Hargreaves challenges FSA view that fund charges will fall

Hargreaves Lansdown has questioned the FSA’s belief that management charges on funds will fall under adviser charging and the platform reforms.

In a response to the regulator’s platform consultation paper, released to the stock market today, the group, which operates the Vantage platform, says fund providers may consider cutting their fees to be “imprudent”.

“We wait with interest to see if such changes will occur to the extent the FSA envisage”

Hargreaves says: “We understand the logic of [the FSA’s] expectation of a fall, whilst noting market forces are the key driver of prices rather than regulatory change.  However, we wait with interest to see if such changes will occur to the extent the FSA envisage.

“For example, if the IFA population shrinks, fund managers may need to retain income to finance alternative distribution and advertising strategies. Therefore they may consider reducing charges, especially in the short-term, imprudent.” (article continues below)

The FSA said in its platform consultation paper yesterday: “We would be surprised, given the impact on a fund manager’s performance figures, if fund [charges] were maintained at current levels. We would also be disappointed, given the confusion for consumers this would cause.”

Hargreaves also says the platform consultation paper does not pose a threat to any of its sources of income, and there are no elements of the paper that are a cause for concern.

Ian Gorham, the chief executive, adds: “We are satisfied with the outcome of the FSA’s platform paper. The paper contains a number of initiatives which, if properly delivered, should benefit financial services retail clients. We do not perceive any threat to the Hargreaves Lansdown model from the paper. As we already offer most of the initiatives proposed by the FSA, such as re-registration, the cost implications for Hargreaves Lansdown should be very limited.”