Hargreaves ‘throws down the gauntlet’ with exit fees U-turn

D2C giant puts heat on AJ Bell to do the same

Hargreaves Lansdown’s has done a U-turn on exit fees as it seeks to put the episode of the Woodford Equity Income fund suspension behind it, putting pressure on rival platforms like AJ Bell to do the same.

The D2C giant will no longer charge customers £30 to close an account or £25 for Sipp and stock transfers.

Hargreaves has been trying to repair its reputation since the suspension of Neil Woodford’s fund, which it had championed via the Wealth 150 and then the streamlined Wealth 50 despite years of underperformance.

It waived its 0.45% platform fee in the days after Woodford Equity Income was frozen as a show of “support” for its 133,000 clients that were trapped in the fund.

Hargreaves throws the gauntlet down

Hargreaves head of communications Danny Cox (pictured) said the firm had been working on scrapping exit fees for “some time” and challenged other platform providers to follow suit.

“We have removed exit fees and think everyone else in the industry should do the same,” he said.

“We have been working on this innovation for some time and have invested heavily in electronic transfers. Now around 60% of transfers to HL can be done electronically, up from around 30% a year ago. Manual, paper-based administration is more expensive and time consuming than electronic processes and we’d encourage those in the industry not engaging with the Star working group to do so.

“We continue to support a ban on all exit fees, provided this is industry wide and not just confined to platforms, which would distort the market.”

At odds with AJ Bell over exit fee ban

But AJ Bell has expressed doubts that an outright exit fee ban is the right move.

It is among the D2C platforms that are still charging exit fees which also includes Halifax Share Dealing and The Share Centre.

An AJ Bell spokepserson told Portfolio Adviser it was considering exit fees as part of the FCA’s consultation but said the cost of transferring customers to another platform has to be borne by someone.

In an exclusive interview for Portfolio Adviser’s October magazine, chief executive Andy Bell said he reckons the regulator is far away from coming to a decision on banning exit fees.

Bell has previously defended exit fees, arguing there is a significant difference between recouping costs and charges that are in place to penalise a client from changing provider.

“Personally, I think if you’re charging customers for a service and it’s clear when they joined you, I don’t think there’s anything wrong with it,” he said.

Both Bell and Hargreaves Lansdown CEO Chris Hill are on board with the regulator’s decision to cast a wider net on exit fees and include DFMs and comparable retail firms that impose similar charges.

Industry dragging its heels

Interactive Investor chief executive Richard Wilson hailed Hargreave’s decision as “a very welcome move for investors” that “throws down the gauntlet to the wider industry which has dragged its heels on this issue”.

“We have long argued that exit fees are a recipe for rip offs and a barrier to competition,” Wilson said. “Now a much more competitive marketplace can start to open up.”

II has not charged exit fees since December 2017. In July it also scrapped exit fees across the Alliance Trust Savings platform, which it agreed to buy last October, amid reports it is looking to hand off the business to rival Embark.

The Share Centre, which charges a single fixed fee of £25 per account to transfer out, said it is “one of the leading flat fee providers”. It said the fact that more customers were switching into its platform than out “reflects our award winning customer service and low cost flat fees”.

“We currently charge a single fixed £25 per account to transfer out, reflective of the fact there is a cost in processing that transfer,” a spokesperson said. “We pay most transfer costs incurred by customers from other platforms transferring to us. The abolition of exit fees would not therefore have a material impact on our business and if universal across the industry, may actually prove to be positive not least as if it encourages more people to transfer, we believe we will continue to attract a net movement of customers onto our platform.”

Hargreaves quietly scraps more charges

In addition to scrapping exit fees Hargreaves has removed a handful of investor charges over the summer.

In June it stopped charging customers three fees including a £12.50 internal stock transfer fee, used in transferring sales between spouses and from an Isa to a pension, as well as a £75 fee applied to pensions going into drawdown.

Two more charges were dropped in September, among them a £1.50 charge per fund for customers who did not have enough cash in their account to cover Hargreaves’ management fees, leading to the necessary selling of a fund.

Customers will also no longer have to pay a £295 plus VAT charge for closing a pension early.

“This makes our charging structure one of the simplest and most transparent in the marketplace,” said Cox.

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