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(Update with new comments on fund charges and impact of financial reforms).
Hard-pressed savers are cashing in their ISAs to make ends meet, according to Peter Hargreaves, founder of Hargreaves Lansdown, the online investment platform.
Squeezed by high inflation and low interest rates people were being forced to eat into their capital in order to survive, said Hargreaves, executive director of the Bristol-based firm.
In the second half of last year Hargreaves Lansdown saw the amount of money held in its Vantage ISA (individual savings account) fall £600 million to £8.9 billion.
Although a 7% fall in the UK stock market accounted for some of this decline Hargreaves said that for the first time his firm had seen people encashing their ISAs.
He said: ‘It’s not a flood, it’s a trickle but we’ve never seen that before. We normally only ever lose an ISA client to a rival, and that’s rare, or to probate.’
Hargreaves spoke to Citywire Money after the firm released results for the six months to 31 December, the first half of its financial year. These showed Hargreaves Lansdown generally shrugging off the difficult investment conditions. Pre-tax profits jumped 28% to £72 million with shareholders rewarded with a 5.1p per share dividend, up 13%.
Net inflows of new money from investors fell 13% from a year ago but at £1.16 billion analysts at Peel Hunt said it was ‘an impressive trading performance’. Total assets under administration fell £1.2 billion to £23.4 billion during the six month period but marked a 5% increase over 2011. Operating margins rose 2.5%.
Reviewing the half year, Hargreaves said he regretted the furore caused by the firm's introduction of monthly fund charges in December, although he defended the move as 'the right thing to do'.
As first revealed on Citywire Money, Hargreaves Lansdown now applies a £1 or £2 levy on funds (many of them index trackers) where it does not receive a rebate, or share of the fund's annual management charge from the fund management company. Although the charge is more transparent, it was controversial because it made the funds more expensive for smaller investors.
'Any publicity like that isn't good for you,' admitted Hargreaves, although he insisted that the policy was fair. 'We believe our charges should be commensurate for the work we do,' he said.
The fund fee was also an experiment to see how such charges could work before the Financial Services Authority abolishes the payment of commission to financial advisers at the end of this year under its 'retail distribution review' (RDR). This will herald a fundamental shake up of how savings and investmets are sold to the public and how financial advice is paid for.
It could also prevent platforms like Hargreaves Lansdown from taking rebates from fund managers and force them to unbundle their prices. This combined with increased competition from new investment platforms could erode the firm's high margins, analysts fear.
Hargreaves said the firm was 'keeping its powder dry' as to how it would respond to various RDR scenarios. He repeated his view that Hargreaves Lansdown was better prepared for the changes than most financial services providers.
He added his belief that RDR would kill off more competitors than it would encourage. 'Our margins may be a bit tighter but the volumes [of business] will be a lot higher,' he forecast.
Hargreaves Lansdown (HRGV.L) shares fell 8.7p or 1.9% to 451p.
Comments (23)
Here we go again and the message is the same, it comes from the Bank of England:-
Don't save
Don't teach your children to save
Never save money again
Savers will always be sacrificed.
People are now getting the message.
12:47 on 09 February 2012
I suspect that many are cashing in their ISAs because, in the main, they are losing value year by year.
14:09 on 09 February 2012
Pensioners savings,intended to support them in old age, without reliance on the state, are being systematically destroyed through QE. This will prove counter productive when state assistance is sought by the QE dispossesed. Surely a system which seeks to support borrowers at the expense of savers could introduce some kind of 65+ savings scheme which would maintain the value of their savings (and dignity).
14:40 on 09 February 2012
Certainly holders of cash ISAs are losing value year on year. However my ISA portfolio (mainly equities) has had an average annual compound growth rate of 8.89% over the last ten years, with a total growth of 43.2% over the last three years. I have a wide range of largely main stream funds along with around a dozen direct stock holdings. Although I take care in making buying and selling decisions I am not a particularly sophisticated investor, so I would dispute KRich's assertion that most ISAs are losing value year on year.
16:40 on 09 February 2012
Sinic, you've got it sussed. Don't save (cash). Invest instead.
18:17 on 09 February 2012
It would be interesting to know whether other ISA providers experienced the same outflow of money or whether HL were hit by many small investors moving ISAs out to avoid the charges on their small tracker investments
18:24 on 09 February 2012
@krich - My HL S&S ISAs certainly haven't been losing money year-on-year, and even if they were, I'd be continuing to invest during lows.
HL were guilty of terrible PR and customer care:
You can't spring this on people at such short notice.
You can't leave people scrabbling around to find which of their holdings attract charges and which don't.
Charging per fund, rather than applying a platform charge, pushes people to reduce diversification.
They will also happily charge per fund in your ISA, then again in your SIPP, and same again for you spouse.
I was going to be hit with a charge of £200 pa just for my SIPP, so HL lost my business and my SIPP is now in Vanguard trackers with Bestinvest. Yes, they charge a fee, but it covers my whole SIPP and lets me buy Investment Trusts, equities, and ETFs all within this one charge.
Watch and learn HL!
18:33 on 09 February 2012
I use the peer-to-peer lending site, Zopa to keep a proportion of my long-term savings pot. my feelings are that it is getting a better investment as the months go by and that few seem to be cashing in their investment. A lot of people with good credit records seem to be borrowing money.
18:45 on 09 February 2012
Hargreaves Landsdown just wishes to charge clients more, te kept their profits up.
Answer, go direct to the product provider.
18:56 on 09 February 2012
Well done Sinic and Steve P. Men after my own heart. Take the trouble to manage your own investments and find out how just ordinary folk can make a shed load of money.
20:39 on 09 February 2012
I have not been happy with their charges and have been thinking about managing my own investments for some time now. After reading the comments of clarkkent, Michael Stevens and specially sgjhaghsdg, I now know that my suspicions were correct and I will be doing so as soon as I return back to UK in mid April
20:58 on 09 February 2012
Left to their own devices most (but not all) investors are guided by emotions and tend to follow the pack. Discount investors, such as the typical Hargreaves clients know theyre getting a deal cheaper than going down the advisory route. A good investment based adviser will not let them follow their herd instinct and should stop them buying at the peaks and selling at the troughs which is what many investors do. The charges they pay should be cheap in comparison with what they save on losses that otherwise might be suffered. Penny wise and pound foolish comes to mind. My Company is picking up many disgruntled investors who have made serious losses over the past year in funds that they should never have touched via 'discount providers'. If the investors seriously knows how the markets work then lower costs make sense but if not steer clear and take advice!
01:09 on 10 February 2012
Advisor say "take advice". Sun rises in the East. More news at 10.
08:20 on 10 February 2012
If almost 100% of investors only cash in ISA's at the time of probate (or move to a competitor and still cash in at the time of their death) it appears to me that they are all saving too much and should be cashing them in and enjoying them while they still can thus helping the economy back on its feet again in the process. Why therefore paint it as a negative, its money people dont need to save!! (they currently die holding it in their hands).
10:09 on 10 February 2012
I am certainly worried about secret charges made on my investments with Hargreaves and hopefully more transparency will be legally enforced.
11:37 on 10 February 2012
Knowledeable insider would have a point but St. James place have returned me 3% on my pension investments over 5 years and that includes dividends rolled up etc., I think I can do better myself, so I am trying the SIPP route, only time will tell and I wont be cashing my SJP but running them along side each other. In 12 months+ I will consolidate to the one thats making the most. It is not the cost of the investment advice that is the issue here it is the shocking returns on investment.
12:08 on 10 February 2012
SJP have some of the highest charges in the business, and rather lacklustre funds on their platform, so seriously consider moving. Also have a read of Smarter Investing by Tim Hale.
12:47 on 10 February 2012
I've had share ISAs (and previously PEPs) for some years and don't buy managed funds unless I get at least some rebate of the management charge. I hesitate to move my ordinary investment portfolio back to an "advisor" as I know to my cost that constant movement of funds is of little benefit to me but benefits them, and I would have to pay a management fee on top of this.
Long-term research has shown that buying sensibly (i.e. not a risky investment) and holding it for a long period is effective. And tracker funds ALWAYS beat managed funds over the longer term.
It is a shame that HL are effectively discouraging people from buying trackers which are normally cheap to administer and thus should have lower fees.
However I agree with previous writers that governments over the past few years have actively discouraged investors and savers. Having removed the dividend tax benefits received previously by pension fund investors, the original basis for investment has been completely changed. Despite this radical change investors still are not free to remove their funds and make better use of them outside a pension fund.
The only people who benefit from pensions now are higher rate tax payers. For the rest of us the tax gain is largely swallowed up by the fees (up-front and on-going) which gnaw away at our savings.
14:20 on 10 February 2012
maybe some isa savers with hl have looked at their returns from Jupiter Absolute Return(much pushed by hl) and decided they would be better off in cash @2.5%....
10:18 on 11 February 2012
hl got me on board with their "under one umbrella rhetoric" I have one (relatively small) tracker in the mix which was doing perfectly badly on its own. With the helpof hl its now doing even worse. I, like many others I suspect, am looking at the various options for my pep/isa/sipp. (Im sure mr hargreaves trickle will continue for some time) I dont mind fair charges but the tracker move was foolhardy and ill judged and over time they will, sadly, lose a lot more.
12:51 on 12 February 2012
For most of their customers HL are an execution broker only. This means that we make your own investment decisions and have no business holding HL responsible for the investment errors we have made. For months whining investors on this forum have held anyone but themselves responsible for their own investing inadequacies. I use HL because they provide a competitive and efficient execution only trading platform for me to implement my own decisions, not because of their pr and marketing initiatives.
13:24 on 12 February 2012
"For most of their customers hl are an execution broker only". I would be interested to see the set of stats that back that statement up. I know several people who have the hl managed service, several who like me transferred several pep/isa/sipp to hl to have them in one place, several who like you use them as an execution broker only and some who have a mixture.The thing about pr and marketing is that with some people , it works. Funny old game eh
17:21 on 12 February 2012
I hold most of my ISAs on the co-funds portal & I follow their values on co-funds web-site.
I am aware of the charges.
IF it were possible to cash-in immediately, is this the actual amount I would receive?
Are the daily valuations given after ALL charges have been paid?
19:02 on 12 February 2012
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