Hallelujah! Hargreaves WILL let investors leave without penalty fees
INVESTORS who hold their savings with Hargreaves Lansdown are finally free to move their cash to a rival firm penalty-free.
Experts say the move to scrap its exit fees is an attempt to repair the firm’s reputation, which has suffered in the wake of the Neil Woodford debacle.
Others warn that the decision could spark a mass exodus, with disillusioned investors finally able to flee the firm without incurring hefty penalties.
Hargreaves Lansdown has been heavily criticised since fund manager Mr Woodford was forced to ban withdrawals from his Equity Income fund in June.
The firm had channelled millions of pounds of its customers’ money into the fund despite its dismal performance over the past two years and even included it in its ‘best-buy list’ of funds.
However, until last week, the investment giant charged savers to move their money elsewhere.
And these exit fees, that could run into thousands of pounds, prevented many disgruntled investors from switching to other, perhaps cheaper, platforms.
Justin Modray, of Candid Financial Advice, says: ‘Scrapping these charges should prove a boon for Hargreaves customers wishing to head for the door.’
Geoff Berry, 59, from Barnstaple, Devon, is one customer who is thrilled that he will be able to move his investments to a different platform.
Geoff has held his Isa and pension savings with Hargreaves for more than ten years. His savings total £600,000, around £30,000 of which is held in Woodford’s frozen fund.
He wanted to move his money to another firm when it emerged that Hargreaves had backed the Woodford Equity Income fund but switching would have cost £1,400 in fees.
Geoff says: ‘I lost faith in Hargreaves’ judgment after the way the Woodford problem was handled. Now the exit penalty has been removed I intend to move my investments to a rival firm.
‘The fees should have been scrapped far earlier. Savers should be free to move their money where they like without penalty.’ There are currently no rules limiting the fees fund supermarkets can charge customers when they switch to another firm — and costs can really add up.
Hargreaves previously charged a £25 fee per investment transferred out. This means it would have cost more than £500 to move a portfolio of 20 funds.
The City watchdog, the Financial Conduct Authority (FCA), is deliberating whether to ban or restrict exit fees but has yet to announce a final decision.
Its research found that 7pc of those who wanted to switch fund supermarket were put off, with many citing exit fees as a significant hurdle.
With experts predicting a ban as the most likely outcome, many firms, such as Hargreaves, are scrapping fees in preparation.
However, others are refusing to budge. For example, AJ Bell You Invest charges £25 per holding, Selftrade £15 per holding, and The Share Centre a flat fee of £25.
Mark Polson, of research firm The Lang Cat, says: ‘Banks switch current accounts without charging customers so there’s no reason the same can’t happen with platforms. Now that Hargreaves has moved to scrap exit fees, the rest of the market should follow.’
Switching platforms should be reasonably straightforward.
Once you have selected the right platform for you, opening an account online usually takes around ten minutes.
You’ll need to have your National Insurance number to hand as well as your bank details.
In most cases you need to contact your existing provider, inform them you are leaving and ask for a transfer form.
The new platform then gets in touch with the existing platform to process the transfer and will contact you when it is complete.
However, each firm has a slightly different process as there’s no universal switching format as of yet — although this could change.
A working group known as the Star project, is recruiting platforms to commit to a new set of common standards to deliver faster transfers and better customer communication.
Interactive Investor, Fidelity and Hargreaves Lansdown along with JP Morgan, Janus Henderson, 7IM and Vanguard have already signed up.
With switching set to become more attractive, many platforms are now offering incentives to lure in new customers.
For example, if you invest online with Fidelity by the end of the month you could win £1,000 in Amazon vouchers.
AJ Bell will pay between £50 and £1,000 cashback when you transfer a pension to an AJ Bell Youinvest SIPP.
The more you transfer, the more cashback you’ll get. The offer launched on September 2 and will ‘last until all cashback has been claimed, or until November 29’.
However, finding the right company to hold your pensions and investments is not just about price.
Bella Caridade-Ferreira, of website compare the platform.
com, says: ‘Finding the best value platform is important. Charges will eat into your returns, so it’s important not to pay over the odds. But equally you need to consider the kind of service you want.
‘A no-frills platform will be cheap but might not come with the level of personal service or research tools you want and need.’