Hargreaves Lansdown is lowering the annual management charges on its Vantage investment products in order to meet RDR requirements, yet industry figures say the changes are doing more harm than good.

The UK financial advisor and investment firm, Hargreaves Lansdown, is lowering the annual management charges on its Vantage investment products following negotiations with the firms clients. The new charges will be implemented from 1 March 2014, in addition to the firm offering unbundled and discounted funds on its Vantage service.

The firm said that the lower fund annual management charges would particularly affect funds on the Hargreaves Lansdown Wealth 150 list, falling to approximately 0.65 per cent. The firm also lowered the charges on 27 other funds, which will have a lower AMC of 0.54 per cent, in comparison to the standard market AMC 0.70 per cent.

In addition, the firm announced a series of changes to client charges as a result of the implementation of the RDR in early 2013, including the introduction of a tiered fee on fund investments, which amongst other things, offers no charge on investments above £2 million($3.3 million).

“Taking into account predicted reasonable client behavioural changes, such as clients adopting the paperless service option and other potential changes, we estimate that the new pricing represents an £8 million investment in lower client charges by HL in the first 12 months of operation. There may be a further impact of £9 million on revenue as we approach the RDR "Sunset Rules" in April 2016, related to remaining transitional commission arrangements that will drop away,” the firm added.

Industry: Fee changes doing more harm than good

The move, aimed at creating transparency for investors, has however, not impressed everyone in the industry. Gina Miller, founder of The True and Fair Campaign said that “while it is interesting to see Hargreaves Lansdown revealing its charging model as part of the RDR reforms, this information still does not give consumers total transparency or greater understanding on all costs and fees”.

In addition, UK online discretionary investment management service Nutmeg said that “Hargreaves has missed a golden opportunity to simplify charges for customers”.

“Looking at the new Vantage tariff we see no fewer than 73 lines relating to different charges! These include charges that are set fees, percentage of AUM fees and percentage of transaction fees, some including VAT and others not including VAT. Furthermore there are complicated criteria to qualify for this or that and a note that chosen investments may have their own initial and annual charges and bid offer spread. This is completely bewildering to the average investor and requires a detailed analysis by the most committed of analysts,” explained Nutmeg’s chief executive Nick Hungerford.

The RDR, which took effect at the start of 2013, outlaws trail commission payments to advisors and imposes higher standards of professional training on the wealth advisory industry. This has prompted industry concerns that clients would refrain from paying fees for financial advice. More importantly, the regulation was intended  to increase transparency and clarity for consumers and investors in the industry. However, that goal might not yet have been achieved, according to the True and Fair Campaign.

“RDR has so far failed to deliver clarity for consumers on the amount they are paying for investments;  today’s announcement from Hargreaves Lansdown demonstrates the scale of the problem. Its claim that the pricing changes will see customers saving money over-all because of discounts obtained from fund providers risks causing more confusion, not giving greater clarity,” concluded Miller.