Price Wars. Or Price Bores.
The winds of change are not neatly aligned in financial services when it comes to costs and charges.
In August, Charles Stanley Direct announced an increase in its lowest tiered price, from 0.25% to 0.35%, to kick in next week. These guys have held the unofficial title of ‘probably the cheapest fund and shares trading platform’ for most accounts for a while and the move probably thrusts that honour to AJ Bell Youinvest (broadly speaking with assumptions about average balances and trading frequency.)
Here’s a good example of what our mail bag looked like after the increase. Ian wrote “I wondered what you thought about the recently announced increase in Charles Stanley Direct platform fees? Has it made a difference to the ratings you have for the sites you review? Is there a case to be made to move to another provider and what are the main considerations for such a move.”
Despite the increase Charles Stanley still remain broadly competitive. The average headline administration fee for largest 10 DIY fund ISA providers will shift very slightly to 0.34%. Not including the fixed £ fee brigade who are another kettle of fish.
We suggested to Ian that if the service was good and he was happy where he was– and unless his portfolio was starting to head North of about £300,000 – then any change in pricing compared to the faff of moving was probably not worth it.
But hold up – there’s another school of thought around
Despite us not getting that excited by moves of 10 basis points, there are signs of significant price upheavals on the horizon.
Robin Hood is a US trading app which charges no brokerage fees and currently only makes money from interest on cash. The venture capital guys can’t get enough of this. It’s the “get the eyeballs and monetise them later” school of thought. A month ago Fidelity announced two fee-free ‘exchange traded funds’. FREE funds. This is mega news and quite brave. One of the industry’s biggest names thinks we should be able to access US blue chip and international share funds for nada.
Nonetheless Fidelity made a record $5.3bn operating profit on revenues of $18.2bn last year. So if I were a less trusting soul I might suggest that this is like giving away a small bowl of salty crisps in the hope that someone will buy 6 pints of beer. But enough cynicism in one so young…
It ain’t just about price
Hargreaves Lansdown clearly remains one of the priciest options, but it has still gobbled up the lion’s share of inflows in the first 6 months of 2018. With a headline fee of 0.45% Boring Money readers rate it a modest 3.3 out of 5 (compared to an average score of 3.8) when it comes to value for money but nonetheless 78% of customers would recommend it to others. Whilst there will always be those who want to pay the lowest available fee, most DIY investors we talk to make a value assessment, with service and convenience being weighed up against cost. The industry focusses more on a 0.1% pricing differential than the vast majority of consumers. As someone said to me about Hargraves last week, “Hanging on the phone does my head in and these guys answer quickly and you can talk to a human being who can actually solve your issue. I’ll pay for that.” Quite.
Clarity and transparency is key
Massive adviser firm St James Place is notably bad at being super clear on what they charge. Fees are high. I’m not going to argue the value point here today (and many customers say they value their service) but it makes me hopping mad that they do not spell it out more clearly to new customers.
The following is typical of the questions we are asked: “I was left some money in 2016, and was advised by my bank to get in touch with SOLA, The Society of Later Life Advisers. They put me in touch with a financial adviser, who turned out to be a St James's Place partner. Being a bit naive, I took their advice and invested my money in a St James's Place managed fund, split into ISAs and bonds. That was in December 2016. I have since been reading disturbing reports about St James's Place. e.g. the Which report! My investments have done reasonably well, about 5%. However if I were to encash it would not have gained anything. Should I have concerns about St James's Place? My accountant says they are ok. Should I have found an independent financial adviser, rather than a St James's Place partner?”
The initial fees and ongoing charges are high. There’s no law against that but I never hear from any customer who is able to clearly articulate what they have paid, pay today or would pay if they left. And that’s bad. Full stop.
So there you have it. Prices up. Prices slashed. And prices maintained. As for the direction of travel, 64% of CEOs and directors of DIY platforms we canvassed in June felt that prices would fall over the next 5 years. I agree. And I suspect the fund managers are first in the firing line, before advisers or investment platforms. But that’s another story for another day.