I still can't forgive Hargreaves Lansdown

You can now get ultra-cheap Vanguard trackers via Hargreaves Lansdown, but I still can't forgive the broker's decision to charge extra fees for nearly all tracker funds.

Last week I strongly criticised Hargreaves Lansdown for introducing ‘platform fees’ for most index tracker funds. Today we learned that the broker is doing something more positive.

The good news is that you can now invest in a wider range of index trackers via Hargreaves Lansdown. Most importantly, that wider range now includes the Vanguard index tracker funds.

Vanguard

Vanguard funds are very attractive because the charges are so low. The annual charge for Vanguard’s main UK tracker is just 0.15% while Vanguard’s US tracker charges only 0.2% a year.

The problem with Vanguard’s funds is that they haven’t been that easy to access. If you want to invest directly with Vanguard, you need to have a £100,000 lump sum to play with.

Admittedly, some platforms, such as Alliance Trust Savings, have been willing to accept much smaller investments in Vanguard funds, but that option hasn’t available to Hargreaves Lansdown customers until now.

As my main pension pot is with Hargreaves Lansdown, I’m pleased that I now have the option to invest in Vanguard funds.

SWIP

What’s more Hargreaves Lansdown has also persuaded Scottish Widows to launch an even cheaper UK tracker.  This fund is only available via Hargreaves Lansdown.

It’s called the Swip FTSE All Share index fund and it comes with an annual charge of just 0.07%. Wow!

Platform fees

But let’s not forget that you’ll also have to pay a £2 monthly fee on all of the funds that I’ve mentioned so far. So an investment in one of these funds isn’t quite as cheap as you might think. Especially if you’re only investing fairly small amounts of money.  

If you go to the Hargreaves Lansdown website you can see a full list of all the funds that are available on that platform. That list includes charges. But if you’d rather not click away, here’s a summary of the best UK and North American funds:

UK tracker funds

 US tracker funds

You’ll notice that Hargreaves Lansdown doesn’t charge monthly platform fees on either of the Black Rock tracker funds. However, the annual charges are higher than the other funds at 0.55%.

It’s those higher charges that enable Black Rock to pay commission to Hargreaves Lansdown. As a result, Hargreaves Lansdown doesn’t feel the need to charge a platform fee.

If you’re only going to invest a small amount, you may be better off with a Black Rock fund, but if you’re going to invest more significant sums, it makes more sense to go with Vanguard or SWIP.

Look at how the charges work out:

Charges for different sized investments

The table shows that as your investment gets bigger, BlackRock’s fund gets more expensive. So even though the new £2 charge is very annoying, it still makes sense for many investors to bite the bullet and pay up.

There’s no question that Hargreaves Lansdown offers a very cheap service for those who want to invest large sums in tracker funds. But the £2 charge discriminates against smaller investors.

We really need to persuade more people of modest means to start saving for their old age, and the new Hargreaves Lansdown charging structure isn’t going to help with that. I’d prefer a percentage-based charge rather than a fixed fee. I’m afraid I really can’t forgive this bias against smaller investors and savers.

That said, I shall probably switch some of my pension into various Vanguard funds before the year end. So I can’t complain too much....

More:  Use your ISA or property as a pension  |  You can beat the professional investors