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Hargreaves Lansdown or another financial adviser?

Investment | Specialist Helpful? 24

Asked by new2it, submitted 09 February 2011.

Open Quote What do you think of Hargreaves Lansdown financial advisors and charges? I have about 350k to invest, what are my alternatives?End Quote

Answered by Justin on 10 February 2011

Hargreaves Lansdown (HL) has built an excellent reputation as an investment discount broker. And deservedly so. Based on reader feedback elsewhere on this site HL provides good customer service. Their fund discounts are competitive too, although they've been eclipsed by the likes of Cavendish Online.

However, HL's financial advisory arm is less well known and remains a small part of their overall business. Their advisers are independent and generally seem to work on a commission basis - taking 1% for initial advice and 0.5% a year if you want ongoing advice. Although you can pay hourly fees ranging from £350 to £495 & VAT per hour, dependant on how qualified the adviser is.

Compared to typical financial adviser charges, the commission route is lower than average (most advisers take 3% or more initially plus at least 0.5% a year) and the hourly fees higher (over £250 per hour is steep, especially outside of London).

What really matters is value for money, i.e. does the quality of advice given more than compensate for commissions or fees? I'm not a HL client so can't give you a definitive answer. For what it's worth my general view is that HL is very unlikely to give you bad advice (always a risk when taking financial advice) and you'll get good service, but there are probably better specialist investment advisers out there.

Another route open to you is discretionary investment management. This is where you handover your money to an investment manager who'll usually invest in a range of funds and shares to try and achieve agreed objectives. They run the money and make the decisions, so it's quite hands off from your point of view. Lots of stockbrokes and higher end advisers run these services, examples include Bestinvest, Brewin Dolphin, Charles Stanley and Rathbones. Expect to pay around 1% a year for the privilege with all sales commissions (from underlying investments) being rebated to you.

In theory you should benefit from greater investment expertise versus a more general financial adviser, but discretionary investment managers can still make mistakes and they'll probably outsource non-investment advice such as tax planning - which might cost extra.

So in summary there are three broad options to choose from:

1. Discount broker - make your own investment decisions. The cheapest route, but could prove expensive in terms of poor performance if you're not comfortable selecting and monitoring your own investments.

2. Financial adviser - should be helpful regarding overall financial planning, including tax, but probably won't be an investment specialist. They might favour funds of funds (basically outsourcing the portfolio management to someone else) which tend to be expensive and are unlikely to consider investments outside the mainstream.

3. Discretionary manager - in theory you should benefit from top-notch investment expertise, although in practice there's always a risk you won't. Nevertheless, they should devote more time and resource to researching and selecting investments than is viable for most financial advisers. Bear in mind you might need to pay extra for any tax planning or other financial advice.

As for which route you choose I don't think there's a generic wrong or right answer, it will depend on your exact needs and preferences.

I'd suggest speaking to several financial advisers and discretionary managers and see whether you feel comfortable using any of them. Questions to ask include how they research and select investments, how pro-active they are at suggesting/making changes, how much they charge and what you will receive in return and what would happen to your investments should you decide to move to another adviser/manager in future. Also ask to see example client portfolios and past performance figures.

You might find our financial adviser page helpful as it highlights many of the pitfalls to watch out for when choosing a financial adviser.

Good luck and feel free to ask any follow up questions.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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Readers' Comments (2) - To post a comment please register or login .

Comment by pvcdoc at 6:49pm on 10 Feb 2011:

My father has a large investment portfolio with Rathbones on a "discretionary" basis. He gets good service, but with significant costs. If you're going to invest in shares directly (like him) then these charges may be worth while. However if you're more interested in funds, this really involves "double management" so increasing overall costs.

Therefore, if you want to construct a portfolio primarily from funds, choose a good IFA (or diy, discount broker). If you want to construct a portfolio from individual shares, choose a discretionary manager - or discount stockbroker (for diy).

Comment by wjjward at 5:15am on 14 Feb 2011:

I also have a sum to invest and I called in HL to talk me through the options they offer. Their Financial Practitioner came to my home where we spent about 1.5 hrs running through the mechanics of their discretionary portfolio service. You are asked all the usual questions regarding attitude to risk, do you want growth, income, in what proportion etc. Your money is then placed into a blend (depending on the risk matrix) of HL's five off the shelf multi-manager 'fund of funds'. They do not invest you into direct shares, but they did also recommend for me to also invest a sum in the Thames River Distribution Fund. The charges are 1% upfront and 0.5% per annum, but you also have the AMC from the underlying funds and I was quoted a TER of around 2.65%. Great emphasis was placed on the skills/ experience and extensive research carried out on the fund managers by Mark Dampier and Lee Gardhouse.

The report and recommendations were put together very professionally, however something about it all simply did not ring true. Discussion of Investment Trusts and ETFs was avoided and my concern is that HL are wholly wedded to the Unit Trusts/ OEICs because their business model relies on the trail commission. Sure they do rebate the initial charge (so what, that's now the norm) and a small sliver of the AMC (not in your SIPP holdings) but they recommended their own multi manager fund(s). Are these the best on the market? Past years returns are respectable but not shining in my view. Be careful, you need to download the funds' annual accounts (from their website) to get the true picture on past performance.

In the end I decided that I would make my own decisions and have begun to build up my own portfolio which will have a blend of funds/ ETFs, shares and cash. I do however use the HL Vantage platform to buy the funds and shares. This is excellent and easy to use, for funds their website is very informative. Look elsewhere to research ETFs.