Britain's largest direct investor fund platform Hargreaves Lansdown has significantly cut fund charges. Eighty per cent of Hargreave's 500,000 clients will pay less to use the fund supermarket from March 1.
Hargreaves has cut both its own charges - and negotiated with asset managers to cut their annual management charge (AMC) on certain funds too. Hundreds of thousands of investors will now pay less to invest in the best performing funds on the market, with total savings expected to equal £8 million.
Hargreaves chief executive Ian Gorham said that the company was able to cut costs because of the scale of their operation.
"We got great prices from the fund providers because we have clout. The cost of investing clients’ money has fallen over the past five years," he said. "Five years ago volumes were smaller, costs were higher and technology was less developed, now is the time to pass these savings on to our clients."
Hargreaves said that the cost of looking after people’s money has fallen from 0.61% in 2007 to 0.24% today. From March 1, investors with £250,000 or less will be charged 0.45% a year.
Gorham compared the business to that of US platform Charles Schwab which is able to charge clients even less than Hargreaves' new model thanks to the number of clients it services.
"We hope that as the business grows we will be able to pass even more savings onto our clients," he said.
There will no longer be a flat fee for account management nor a fee when clients place fund deals. Instead annual fees will be based on the size of the portfolio. Based on an ISA portfolio of £11,520 - the tax-free allowance for the 2014/15 tax year - Hargreaves clients will see annual charges drop from £93 to £52. If the client invests in a number of core funds, or is eligible for a loyalty bonus this could drop to £33.
As well as the Wealth 150, a best-in-class list of funds chosen by Hargreaves' head of research Mark Dampier, there will be new group of core funds named the Wealth 150+ which will have greater price reductions thanks to negotiations with the fund providers.
These 27 funds will be revealed to investors on March 1 and will carry an average AMC of 0.54%. Passive funds from BlackRock and Legal and General will start at 0.06%.
Dampier dismissed claims that asset managers would be able to "buy" their way on to the Wealth 150 by offering Hargreaves significant reductions to their AMC.
"The Wealth 150 is purely determined by investment. We were offered a couple of very attractive pricing deals by asset managers whose funds were just not up to scratch so they didn't make it on the list," he said.
Not all clients will benefit from the cuts however. Twenty per cent of Hargreaves' clients will see small increases to their annual charge. There will be a £20 paper statement charge for clients not online and some clients with large amounts of money in few passive funds will not benefit from the cuts. Hargreaves said it was writing to all clients to explain how these costs could be reduced.
