In recent days we have been given an indication of what Hargreaves will charge. They have clearly indicated that the cost of both the bundled and unbundled structure will be the same. Even before this announcement I have often questioned where is the value in a structure like Hargreaves or any other direct platform.
This question perhaps is not as stupid as it sounds. Say, Hargreaves are taking 0.6% p.a. as a fee for their proposition what do we get for that. I am a Hargreaves customer and have been for some time. For this fee I get a trading platform for my pension and really for me that is all I value. I don’t value their website because I can get that information from independent sites, and from my own research, nor do I value the mailings I receive. So for me the fee seems a little steep.
For my ISA I use iii.co.uk because they charge both me and my wife £80 a year which goes towards the cost of the trading charges. This is a no frills site and gives me everything Hargreaves give me but without all the mailings.
If we take our proposition as financial planners, we know that our investment portfolios including the investment funds, the platform charge and our fee come in around 1.70%. For an equivalent portfolio on Hargreaves this would cost me around 1.35%. So the extra cost of an advised proposition is 0.35% p.a. The pension is a little higher.
The argument has always been that you save money by going direct but I want to question where is the value? In reality if you go direct you are in control of your financial plans and your investment decisions, what you receive might guide you but ultimately that decision rests with you. Some individuals will feel that saving 0.35% p.a. is worth that.
However, I would actually argue that if I was going direct and confident to go direct then actually the saving should be a lot greater because in reality all they are, are a platform to enable you to facilitate your financial plan.
It made me think about what you get for the additional 0.35% p.a. from a financial planner. A good financial planner will deliver:
- A financial plan which will take you through all your life steps both pre and post retirement i.e. it is a lifetime plan
- They will look to give you the most tax-efficient means of saving for retirement, and by doing this will enable you to save tax in retirement
- They will look after your investments giving you peace of mind whatever the market is doing
There are so many statistics from both sides of the fence but it is true that it is very hard to be detached from your investments if you are managing them, and for all the stories of success there are disappointed investors looking for someone to blame.
If Hargreaves stick to what they have said then the question we have to ask is whether a saving of 0.35% p.a. is really worth it, and whether the additional cost against the additional benefits is worth paying for. If we think it is then we should seek advice. If we don’t then I would then question whether we value what they give as a direct provider and whether there are cheaper offerings delivering the same service.
In summary with such a fixation on cost, you need to ask where is the value? Only when you can answer that can you decide which is the best route for you.