[Mike Dennis]

I note that final results for AJ Bell are out today and they are reporting healthy growth rates in both advised and DIY customers. Makes interesting reading although I haven’t yet had time to go through all the details to see what it all means – https://www.investegate.co.uk/aj-bell-plc–ajb-/rns/year-end-trading-update/202110210700037268P/

[Mike Dennis]

Mike – you asked if somebody can explain why people bother investing in Funds rather than Trusts. Its not very clear to me either. Perhaps the two most obvious advantages the funds might claim over trusts are firstly they don’t gear so they can be more stable which appeals to those who might be worried by higher volatility. And secondly, for those investing small amounts each month, the trading costs are usually zero whereas they are usually higher for investment trusts. Can’t think of any more advantages but someone else might…???

[Mike Dennis]

In reply to reply #18851

Hi Mike
Sorry to hear about your issues with HL but thanks for sharing them with us. Its usesful to know what’s going on so we can help everyone make better choices and maybe also encourage brokerages to better performance. Don’t forget to post your comments on your experiences of transferring to IG in the IG forum here – https://www.sharesoc.org/forums/topic/ig/

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[Mike Dennis]

In reply to reply #17228

Thanks Heather. I haven’t come across the fee free monthly purchase option so thanks for pointing that out.

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[Mike Dennis]

In reply to reply #17244

Hi Phillip.
Good question. I know of no good reason why HL charge such a high custody fee on funds but not on other holdings. I believe its a hangover from the “old days” when fund transactions and holdings were treated very differently to those in shares or ETFs. The whole fund market and supply chain used to be an opaque system of charges and commissions which the average investor found difficult to understand but who ultimately paid the price for this opacity. RDR sorted out a lot of this and created “clean” funds where brokers no longer received back commission from fund managers. But there still remained a difference between trading and holding (custody) charges for shares and those for funds. With the increasing use of online trading platforms for both shares and funds, it has brought these differences into stark relief because the user perceives no obvious difference between the two that could justify the difference in charges.

Many brokers now charge exactly the same fee structure for trading and holding shares and funds (for example, Interactive Investor) which tells you all you need to know about the relative underlying costs associated with trading and holding both assets. I therefore think the main reason that HL continue to resist this simplification is that their business is heavily biased toward customers who have modest portfolios consisting mainly of funds which they trade very infrequently. So, to change their fee structure for funds to the same as shares would be commercial suicide. So, as long as the majority of their customers continue to tolerate this fee structure and choose not to switch to a lower cost broker, the longer HL will hang onto it.

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[Mike Dennis]

In reply to reply #16800

Good spot Mark. Ijust checked the notes again and the £113m was for “Stockbroking commission and equity holding charges”. I think their broker charges were the majority of this but it would take a bit more detective and algebra work to get a handle on the split. Dont forget that many clients still use telephone broking which increases tbe average charges considerably.Holding charges on equities are zero for trading accounts and 0.45% of holdings for ISA and SIPP accounts up to a max of £45 pa and £200 pa respectively.

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[Mike Dennis]

Interesting Facts from HLs latest Half Year Results

Interesting data for us :-
>
> Massive increase in customers last year driven by the covid effect – now at 1.5m Average age of new clients has dropped from 45 in 2012 to 37 in 2020.
> Market share claimed to be 40.3%
> 6.5m equity trades in H1 generated £113m revenues which is 123% up on H1 prior year (2.9m trades).
> It looks like the average HL client did about 4 trades in the last 6 months of 2020 which is twice the average

>
> Overall HL revenues are up 16% YoY
> Operating costs up 25% – most of the increase is driven by increased equity trading, acquiring and onboarding new customers and reconfiguring ops to deal with covid. The latter two are more likely to be one-offs which will drop off from future cost base?
> PBT up 10%
> Funds they hold are circa £62bn compared to £40bn equities but gap is closing.
> HL continue to make very comfortable revenues (£110m) from fund custody charges and renewal commissions.
> Nearly 50% of all revenues (£140m) come from holding funds and managing funds of funds. I suspect this is by far the most profitable bit of their business – their crown jewels.
Average revenue per user (ARPU) is £400 (H1 turnover £300m x2 to annualise / 1.5 million customers which I think is a decline from prior years.
The average customer portfolio size is £81k. So the average customer is paying HL 400/81k = 0.5% pa in fees.

[Mike Dennis]

In reply to reply #16531

Still waiting for my wife’s trading account to be transferred from HL to ii. My wife has sent HL a couple of chaser emails and they respond apologetically (eventually) but the account has still not moved. I think they are struggling to digest all these new clients they have signed up in the past year.

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[Mike Dennis]

In reply to reply #16561

Thanks Douglas and thanks Mark

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[Mike Dennis]

In reply to reply #16551

Thanks Douglas – that’s good to know. I have never used AJ Bell’s YouInvest platform but it sounds like they provide a reliable and fairly comprehensive service.

Out of curiosity, I just went on their website to check their pricing. It all seems quite mysterious in that you have to tell them what you intend to hold in shares and funds (unit trusts, OEICs and structured products) separately and how many trades of shares and funds you intend to execute per year before they will reveal their pricing structure. Having done this they revealed that their custody holding charges are a percentage of holdings and the charge is considerably more for funds than for the equivalent holding in shares. For example, the custody charge for £250k of shares is £120 pa but for the equivalent amount in funds it is £625 pa. There is no obvious reason why it should cost them over 5 times as much to hold clients’ funds as it does to hold their shares. HL have the same pricing structure and its one of the reasons I switched my largest portfolio out of HL and into ii a couple of years back. In competitive markets, prices ultimately tend to reflect underlying costs so I do think YouInvest and HL will both have to drop this arcane pricing structure at some point due to market pressures but they are clearly doing well enough at present not to feel any need to do so.

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[Mike Dennis]

In reply to reply #16528

Thanks Robert – good to know. I shall see if they can achieve similar timeframe with my wife’s portfolio.

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[Mike Dennis]

Some interesting data from AJ Bell’s most recent trading update for quarter ending 31st December 2020.

Total platform customers closed at 298,053, up 31% over the last year and 6% in the quarter of which:-

o Advised customers of 112,308, up 12% over the last year and 3% in the quarter

o D2C customers of 185,745, up 46% over the last year and 8% in the quarter – this is their YouInvest (DIY) platform.

This looks like a new customer acquisition rate well above market rates. I can only assume market share is being grabbed at the expense of HL and others?

So, what is it that AJ Bell are doing right in their service offer?

[Mike Dennis]

Yes, I agree that HL have too many service problems at present and its not clear why they should be struggling to provide normal service levels. Their competitors also have their bad moments but seemingly nowhere near as many. My wife is presently trying to transfer a small trading portfolio (5 holdings) from them to ii and its taken 3 weeks so far with no sign of progress. She has struggled to get responses when chasing them.
Interestingly the main reason I transferred my ISA from HL some time ago was their expensive 0.45% pa charge for holding unit trusts. There’s no logic for it – custody costs are no different investment trusts. But I guess they have themselves in a bind. They probably know that they will have to be more competitive in the medium term but, if they change their unit trust pricing in line with pricing for other holdings they will eliminate a very large chunk of their present revenues. Its a dilemma for them and they will resist making the change until the pain of market share loss outweighs the pain of price reductions. A relatively low growth market with very few new customers may be the trigger for this change especially if poor portfolio growth wakes up more of their “zombie” customer base to the fee levels they are paying and how much they can save by switching.

[Mike Dennis]

I use ii for an ISA and a trading portfolio and I do find their service reliable and cost effective with a low fixed charge – no percentage of portfolio size nonsense.
They are also good at alerting me to corporate actions and AGMs and making voting relatively easy compared to my Hargreaves Lansdown accounts.

[Mike Dennis]

Just to get the ball rolling on this thread, I thought it would be useful to post links to some historical news articles we already have about HL in our archives. You can find all of these and more yourself by just typing “Hargreaves Lansdown” in our search box…

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