News Column

Personal finance: Fund supermarkets with bitter legacy for heirs of the loyal savers who die: Investment firms are accused of boosting their profits by making hefty charges for probate valuations of clients' holdings and arranging payments.

May 4, 2014

David Prosser



Some of Britain's best-known investment firms are boosting their profit margins at the expense of customers who die. A number of online fund supermarkets, through which millions of investors buy and hold stocks, shares and investment funds, often in their Isa, have introduced costly probate charges. The fees must be paid in order to obtain valuations of holdings and to arrange payments to heirs.

It emerged last month that Hargreaves Lansdown, Britain's biggest fund supermarket, charges up to pounds 600 to sort out the affairs of anyone who has died - including long-standing clients.

Research, on behalf of The Observer, reveals that the practice is widespread - fund supermarkets are routinely charging hundreds of pounds and a patchwork of different fee structures is hitting some groups of investors disproportionately hard.

Tip of the iceberg

We asked the comparison service Comparefundplatforms.com to investigate the fees charged by all of the leading fund supermarkets operating in the UK. Its findings suggest Hargreaves Lansdown's charges are just the tip of the iceberg, with firms charging for probate services as they see fit, often with little regard to the costs they actually incur.

Justin Modray, the founder of Comparefundplatforms.com, says he was shocked by the results. "Given that a platform will likely have made a decent profit from a customer during their lifetime, charging for a probate valuation just feels wrong," he says. "Perhaps it's justified where a platform cuts its everyday costs to the bone, but it smacks of pure greed when levied by the more expensive platforms who enjoy hefty profit margins."

Most firms that charge for valuations levy a fee for each fund or stock that the deceased investor held through them. And while Hargreaves Lansdown's pounds 36 for each stock charge is the highest, it does at least cap fees at pounds 600. By contrast, BestInvest and TD Direct Investing both charge just pounds 12 per holding, but they have no maximum so the cost for those with large portfolios could be very high.

Minimum charges can be a problem, too. Hargreaves Lansdown's minimum charge of pounds 120 means that investors who have three or fewer holdings actually pay more than the headline fee of pounds 36 per stock. Both BestInvest and TD Direct Investing charge valuation fees of at least pounds 60, even if the investor had just a single fund with them.

Meanwhile, some fund supermarkets charge flat fees irrespective of how many funds or stocks the investor held. This can make it expensive for anyone winding up an estate with only a small number of holdings. Alliance Trust Savings' pounds 240 charge, for example, is payable even where the investor has only a single share or fund.

Administration costs

Fund supermarkets defend their charges on the basis that they have to cover the cost of valuing and closing an investor's account.

"The process of administering a deceased client's holdings is labour intensive and involves dealing with executors, beneficiaries, solicitors and, most importantly, ensuring assets are paid to the right people once all the legal process has been finalised," says Danny Cox, head of financial planning at Hargreaves Lansdown.

"The charge is levied per holding to reflect that the more holdings there are, the more work is involved, but is also capped."

Similarly, Jason Hollands, managing director of BestInvest, says: "There is a real cost to providing probate valuations and we don't profit from our charges - and while our terms and conditions do specify a minimum fee, this has never been applied."

Stuart Welch, chief executive of TD Direct Investing, says much the same. "This is certainly not a profit centre for us," he adds. And a spokesman for Alliance Trust Savings says: "In the case of probate fees, the charge takes into consideration the underlying complexity and administration involved, rather than the number of assets held - we have calculated the charge with the aim of simply covering our costs."

Despite such costs, however, there are fund supermarkets that do levy only modest fees for probate valuations - or charge nothing at all. Cavendish Online, Fidelity and rPlan all provide such services at no charge, while Charles Stanley only charges if valuations have to be sent by post. The pounds 12.50 flat fee charged by Halifax Sharedealing, meanwhile, is just over 5% of the charge levied by Alliance Trust Savings for the same service.

James Daley, managing director of Fairer Finance, an organisation set up to investigate how well financial services companies treat their customers, says it is reasonable for fund supermarkets to recoup their costs, but the huge variations in charges suggest some companies are seeking to cash in on the deaths of their customers.

"If some companies are charging three times more than others, it suggests they may be using these fees to profiteer," says Daley. "Companies need to be able to justify the charges they are levying as proportionate - it is all too easy to try and turn a quick buck at the expense of a customer who is not there to defend themselves."

Beyond fund supermarkets

Brian Hunter, a solicitor specialising in probate services at London-based law firm William Sturges, says such charges have become increasingly common across the investment and stockbroking industry - and that clients have no choice but to pay. "Charges do vary from firm to firm, but these fees are now normal," he says. "Clients have come to expect them."

Elsewhere in the financial services sector, however, charges for probate valuations are more unusual. Anna Bowes, a director of website Savingschampion.co.uk, says banks and building societies almost never charge such fees on savings accounts, even for customers with very sizeable accounts to be passed on to heirs.

"On death they require a certified copy of the death certificate and then once probate has been settled a certified copy of the grant of probate will allow for the funds to be released," Bowes says. "There are even occasions when some of the funds can be released for funeral expenses and even inheritance tax, before probate has been settled."

Other financial services companies, including pension and life insurance providers, also tend not to levy probate charges.

WHAT THEY CHARGE

ALLIANCE TRUST SAVINGS pounds 240 FLAT FEE

BESTINVEST pounds 12 PER STOCK (MIN pounds 60)

CAVENDISH ONLINE NIL

CHARLES STANLEY DIRECT NIL (pounds 5 IF VIA POST)

FIDELITY NIL

HALIFAX SHAREDEALING pounds 12.50 FLAT FEE

HARGREAVES LANSDOWN pounds 36 PER STOCK (MIN pounds 120, MAXpounds 600)

INTERACTIVE INVESTOR pounds 10 PER STOCK

IWEB pounds 25 FLAT FEE

RPLAN NIL

TD DIRECT INVESTING pounds 12 PER STOCK (MIN pounds 60)

TRUSTNET DIRECT pounds 10 PER STOCK


For more stories on investments and markets, please see HispanicBusiness' Finance Channel



Source: Observer (UK)


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