Wraps defend Hargreaves tracker plans

Wrap platforms have defended Hargreaves Lansdown’s plans to charge a flat fee of up to £2 per month for tracker funds, saying the move is one of commercial necessity.

Yesterday it emerged Hargreaves Lansdown intends to charge investors holding certain tracker funds on its Vantage platform a flat fee of up to £2 per month, compared to the current annual rate of 0.5%.

Some investors complained the switch - coming into effect from 31 December - will make certain index tracker funds more expensive than costlier managed funds.

But wrap platforms have said the move is understandable and born from the need to maintain margins amid increasing use of tracker funds.

"Hargreaves face the same type of problem as fund supermarkets - trackers etc do not carry enough margin," said head of marketing Malcolm Murray (picutred). 

"If Hargreaves Lansdown are going to lose a source of their income then the client will have to make it up. On funds which have virtually no margin the only way they can make money is to charge the client a fee for handling them."

Ascentric managing director Hugo Thorman agreed the swtich is unsurprising and thinks Hargreaves' plans mark a more transparent approach.

He said: "This is a move towards transparency. They have got to charge something otherwise there is cross subsidy. For a client who just uses trackers on Hargreaves, why should that service be paid for by all other clients?"

But Nucleus CEO David Ferguson said the move goes against the current "drift" towards platforms acting as administrators rather than distributors.

"We take the view platforms should not have any influence over how people invest money - market drift is towards the unbundled approach," he said.

"Someone like Nucleus or Transact does not care if a client invests in a tracker fund or a highly specialist equity fund because we get paid the same," he said.

Nucleus charges 35bp per annum for all assets held on the wrap.

Ferguson said Hargreaves' new tracker charges will result in some investors paying more and others less.

"It depends on how many funds you hold in one account," he said. "If a client has one of those funds highlighted and they only pay £24 a year then that's a really good deal but if they have a portfolio of five or six funds with maybe some in a SIPP or ISA then it starts looking quite expensive."