Hello. We’ve been really chuffed with the interaction we’ve had on the blog since starting to cover Hargreaves Lansdown and the other direct platforms. So we asked a couple of our more prolific commenters if they’d be willing to write some stuff for us – and we’re delighted to say that Ivan Opinion (and yes, we do know his real name and email address but you’re not getting it) agreed. We haven’t edited his copy at all, partly because we probably shouldn’t and also because it’s ace. We hope you enjoy it.
So, what’s yer name and where d’ya come from?
Well, Cilla, for current purposes my name is Ivan Opinion and I come from London!
Ooh, chuck, that’s luvly. And I understand you’ve got a lorra lorra money invested?
Err, Cilla, isn’t this the point where you ask me about my hobbies and I have to answer with some lame Carry On-style innuendo about my sexual prowess?
Sorry, this isn’t Blind Date, chuck. You’re doing a guest blog for a website about investment platforms, so you need to tell the ladies and gentlemen about yourself.
Ah, OK. Well, I’m not a millionaire, but I do have quite a lorra money invested, both inside pension and ISA wrappers and outside. I’m 52 and I run my own very small business. Most of my investments are in trackers, but with about a quarter in active funds. I’m not sure when I will retire, but there’s 8 years to go until my kids are through full time education.
Ooh, and you’ve got those sexy blue eyes!
So, our Ivan, what did you want to blog about?
I thought I’d give my take on the impact of the RDR changes.
I’m just an investment amateur, but as I trained as an accountant I understand most of what you need to know (tax, accounting, economics) in order to make some sensible decisions about investment, so I have always been a DIY investor. Over the last ten years, this has got a lot easier, because there are so many places on the internet that provide information, if you have the time to find it and read it and you have the aptitude to understand it.
Like most DIY investors, I started out with Hargreaves Lansdown, when they seemed miraculous because if you bought funds through them you did not lose 5% initial charge! When they started adding loyalty bonus, a rebate of a small share of their annual commission, I was giddy with excitement. It felt like they were paying me to hold funds with them.
I was a HL devotee for many years, but five years ago I started to cotton on that they were no longer at the cutting edge of investment cost saving. I was stunned to learn that there were new kids on the block, like Alliance Trust Savings, who were not as noisy as HL, but were willing to rebate the full annual commission that they received. All I had to do was pay them Â£30 per year for my ISA and nothing for my investment account. Who doesn’t love an all-you-can-eat-buffet?
Sure, they also charged a fee for buying and selling funds, but I’ve learnt the hard way that many of my investment decisions will be wrong, so I should trade as little as possible. The trading fee helps discourage me from meddling.
So, I bade HL a fond goodbye.
Then, in early 2012, Interactive Investor joined the fixed-fee-and-full-rebate gang, and caught a lot of flak for changes in their fees that disadvantaged some of their existing investors. But the changes made them even more attractive to an investor like me, because their fixed fee is a buffet where kids/wife/parents go free. This makes a lot of sense, because why should it cost more just because my wife and I have split our investments between us, so we have twice as many accounts?
ATS helped convince me to switch, by increasing their fees so my wife and I went from paying Â£60 (ie, 2xÂ£30) to Â£196 (ie, 4xÂ£48). (Only 18 months later, they hoicked their fees again, so if we had stayed with them we would now be paying 4xÂ£90 = Â£360. Interactive Investor is still just Â£80.)
For me, RDR has been a mixed blessing, because I was already getting big rebates and if it had not been for RDR, I doubt that HMRC would have realised that rebates should be taxable. But RDR also means clean funds, and some of these are cheaper than the rebated dirty funds, although some are not (at least if the dirty fund is in an ISA or SIPP, so there’s no tax on the rebate).
A lot of people are feeling bamboozled by all the recent announcements, and it has certainly got more complicated, but overall I don’t think this means RDR has not achieved its objectives. RDR was not meant to preserve the comforting apparent simplicity of the old system.
Take HL customers as an example. Under the old system, HL were reportedly indirectly creaming off an average of about 0.65% from each customer and most of them didn’t even realise. When I switched to flat fee platforms, I tried to convince other family members that they, too, would save ÃÂ£hundreds by dumping HL. But rebates are difficult to understand and they found it difficult to believe that HL were no longer the low cost champions.
What RDR has successfully achieved over the last couple of months is to change the optics, so that the true situation is now stark. It is now obvious that many HL customers would be paying lower fees with other platforms and so they need to weigh this against their perceptions of the quality of HL’s service.
It reminds me of The Emperor’s New Clothes. HL has in fact been starkers (ie, far from the cheapest) for years, but they were able to hide in the undergrowth and if you didn’t look too hard it was easy to convince yourself that they must have something covering their modesty. As a result of RDR, they have been forced to step out from the bushes and display themselves in all their glory. And now even with a quick glance it is obvious that they are in the buff. If you like what you see (and if you have a small pot or you trade a lot, you might), then great. If not, then RDR has created lots of other options.