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Hargreaves Lansdown trail commisison rebates?

Financial Advice | General Helpful? 30

Asked by kane1926, submitted 30 August 2011.

Open Quote I have just read a review on Cavendish Online and am interested in trail commision discounts. I deal with Hargreaves Lansdown and wondered whether they give a discount on their trail commision?End Quote

Answered by Justin on 02 September 2011

Hargreaves Lansdown (HL) does give generally give trail commission rebates on funds held either directly or within ISAs, but not those held within its SIPP (i.e. pension).

The rebates are called a 'loyalty bonus' and typically amount up to half the annual trail commission. So if a fund pays trail commission equal to 0.5% of the fund value, HL would likely around 0.1% to 0.25%.

By comparison, Cavendish Online rebates all the trail commission, so 0.5% in our above example with no additional fees if the funds are held via the FundNetwork fund supermarket.

There's no doubt Cavendish Online is cheaper for the vast majority of investors, but they simply offer a no-frills transaction service. If you actively use HL's fund research and information you might feel it's worth the extra 0.25% a year but, there again, you might not (views seem to be divided based on feedback via this site).

You can view a comprehensive list of discount brokers in our Guide to ISA Discount Brokers, so take a look and try and gauge which blend of discounts and service would best suit you.

Personally I'd be very happy using Cavendish Online, as given my background I don't feel much need for fund research and marketing bumf (in any case, there's plenty of freely available fund information on the web - see my answer to this question). But if I were a novice investor I might feel differently and opt for a discount broker offering more information and hand-holding, albeit with lower discounts.

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 (15) - To post a comment please register or login .

Comment by rafferty at 11:04am on 03 Sep 2011:

The trail commission rebates offered by HL seem to range between 0.00% to 0.30%.

Ignoring any funds such as trackers that don't pay commission, I notice that the average rebate paid on my wife's p/f with them is 0.12% and on my own is 0.14%. I'd assume that's fairly typical and makes the Cavendish offer an even better deal.

Would be interesting to know what the HL charging structure will be when commission is banned in 2013.

Comment by BernieB at 9:37pm on 05 Sep 2011:

Not an easy calculation for me with HL as it's a fairly active account but stripping out trackers and shares I make the trail rebate around 0.18 percent for my other funds over the past year. At Chartwell Direct using Cofunds I make it 0.17 percent trail rebate without trackers.

Comment by justin at 10:59pm on 05 Sep 2011:

Thanks for the feedback rafferty & BernieB. You're right, I'm probably being overly generous in saying HL typically rebates 0.25% - just scanned their fund discounts list and was surprised by how many fund rebates are less than 0.25% (e.g. 0.15% or less). I'll update the ISA Discounts Guide shortly while adding the new offering from Massow's.

Comment by BernieB at 11:47pm on 06 Sep 2011:

Of the 3 articles I scanned on Ivan Massow, 2 talked about trail commission on policies, so presumably he is into insurance trail commission rebates rather than funds. The other in the Guardian http://www.guardian.co.uk/money/2011/sep/02/fall-and-rise-ivan-massow makes me feel there's a lot to be said for the devil you know!

Comment by ivanopinion at 12:40pm on 09 Sep 2011:

I was interested to see your guide to ISA Discount Brokers. Your example calculations of savings is helpful to an extent, but I think you should add a warning that readers should take into account their own circumstances, which might mean Cavendish is no longer the biggest saving.

For instance, your example calculations of savings use just one fund and I think (though the guide does not say) it is based on an investment of £15,000 in that fund. For someone whose total ISA portfolio is that size, the £25 fee charged by ATS is pretty significant, as is illustrated in your guide. However, for someone with a portfolio of, say, £200,000, the fee of £25 per year is a tiny portion of the portfolio and could easily be outweighed by other factors.

For example (as I have pointed out in another earlier post), for the particular fund on which you have based your calculations, ATS only gives a rebate of 0.5% on the AMC, meaning the net cost is 1% AMC. However, there are quite a large number of funds where ATS gives a rebate of 0.75%, or even more. (Listed here: www.alliancetrustsavings.co.uk/pdf/list-of-funds.pdf). When I looked at this a couple of years ago, I found that a number of the funds that I wanted to buy were effectively 0.25% cheaper through ATS than through Cavendish (such as Aberdeen Emerging Markets), and the rest were the same.This is a bit of a puzzle, because Cavendish claim to rebate all commission, which seems to suggest that ATS is getting a bigger commission from some funds. If you have funds worth more than £10,000 on which you could save an extra 0.25% AMC per year, that's a saving of more than £25 per year, so you would be better off with ATS. (That is ignoring dealing fees, which is another factor that could change the decision.)

Comment by justin at 3:50pm on 09 Sep 2011:

Thanks ivanopinion for some very valid points. Co-incidently I'd already planned to update the guide using 4 representative funds (for the very reasons your mention) and hope to update the section in the next week or so.

The assumptions, £10,200 investment, 6% annual return before charges over 10 years are listed under the final table, but agree they're not that obvious so will also address this in the update.

In an ideal world I'd love to build a comparison calculator, so you enter your chosen funds/investments and the cost via the various discount brokers is displayed (this would also overcome the problem with fixed fees weighing more heavilly on smaller sums). The mechanics of building it are simple but keeping the data re: each broker's discounts per fund current would be a nightmare, so it remains very much on the back burner for now.

Comment by ivanopinion at 4:39pm on 09 Sep 2011:

Ah, sorry, I missed the footnote!

I can see your problem with the comparison calculator. Perhaps you could simply add another scenario where the four funds are an investment of, say, £50,000 each, so that the total portfolio is £200,000 (which is perfectly possible for anyone who has been using their ISA allowance every year for a decade or more). This would help to show how fixed fees have much less of an effect on a big portfolio.

Of course, someone is bound to quibble that your four funds are still not representative! An interesting one is Troy Trojan, on which you get no rebate from ATS, but this is because they are selling the O class shares which have only a 1% AMC. Most other discount brokers seem to sell a different class, on which the AMC is 1.5%. Perhaps this is an indication of how things are likely to work after the RDR changes in 2012?

Incidentally, I have no particular bias towards ATS, but I have found them to be a very good deal for me. Another advantage is that they are the only discount broker that I'm aware of who will sell you the Vanguard trackers. They are pretty much the cheapest trackers that are available, but other than ATS, the only way to access them seems to be to pay a specialist IFA who is authorised by Vanguard to sell them. Trouble is, this adds a fee of at least 0.5% per year, which removes the benefit of the low AMC on the fund.

Comment by justin at 9:01pm on 09 Sep 2011:

Thanks again for the suggestions. I like the ATS proposition and they do seem progessive, notice that they also offer First State funds at (what seem to be) instituional prices - which is really how I think platforms should be and may well have to work post RDR.

When running the comparisons I'll factor in any discount vs standard fee where institutional pricing is used.

All the best

Comment by rafferty at 4:41pm on 31 Dec 2011:

As an update it should be mentioned that from 1 Jan 2012 Hargreaves Lansdown will be imposing an additional "platform fee" for many of their funds.

It was widely assumed by the press, possibly based on an HL press-release, that the new charge would only apply to index tracker funds but this is certainly not the case.

HL haven't published a full list of the funds to which the fee will apply anywhere and so it's important to carefully check the specific details for any fund held or under consideration. Generally speaking, it seems to apply to any fund with an AMC of less than 1.0% including active managed funds and including many already paying HL both a platform fee and trail commission.

Seems to be a lot of annoyance among clients at the way it was done - particularly as HL gave the minimum possible notice which included the Xmas period. For many, the only notification they received was buried in the regular HL junkmail where many of the funds that were affected were not actually mentioned. Some claim to have learned of the new HL charges only from reports on the internet.

Comment by rafferty at 11:02am on 21 Feb 2012:

CavendishOnline have reduced costs for investing in UTs/OEICs further as from 20 Feb 2012 including ending the previous initial account charge of £25 to Cavendish and no switching fees.

From their website:
"Cavendish Online launches the lowest cost fund supermarket

Cavendish Online has created a fund supermarket that provides the cheapest route to buy and manage fund-based investments.

The all new Cavendish Online FundSupermarket will be powered by FundsNetwork™ and will have no other charges than the annual AMC applied to the selected fund. As a result of this new facility, Cavendish Online customers will now benefit from:

NO initial charges on all funds
NO switching fees
NO Cavendish Online fee
100% rebate of natural trail commission

Investors will have access to all the funds on FundsNetwork (over 1,200 from more than 70 providers) and will be able to switch their investment between these funds without having to pay a switching fee."

Comment by Mickey at 10:56pm on 23 Feb 2012:

I've taken a look at Cavendish but it seems they do not offer the likes of the very popular Troy Trojan fund that I currently hold and can add to at Hargreaves Lansdown. It also appears that I can't hold my Investment Trusts with Cavendish so it appears to be a cheaper service but only if they have what you want :-)

Comment by rafferty at 12:30pm on 03 Mar 2012:

None of the fund supermarkets offer all funds unfortunately so you may have to use more than one to hold all the funds you want. You'll find many funds that are offered by HL but not Fidelity and others offered by Fidelity but not HL.

The version of Troy Trojan offered by Hargreaves Lansdown is the class "I" (intermediary) which charges a higher AMC of 1.5% (and offer 0.00% discount) rather than the 1.0% AMC of class "O" (ordinary) that until recently could be bought directly from Troy (via Capita).

Unfortunately, when HL agreed to promote the Troy fund in their Wealth 150 list, the quid pro quo seems to have been that they wouldn't be undercut by the O class. So Troy have now effectively closed the O class to new investors. Existing investors can continue to buy the O class from Troy with the lower AMC but new investors would now have to buy from HL etc. and pay the higher charge.

You might notice that some of the funds offered by Cavendish/Fidelity also have a lower AMC than offered by HL. For example HL sell the the M&G Optimal Income class X with an AMC of 1.5% and discount of 0.1% (net 1.4%). Cavendish/Fidelity offer the class A version with an AMC of just 1.25% and a discount of 0.5% (net 0.75%), so saving 0.65% over HL.

Fidelity haven't (so far) imposed the new £2 a month fee HL charge on some funds including index trackers. Might be useful to fans of Jupiter funds too as they discount the entire initial charge unlike HL.

Comment by ivanopinion at 3:06pm on 25 Jun 2012:

Further to the comments in March 2012 about Troy Trojan, the O class shares are still available from Alliance Trust Savings and Interactive Investor.

There is now another option which gives bigger rebates than Hargreaves Lansdown. Interactive Investor rebates all of the trail commission and all of the platform commission. It will therefore beat HL (which only rebates part of the trail commission) and Cavendish/FundsNetwork (which rebates all trail, but none of the platform commission) for virtually every fund. It even seems to beat Alliance Trust Savings ( which rebates all trail and at least some of the platform commission) for many funds.

No doubt Justin is working away on a new version of his comparison of the different discount brokers to take this into account. Interactive Investor has a bigger annual fee than the other organisations I have mentioned (£80 per year), so people with small portfolios will probably be better off with Cavendish. Interactive Investor also charges a dealing fee of £10 for buying and selling funds, so people who want to deal frequently might be better off with Cavendish (which currently has no dealing fee for funds).

However, for some investors with reasonably large portfolios and small numbers of deals per year, Interactive Investor could well be the new champion, because the bigger rebates outweigh the other charges.

Comment by ivanopinion at 11:04am on 29 Jun 2012:

ATS has just hiked its fees massively. Will often no longer be the best deal.

Comment by justin at 9:59am on 09 Jul 2012:

Hi, I've just updated the ISA comparison to reflect new Interactive Investor deal and ATS ISA fee hike.

ATS and Interactive Investor now more or less even re: effective cost on larger portfolios (both excellent deals) while ATS generally cheaper on smaller - although Cavendish Online best value on smaller if you're happy using funds only only via FundsNetwork.

Good to see increased competition, wonder if anyone else will try and take on ATS/Interactive Investor? HL appears to be trading more on its brand and service rather than price competitiveness these days...