Summary: There are few places to get a Lifetime ISA account where you can use your allowance to invest in stocks and shares. As the LISA pays a 25% bonus on investments up to £4,000 per annum this is one of the more tax-efficient investments to make. Hargreaves Lansdown is favoured due to its lower fee charges, but it may not be suitable for all.
Here is how the Hargreaves Lansdown LISA compares to my similar investments:
|Platform||Link||Target Rate (%)||My XIRR (%)||Current (%)||Live Rating|
JULY 2019 UPDATE: Working pretty well, bonus paid a month after deposit.
MAY 2019 UPDATE: All seems smooth, LISA bonus paid very quickly.
MARCH 2019 UPDATE: Steady month with small gains. End of UK tax year.
FEBRUARY 2019: Made heavy gains in the last month thanks to an upturn in global markets. Still only showing a tiny profit overall.
What is Hargreaves Lansdown?
Hargreaves Lansdown is a UK success story: starting in 1981, they originally sold advice on tax planning and unit trusts before expanding into the buying and selling of shares for retail clients. And this was expansion on a massive scale: the company now employs over 1,000 people and offers a vast range of financial instruments as well as operating its own unit trusts.
In more recent times they have completed a comprehensive range of products for retail investors, who can choose from LISA, ISA or SIPP products to wrap their investments in, or alternatively simply hold in a standard trading account. The LISA was of much interest to users, not least because this was one of the few places that one could hold this product with stocks and shares.
Depending on the products, there is not much difference between a platform such as HL and one such as Vanguard – as you can purchase Vanguard products on the HL platform. However, Hargreaves Lansdowne offer a much fuller market and offers products from all providers making this of interest for those who want to diversify a bit more.
Here is a list of Hargreaves Lansdown features:
|Minimum Investment||£100 lump or £25/month|
|Fees||0.45% platform + fund fee (variable)|
|Available in ISA?||Yes|
|Active on forum?||No|
This works slightly differently from other sites as HL offers many other services. You’ll need to open a Lifetime ISA account on the specific page (you will need your National Insurance number for this). Once your account is set-up and verified, you can then add funds, which get credited to your account.
Funds credited count towards your LISA contribution, so in theory they do not need to be invested and you will still get the bonus. As of 2019, the bonus is paid monthly, so this equates to 25% of your deposits up to the maximum of £1,000 a year. It is important to note that there are restrictions on access (either turning 60 or buying a house for the first time), and withdrawing early sees a 25% penalty, equating to the bonus and any interest earned.
However, most people would want to invest their funds, and also use their bonus to invest as well. Using HL’s dashboard, you can access most types of equities, from funds to individual shares, and it is possible to hold any combination of these in your portfolio. However, there are fees and charges for most transactions, so make sure you are aware of these before purchasing.
There is also a management fee for holding the Lifetime ISA. Currently, this stands at 0.45% of your account value. Essentially, it is not too much different from holding a share-dealing account, but any gains you make within the Lifetime ISA are free from tax, just like an ISA. Therefore you a free to trade as you wish in the account, but are not allowed to withdraw outside of the allowed exceptions without incurring fees.
How are funds protected?
Hargreaves Lansdown investments are eligible for the Financial Services Compensation Scheme, which compensates investors for the first £50,000 of any loss they make related to the failure of the platform.
The stability of the platform itself needs to be stated as well. HL is a FTSE100-listed firm and the company itself is in rude health, having no debt, growing profits and a £300m cash pile. It goes without saying that one could have much more confidence holding your money here thaneven the safest P2P platform.
Pros of Hargreaves Lansdown
There are a few things to like about Hargreaves Lansdown:
Security of funds: HL funds benefit from FSCS protection and are one of the biggest companies in the country, at least on a par with many banks. Funds are much safer from platform risk than on others in P2P lending.
Bigger range of products: HL offer a wide range of ETFs from other providers which gives you a much better choice than Vanguard, where you are restricted to choosing their products only.
Possibility of LISA: HL is one of the few places where you can have a LISA investment in equity form. Do seek more advice if you are considering opening one, as it is not automatically a great choice for everyone.
Low fees: There are fees, but still lower than many other providers.
Cons of Hargreaves Lansdown
There are also a few things to be wary of:
Complexity: Unlike firms like Nutmeg, Moneyfarm and to a lesser extent Vanguard, there is very little advice or guidance dispensed with the LISA product and there are no suggestions on what to invest in.
Volatility: Investing in stocks and shares with a LISA does not remove volatility and you can still suffer the same ups and downs as every other trader.
Restrictions on withdrawal: Not a criticism of the platform, but anything invested into a LISA is restricted for withdrawal unless you use it to purchase your first home or reach age 60.
Biased towards funds: The fee schedule greatly favours funds (free) over shares (which attract a charge). This is fine if you want funds, but if you want shares it may be cheaper to use the alternative AJ Bell, whose platform fee is lower.
My LISA Hargreaves Lansdown Investment Strategy
Everyone’s strategy in investment will vary, so what you do with your LISA depends on your time horizon. For example, if you are intending to purchase a house you may choose to be more defensive. For a pension fund, equally so. On the other hand, some people may use the notion that the £1,000 is ‘free’ money and be more adventurous with it. If in doubt, it is better to seek advice before committing.
My own personal strategy is to use the LISA to fill in the gaps in my portfolio and get a bigger exposure worldwide. That means purchasing ETFs which focus on different countries, but also different asset classes such as bonds and precious metals. There are multiple providers of these so read the documentation before beginning.
The most important thing is not to invest money that you may need. The reason being is that the early withdrawal charge heavily penalises the early withdrawal, losing you the government bonus in its entirely plus a fraction of any gains you have made. If you are in this position it may be better to fill up inside an ISA instead.
Disclaimer: This article represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).