Hargreaves Lansdown shares fall after company reveals radical fee overhaul that could hit revenues

By Emma Dunkley

Updated: 02:48 EDT, 16 January 2014

Shares in Britain’s biggest fund supermarket, Hargreaves Lansdown, have fallen after the company revealed a radical overhaul of charges that could hit revenues by as much as £17million over the next two years.

The share price dropped by around 4 per cent from 1508p to close at 1446p.

From March Hargreaves will start charging savers an annual fee for holding funds and will slash the charges on a range of products.

In the red: Hargreaves Lansdown's share price dropped by around 4 per cent from 1508p to close at 1446p

These new fees come ahead of regulation in April that will stop fund supermarkets raking off commissions from fund providers for selling their products.

The Financial Conduct Authority is also expected to issue guidance today about conflicts of interest and ‘inducements’, such as fund managers hosting trips and offering hospitality to advisers and fund supermarkets.

From spring 2016, fund supermarkets will not be able to take kickbacks from fund providers for existing savers who invested before April.

The idea of this regulation is to make it clear what savers are paying for.

Hargreaves is introducing tiered fees in order to make up for the loss of commissions. Savers with less than £250,000 to invest will be charged 0.45 per cent a year. The fee drops to 0.25 per cent for those with £250,000 to £1m to invest and 0.10 per cent for savers with £1m to £2m. There is no charge for pots of more than £2m.

On top of this, savers will also have to pay a fee that will go to the fund manager. These charges will be cut to an average of 0.65 per cent on 150 of Hargreaves’ favourite funds, compared with the market price of 0.76 per cent. Fees on the top 27 funds, selected for their low prices and top performance, will be 0.54 per cent on average, saving 0.16 per cent over the average cost elsewhere.

For example, a small saver would pay a discounted 0.66 per cent a year for the Artemis Strategic Assets fund and 0.45 per cent for using Hargreaves Lansdown, adding up to 1.11 per cent.

Hargreaves Lansdown says the overhaul could hit revenues by £8m in the first year. And the company could lose another £9m in revenue by April 2016.

Analysts at Peel Hunt say this potential hit represents only around 3 per cent to 4 per cent of the company’s expected profits.

Hargreaves Lansdown says it will need £3.5bn of new business from savers over the next three years to make up  for the revenue hit.

Hargreaves has slashed the costs of its funds by negotiating deals with providers, which should attract more savers.

But some analysts believe the share price has dropped because of profit-taking.

‘Other brokers might have lower charges but Hargreaves will likely see significant volumes of business,’ one analyst says.

This is because many financial advisers will only help savers with large sums of money. Small savers are left to go it alone through ‘DIY’ supermarkets such as Hargreaves.

Hargreaves dominates the DIY market as the largest retail supermarket in the UK, with 520,000  clients and £39.3bn under administration.