasonable client behavioural changes, such as clients adopting the paperless service option and other potential changes, when modelled on Assets under Administration for the financial year-ended 30 June 2013 we estimate that the new pricing represents an £8 million investment in lower client charges by HL in the first 12 months of operation. There may be a further impact of c.£9 million on revenue as we approach the RDR "Sunset Rules" in April 2016, related to remaining transitional commission arrangements that will drop away.
To offset the overall effect of this combined pricing investment requires Hargreaves Lansdown to gather an additional c.£3.5 billion of new assets in total over the next three years (i.e. an average £1.16bn pa). Last year's net new business was £5.1 billion and in the first quarter of the current financial year net new business was £1.26 billion (up 129% on the same quarter of the previous year). Management notes that previous historical reinvestment in pricing improvements has driven increased business volumes which have more than offset any revenue impact.
Further information and Chief Executive's comment
Hargreaves Lansdown has confirmed these changes will take effect from 1 March 2014. Full details can be found on our website at www.HL.co.uk/lowcharges. Investors and analysts can see more detail in a presentation on our website which will be made available from 9am today. See www.HL.co.uk/investor-relations.
Commenting on the announcement, Ian Gorham, CEO, said "We are pleased to announce that we have negotiated new lower cost funds for our clients; changed our pricing structure to the benefit of the majority of our clients and further improved the already excellent service that we provide.
We have always sought to share our success with clients through using our negotiating power and by continually reinvesting in our service through new technology, more staff, better information on a wider range of investments, or as we have done here, in lower charges for funds. In 2011 we reduced charges for holding and dealing in shares by £9 million when we launched our new low-cost stockbroking service. In 2012 we spent £7m introducing loyalty bonuses in the Vantage SIPP. We are now reducing the cost of investing in funds, saving our clients an estimated £8 million per annum. As a result, most clients will be paying even less when investing through Hargreaves Lansdown."
An announcement of the company's full interim results will take place on 5th February 2014.
For further information please contact:
Hargreaves Lansdown
+44 (0)117 988 9967
For media enquiries:
Ian Gorham, Chief Executive Officer
Danny Cox, Head of Financial Planning
For analyst enquiries:
Ian Gorham, Chief Executive
Tracey Taylor, Chief Financial Officer
James Found, Investor Relations
Forward-looking statements
This announcement contains forward-looking statements with respect to the financial condition, results and business of the Group. By their nature, forward-looking statements involve risk and uncertainty because they relate to events, and depend on circumstances, that will occur in the future. The Group's actual results may differ materially from the results expressed or implied in these forward-looking statements. Nothing in this announcement should be construed as a profit forecast. This announcement is unaudited. This statement should not be seen as a promotion or solicitation to buy Hargreaves Lansdown Plc shares. It should be remembered that the value of shares can fall as well as rise and therefore you could get back less than you invested.