Fidelity undercuts Hargreaves Lansdown with new fees
Fidelity Personal Investing has introduced a new charging structure that aims to beat rival platforms such as Hargreaves Lansdown.
The majority of its customers - those with accounts worth up to £250,000 – will pay a fee equivalent to 0.35% of their holdings, while wealthier clients with accounts between £250,000 and £1m will pay just 0.2% a year.
The firm also said it has negotiated competitive deals with fund managers so that the average annual management charge (AMC) across the 2,000-strong fund universe will be: from 0.35% for multi-asset funds; from 0.2% for actively-managed funds; from 0.15% for bond and gilt funds; and from 0.09% for tracker funds.
But the AMC on vehicles that are included in Fidelity's Select List of around 140 funds will average 0.64% - meaning investors must pay more if they wish to invest in a Fidelity-recommended fund.
The new charging structure appears to be a direct challenge to Hargreaves Lansdown, the biggest platform in the UK, which last week announced fees of 0.45% for holdings up to £250,000, and 0.25% for accounts worth between £250,000 and £1 million.
Fidelity could have undercut Hargreaves Landown on AMCs too. While Fidelity's Select List funds have an AMC of 0.64% compared to 0.54% for Hargreaves Lansdown's Wealth 150; the lowest AMCs for all funds appear very low indeed at Fidelity.
In a further challenge to Hargreaves Lansdown, Fidelity is offering to rebate any exit fees paid by investors exiting rival platforms – Hargreaves Lansdown last week announced exit fees of £25 plus VAT, along with £25 plus VAT to exit each fund.
Fidelity is also not charging any exit fees.
The new changes being imposed by Fidelity and Hargreaves are the result of the Retail Distribution Review, which is banning the payment of commission on the sale of funds to make it easier for investors to compare fees. As a result investment platforms have been in the process of restructuring their charges. Most now charge an account or platform fee and either rebate commission via the retail shares, or sell so-called 'clean shares', which have a lower AMC that does not include the payment of commission.
Fidelity said someone who invests £10,000 in an Isa, choosing funds from the Select List, will now pay on average £99 a year, with no additional charges, "whether they want to phone us, receive a paper statement or switch their funds every day. – whereas Hargreaves Lansdown is charging £10 plus VAT per six-month paper statement.
Mark Till, head of personal investing, added: "This represents a significant saving for our investors, who would have paid £175 previously."
However, Justin Modray of Candid Money, said: "It is no surprise that Fidelity has chosen to undercut Hargreaves Lansdown on price, but then that was hardly going to be difficult. However, charging 0.35% on the first £250,000 invested still looks expensive in most cases and Fidelity has missed a golden opportunity to start a real platform price war.
"On the bright side Fidelity is at least treating customers fairly be retaining its policy of no exit fees, unlike Hargreaves Lansdown which is introducing penalties from 2 June."
While Fidelity and Alliance Trust Savings are currently allowing fee-free in specie transfers in light of their new pricing models, Hargreaves Lansdown is not permitting fee-free transfers unless they are converted into cash.
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.
Also known as index funds, tracker funds replicate the performance of a stockmarket index (such as the FTSE All Share Index) so they go up when the index goes up and down when it goes down. They can never return more than the index they track, but nor will they lose more than the index. Also, with no fund manager or expansive research and analysis to pay, tracker funds benefit from having lower charges than actively managed funds, with no initial charge and an annual charge of 0.5%.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Annual management charge
If you put money in an investment or pension fund, you’ll not only pay a fee when you initially invest (see Allocation Rate) but also a fee every year based on a percentage of the money the fund manages on your behalf. Known as the AMC, the actual percentage varies according to the particular fund, but the industry average for active managed funds is 1.5%.