Hargreaves Lansdown performs u-turn on charges
The UK’s largest Isa platform, Hargreaves Lansdown, has performed a U-turn on plans to introduce a charge to investors who wish to hold investment trusts.
The firm announced its new pricing structure in mid-January, introducing a raft of new charges including a controversial 0.45% fee for holding investment trusts within the Vantage platform - capped at £45 a year.
The changes imposed by Hargreaves and rivals 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.
The new investment trust charge in particular was not well received by Hargreaves customers, while rivals were quick to seize an opportunity to waive investment trust fees when they announced their new charges.
With that in mind, Hargreaves has clearly decided that to scrap its plan to impose the fees on customers. In a statement, it said: "We deliberated long and hard about the changes required to accommodate the new regulations. Investment trusts were one of the most challenging considerations.
"Investment trusts are covered by the new regulations, they are traded on the stock market like shares but clients tend to hold them and treat them like funds. Therefore, we decided to amend the annual charge for holding investment trusts in Vantage so that they would be charged separately from shares. This would also support extending our services around investment trusts."
Ian Gorham, chief executive of Hargreaves Lansdown, added: "We have always listened to clients and designed our service around what they want. It is clear that this particular aspect of our pricing change has been disliked. I believe it is therefore the right thing to do to revert to a charging structure that clients are happy with. Clients who hold investment trusts through Hargreaves Lansdown will therefore be better off than previously proposed."
The term is interchangeable with stock exchange, and is a market that deals in securities where market forces determine the price of securities traded. Stockmarket can refer to a specific exchange in a specific country (such as the London Stock Exchange) or the combined global stockmarkets as a single entity. The first stockmarket was established in Amsterdam in 1602 and the first British stock exchange was founded in 1698.
Investment trusts are companies that invest money in other companies and whose shares are listed on the London Stock Exchange. As with unit trusts, private investors buying shares in an investment trust are buying into a diversified portfolio of assets (to reduce risk), which is managed by a professional fund manager. Investment trusts differ from unit trusts in two important ways: they are listed on the stockmarket and so are owned by their shareholders and are closed-ended funds with a finite number of shares in issue. This means the share price of investment trusts might not reflect the true value of the assets in the company (known as the net asset value, or NAV) and if the NAV value of a share is £1 and the share price in the market is 90p, the trust is said to be running a discount of 10% to NAV. But this means the investor is paying 90p to gain exposure to £1 of assets. Investment trusts can also borrow money and use this money to buy investments. This is known as gearing and a geared trust is thought to be more of an investment risk than an ungeared one.
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.