Investment Trusts Unhappy with Hargreaves

Investment trust investors have hit back at platform provider Hargreaves who last week significantly cut the cost of investing - but only for open-ended fund investors

Emma Wall 23 January, 2014 | 1:29PM
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Investment trust investors have taken to forums to condemn the new pricing on Hargreaves Lansdown's platform. Under the new pricing structure announced last week hundreds of thousands of investors will pay less - with Hargreaves calculating total savings will equate to £8 million. 

No justification for treating investment trusts separately to other listed shares

But the bulk of these savings will only apply to investors who hold open-ended funds, as Hargreaves has negotiated with asset managers to cut the annual management charge on their funds. 

Investors who hold closed-ended funds may actually see their charges rise. The stock broker has reclassified investment trusts; previously they carried the same dealing charges as any other share bond or exchange traded fund (ETF), but they will now fall into a distinct category. 

This means if you invest in investment trust as well as other listed assets you will pay a service charge of 0.45% on both sets of holdings. 

Ian Sayers, Director General of the investment trust trade body the AIC , said it was difficult to see any justification for treating investment trusts separately to other listed shares or securities, as the mechanisms for dealing and holding them are the same. 

"However, it may well be cheaper to hold investment trusts on this platform compared to open-ended funds, as the charges are capped for investment trusts but not, say, for unit trusts," he said. "For example, an investor with £100,000 in unit trusts might pay an annual fee of £450 a year, but only £45 for a portfolio of investment trusts.  Investors will need to read the fine print and do their research to find the most cost effective platform for their individual portfolio."

Investors who hold a blend of funds, investment trusts and shares are expected to see the cost of investing with Hargreaves fall as the savings balance the new classification. However for investors who only hold shares and investment trusts the new charging structure has not been well received.

Hargreaves customers have taken to blogs and forums to discuss the best plan of action, with many speculating whether they should transfer their holdings to a platform with cheaper charges, or transfer out of investment trusts into closed-ended funds or ETFs.

Danny Cox, Head of Financial Planning at Hargreaves said that investment Trusts have unique characteristics which justified categorising them separately from shares.

"Although investment trusts are traded on the stock market like shares, investors tend to hold them and treat them like funds. It is important therefore that our pricing reflects both these characteristics," he said. "The charges to buy and sell investment trusts reflect the costs of dealing on the stock market which are higher than those for funds. Clients will also pay an annual charge, like they do for funds, but capped at a much lower level.

"These caps reflect the fact that investment trusts attract a dealing charge. By combining the dealing charge with a capped platform charge, we believe we have struck a fair balance."

If you wish to comment on Hargreaves' new pricing structure click here to email us

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Emma Wall  is former Senior International Editor for Morningstar

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