We regard fees as nothing less than a financial cancer; one that erodes, or even wipes out, returns – an especially damaging factor in a low interest rate world – and wrecks the dreams and ambitions of millions of people saving for a prosperous retirement.
For that reason we should perhaps be celebrating the announcement that the country’s biggest fund “supermarket”, Hargreaves Lansdown, is cutting its charges from about 1.33 per cent a year to 1.1 per cent.
One financial journalist estimates that that should be worth £2,903 to someone who has parked £30,000 in a Hargreaves Lansdown Isa fund for 30 years, which, he says represents the firm’s average customer.
“This discount is long overdue,” writes Dan Hyde in The Daily Telegraph. “Hargreaves has for many years been making thumping profits at its customers’ expense.”
Those “thumping profits” equal 67p on every £1 of revenue, a margin that even the most rapacious profit-oriented company boss would drool over.
So should Hargreaves be given a pat on the back for finally facing up to one of the great personal finance evils of our times?
I believe the answer is no, it should not.
All right, it is a step in the right direction; one which other fund supermarkets will follow, just as Tesco will imitate Sainsbury whenever it reduces the price of one of its products.
From the point of view of the country’s five million or so private investors, that can only be a good thing.
But even at 1.1 per cent, Hargreaves’ average annual charge is way too high in my opinion. Something in the region of 0.5 per cent to 0.7 per cent would be far more equitable.
And then, where is the £8 million a year savings that Hargreaves says it is passing on to its clients coming from?
Not from its own coffers, it would appear. Like Tesco and Sainsbury, it is using its financial muscles to ratchet down the price it pays its suppliers – in this case the investment funds it promotes – and maintain its own margins.
My scepticism, born of more than 20 years’ experience of the financial services industry, tells me that Hargreaves is merely trimming its sails to a changing wind.
This was heralded recently when pensions minister Steve Webb fired the opening shot in a “full frontal assault” by the government on charges extracted by pensions providers (something, incidentally, that The Whitehall Partnership has been doing for years).
The minister’s idea of a full frontal assault, however, seems to amount to nothing more violent than a bit of throat clearing followed by a polite invitation to engage in “consultations” over this wholesale highway robbery of the thrifty and prudent.
Then there’s the suspicion that whenever a firm like Hargreaves sets an upper limit on its charges there will be some who lose out.
And lo and behold, one Hargreaves investor found that under the new charging regime the cost of holding his £110,000 pension savings in a Hargreaves tracker fund is soaring from £24 a year to £495 – assuming he doesn’t take his savings to someone who offers a much better deal.
The Hargreaves story only reinforces the fact that in today’s world there is no substitute for independent, unbiased advice when it comes to investing your money.
If you want to talk about your own pension arrangements, or any aspect of your financial affairs, whether it’s saving for school fees or reducing the impact of inheritance tax on your estate when you die, call The Whitehall Partnership today on 0845 43 49 250 to arrange a cost- and obligation-free initial meeting.