In the 1990s, a duo revolutionized the world of do-it-yourself investing. Peter Hargreaves and Stephen Lansdown, co-founders of the financial firm Hargreaves Lansdown, introduced a groundbreaking online platform for DIY pensions and share dealing. This innovation allowed individuals to invest in shares and pensions without requiring the assistance of a financial adviser.
The birth of this modern investment platform marked the beginning of a new era. Hargreaves Lansdown now boasts 1.7 million customers, collectively investing almost £130 billion, proving the high demand for such services.
Over the years, the market for investment platforms has become increasingly crowded. Major competitors like AJ Bell and Interactive Investor, with their expanding customer bases of over 400,000 clients each, have emerged.
Despite the growing competition, Hargreaves Lansdown has maintained its position in the market, although it is considered a more expensive option. So, is it worth the cost? Here’s what you need to know.
What are the costs associated with Hargreaves Lansdown?
Similar to other investment platforms, the charges for using Hargreaves Lansdown depend on your invested assets and trading frequency.
For example, if you have a stocks and shares Isa, the funds within the first £250,000 are charged at a rate of 0.45% per year. The next tier, between £250,000 and £1 million, incurs a rate of 0.25%. The following tier, from £1 million to £2 million, carries a rate of 0.1%. Any assets exceeding £2 million are not charged. Additionally, shares, investment trusts, exchange-traded funds, venture capital trusts, gilts, and bonds are charged at a rate of 0.45%, capped at £45 per year.
For instance, with a £100,000 Isa, equally divided between investment funds and shares, the annual fee would amount to £270. On the other hand, a £500,000 Isa would incur an annual fee of £1,170.
A self-invested personal pension (Sipp) follows the same charging structure, except the fee for shares is capped at £200 per year. Therefore, a £500,000 Sipp, with a 50/50 split between funds and shares, would cost £1,325.
Furthermore, the more deals you make, the lower the cost per deal. Dealing in funds is free, but for both a Sipp and an Isa, you will be charged £11.95 per deal if you made up to nine trades in the previous month, £8.95 for 10 to 19 trades, and £5.95 for 20 or more trades.
Evaluating the true cost of fees
While it might be tempting to overlook the fees of a preferred company, especially when they are automatically deducted from your investment account, high charges can have a significant impact on long-term returns.
An analysis conducted by consultancy firm the Lang Cat demonstrates that a £100,000 pot would grow to £162,890 after ten years of 6% investment growth if the fees were 1%. However, if the fees were 2%, the same pot would only be worth £148,000.
After thirty years, the pot with 1% fees would amount to £432,200, whereas the pot with 2% fees would only reach £324,340.
In other words, after ten years, the investment portfolio charged with 2% fees would have lost approximately 9% of its potential growth compared to one charged with half the fees. After thirty years, the difference would amount to 25%.
How do Hargreaves Lansdown’s costs compare?
Hargreaves Lansdown is considered more expensive than its main competitors. Research consultancy firm Platforum rates the platform at just one out of five for pricing.
According to research firm Boring Money, a £50,000 Isa invested solely in funds would cost £225 per year with Hargreaves Lansdown, compared to £131 with AJ Bell and £120 with Interactive Investor.
The cost disparity increases as the investment pot grows. For example, a £250,000 Isa would incur a fee of £1,125 per year with Hargreaves Lansdown, while AJ Bell would charge £637 and Interactive Investor would charge £120.
The same pattern holds true for pensions. A £500,000 Sipp invested in funds would cost £1,750 with Hargreaves Lansdown, £893 with AJ Bell, and £228 with Interactive Investor.
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