HSBC Direct Invest Review – Where ETFs Park, Not Trade – High Fees Alert!

HSBC Direct Invest Review

Category Ranking

3.0

FAIR

LAGGER
FAIR
GOOD
EXCELLENT
<2.5
2.5-3.5
3.5-4.5
4.5-5.5

CATEGORY: BANK

AVAILABILITY: UK ONLY

BROKER SCORE

3.4

/5

Category Ranking

3.0 FAIR

LAGGER
FAIR
GOOD
EXCELLENT
<2.5
2.5-3.5
3.5-4.5
4.5-5.5

CATEGORY: BANK

🌎 UK ONLY

BROKER SCORE

3.4

/5

Our take: HSBC is a platform that is efficient for investors that do not invest regularly, and want to keep their investments with the largest Bank in the UK for a relatively low custody fee. However, other investors will find that competitors offer more cost efficient platforms.

Our assessment: HSBC scores 3.4 on an absolute basis, largely helped by the standing of its parent banking group. However, once we reduce the scoring weight of the company and assess it against similar brokers also supported by banks, it scores lower at 3.0 in its category due to high fees and  the lack of Stock Exchange access except the UK and the Nasdaq.

Is it suitable for you?

  • Passive Investors: The financial stability of the company, along with the low custody fees could have its appeal for buy-and-hold investors in plain vanilla ETFs that do trade only occasionally. However, high transaction costs and lack of SIPP offer make competitors like Halifax more suitable for the majority of the investors. 
  • Semi-Active Investors: The offer of multicurrency accounts is attractive, however the transaction fees for investing in international currencies are prohibitive and the lack of access to European stock exchange is another problem. The lack of junior accounts can also be annoying for some.
  • Advanced Investors: HSBC Direct Invest lacks in offering leverage and features like access to US ETFs, which could limit those looking to expand their investment strategies. It does give access to the bond markets, but at very high fees. Additionally, active investors may find the trading costs prohibitive, and the investment platform may be considered outdated.

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Pros & Cons and suitability

Pros & Cons

Suitability

Suitable

SIMPLE, reputable, competitive for infrequent traders but no SIPP

somewhat SuitablE

ONLY UK market and NASDAQ. high transaction FEES.

UNSuitable

LACK OF key EXCHANGEs, VERY HIGH FEES including BONDs.

Availability

HSBC Direct Invest UK is only Available in the UK

HSBC is an international group with brokerage activities across a number of countries. However, in this review we focus solely on the UK brokerage business called HSBC Direct Invest.

Broker Snapshot

HSBC Direct Invest Is Part Of A Traditional Banking Group

HSBC Direct Invest is the DIY investment platform of the HSBC Group. The group is a major and historically significant financial institution in the country and in the world, listed on four stock exchanges and rated by three rating agencies. As of April 2024, HSBC Group was valued at $170 billion. HSBC Direct Invest belongs to a bank that has been in the industry for centuries and has a transparent fee structure, although it is not competitive towards Tier 1 brokers like Hargreaves Lansdown as well as brokers from similarly large, established banking groups like Halifax. In addition, since brokerage is non-core to HSBC business, the platform is less modern and advanced compared to Tier 1 brokers.

Long standing Bank, Listed, Externally Rated and with Worldwide presence

HSBC Group has an IG rating from S&P, Moody’s, and Fitch, and is a leading and highly profitable financial institution worldwide. In UK, it does consistently rank as the largest banking group. HSBC group has a history of over 150 years. Like all brokers, it offers client protection up to £85,000 under the Financial Services Compensation Scheme and is regulated by the FCA.

Company Info

CharacteristicHSBC Direct Invest
Inception Date🛈 1865 (1991 UK)
Headquarters🛈 London, UK
Key Owner🛈 Ping An Ltd. 8.732 %, Vanguard Group, Inc. 3.560 %, BlackRock Ltd. 3.451 %, Norges Bank 3.151 %
Bank Affiliated✅ Yes
Listed on Stock Exchange✅ LSE/
SEHK/ NYSE/
BSX $171 bn
Parent Rating (HSBC Bank plc)✅ S&P A+,
Moody A1, Fitch A -
Operating Profit✅ $22 bn

Regulation

FeatureHSBC Direct Invest
EU Entity🛈 None
UK Entity🛈 HSBC UK Bank plc
Key Regulators✅ UK
EU Regulator N/A
UK Regulator✅ UK (FCA)
EU GuaranteeN/A
UK Guarantee🛈 Max. £85k

competitive Custody fees, but High Transaction and Withdrawal fees

HSBC Direct Invest offers a good ETF list and access to the New York Stock Exchange. The fee structure is appealing if you do not trade, but it does not offer SIPPs. Accounts do not earn interest on cash, and high transaction fees make trading less advantageous. Finally, they charge you to transfer out your shares. 

Features

FeatureHSBC Direct Invest
Key Base Currencies🛈 GBP
ETF Availability✅ Good (400)
Multicurrency✅ Invest Direct Plus only
Cash Interest❌ No
Margin Loans❌ Not Available
Exchanges✅ LSE, Nasdaq
Security Transfer⚠️ Not Free
External PFOF Reliance✅ None

Fee Structure

FeatureHSBC Direct Invest
Custody Fees✅ Low
Inactivity Fees✅ None
ETFs Dealing Fees⚠️ High
FX Fees⚠️ None but very high transaction cost
Deposit Fees✅ None
Withdrawal Fees✅ None
Security Lending🛈 Not Available

I. Company

HSBC Direct Invest has a well-established, listed, and IG rated parent Bank which is a systemically important institution (O-SIIs) in the UK. Despite its solid financial standing, it has been involved in some scandals in the past few years, but those did not affect the brokerage business clients.

Business Profile

HSBC Direct Invest operates exclusively in the UK. While the platform is open to anyone, it primarily caters to customers with a HSBC Bank account, for whom it is easier to open a Share Dealing Account, transfer funds and operates trough the web app. The company is relatively transparent about its revenue sources, primarily earning through cash interest (not shared with investors) and transaction fees. Information related to assets under administration and the number of customers is not separated from those of the group; therefore, they are not publicly available.

HSBC offers also the HSBC Global Investment Centre for most advanced investors but is independent from the Direct Invest DIY platform.

Ownership and Transparency

HSBC, originally known as The Hong Kong and Shanghai Banking Corporation, was established in 1865 to finance the growing trade between China and Europe.

It quickly expanded from its base in Hong Kong and Shanghai to become a global institution, establishing a significant presence in both Asia and the West. HSBC established its first office in London in 1991, when it acquired the Midland Bank, one of the UK’s largest banking groups at the time. This strategic move not only provided HSBC with a significant foothold in the European market but also marked the beginning of its transformation into a major global bank. The acquisition led to the relocation of HSBC’s headquarters from Hong Kong to London in 1993.

Today, HSBC Holdings plc, headquartered in London, is one of the largest financial institutions worldwide, with a market capitalization of $170 billion as of May 2024. It ranks as the 72nd most valuable company globally by market cap. HSBC’s profit before tax in 2022 was $17.5 billion, a decrease from $18.9 billion in 2021, reflecting changes in the global economic environment and the bank’s operations. In 2023, HSBC reported a net profit of $22 billion, which marked a significant increase of 56% from the previous year. 

HSBC is listed on the London Stock Exchange and is a constituent of the FTSE 100 index, which includes the top 100 companies by market capitalization in the UK. In comparison to its peers, HSBC’s market capitalization is significant, though it trails behind other major global banks such as JPMorgan Chase and Bank of America, which have market caps of $560 billion and $295 billion, respectively. However, in the UK it is the leading banking group. HSBC is also listed on the Hong Kong, New York and Bermuda stock exchanges (although the last two are secondary exchanges for this company).

Safety Considerations

The credit rating is in A category, which implies a very low estimated probability of default at parent level, as measured by historical 10-year peer cohort probability of default. Based on historical data, 1 out of 100 similarly rated financial companies went out of business over a 10-year period. It has also to be noted that HSBC did not require a government bailout during the 2008 financial crisis, distinguishing it from several other major banks in the UK that did receive significant financial support. HSBC is a systemically important institution (O-SII) in the UK.

Regulation & Investor Compensation Schemes

The Financial Services Compensation Scheme protects up to £85,000 per institution in event of firm failure.  Importantly this is per customer per institution. 

Share & Cash Custodians

HSBC Global Custody is both the cash and share custodian. Personal CREST accounts are not supported.

Reputation

HSBC group has in general a solid reputation, however, it has also faced multiple major controversies over the years that leads to significant financial penalties:

  • Money Laundering: HSBC was criticized heavily for inadequate anti-money laundering controls, notably failing to monitor $60 trillion in wire transfers and $15 billion in bulk cash transactions, which led to a $1.9 billion fine in 2012 by US authorities for violating anti-money laundering laws and facilitating money for sanctioned countries.
  • Tax Evasion and Compliance Issues: In 2012, HSBC was fined in Argentina for not reporting suspicious transactions. The bank has also faced accusations of setting up offshore accounts in Jersey for criminals, and it was implicated in India for possible safety violations and money laundering through its Geneva branch.
  • Regulatory Investigations and Fines: Over the years, HSBC has been subject to various fines and penalties for failing to comply with financial regulations, including a $175 million fine in 2017 related to foreign exchange manipulation and a £64 million fine in 2021 by British regulators for anti-money laundering process failings.

II. Fee structure

HSBC Direct Investor offers relatively favorable fees for investors who do not trade since custody fees are relatively low but transaction fees are quite high. There are no direct FX charges, however the transaction fees in other currencies are very expensive. 

Platform fees

HSBC Direct Invest’s charges £10.50 per quarter (inclusive of VAT). You’ll always hold an Investment Account in order to pay the fee, but holding an ISA will be at no additional cost.

Trading Commisions

HSBC Direct Invest has the following transaction cost:

  • Pound Transaction:flat rate of £10.5 per transaction, although it is discounted at £7.95 for frequent traders with a HSBC InvestDirect Plus. To qualify as a frequent traders you need at least 9 transactions a quarter. 
  • GILTs: £39.95 per transaction.
  • Euro Transaction: €29.95 per transaction.
  • US Dollar Transaction: $29.95 per transaction. 

Overall Fee Simulation vs Competitors

Most of our readers have simple Index portfolios. Using our Broker Total cost calculator, you can estimate the total cost of holding ETFs throughout the investment period. For our simulated scenarios:

  • General Accounts – HSBC is not competitive.
  • ISAs – HSBC is not competitive.
We compared HSBC Direct Invest against Halifax (another established bank) and Hargreaves Lansdown as a representative of Tier 1 Brokers with a good ETF offer.

Fee Simulation For General Accounts

In the below simulation, a 20-year accumulation period broker bill for a HSBC Direct Invest account comes out at £2,959, with the majority of cost being due to the dealing fees. The cost is £0 for Hargreaves Lansdown as the broker does not charge any custody fees for ETFs and £720 for Halifax Share Dealing. For HL and Halifax the calculator assumes the use of regular trading service that is free. Note that ISAs and General accounts have the same cost for both Halifax Share Dealing and HSBC Direct Invest. 

Investor assumptions

Model FeatureAssumption
InvestorUK
InstrumentUCITS ETF
AccountGeneral
Initial Investment£ 100,000
Monthly£ 1,000
Time Horizon20 years
Gross Return8%

Total Fees

Fee Simulation For ISAs

In the below simulation, a 20-year accumulation period broker bill for an ISA account comes out at £2,959, with the majority of cost being due to the dealing fees. Both his competitors are cheaper, with Halifax Share dealing charging £720 and £900 for Hargreaves Lansdown, due to yearly custody fees capped at £45. As for General Account, for HL and Halifax, the calculator assumes the use of the regular trading service, which is free.

Investor assumptions

Model FeatureAssumption
InvestorUK
InstrumentUCITS ETF
AccountISA
Initial Investment£ 100,000
Monthly£ 1,000
Time Horizon20 years
Gross Return8%

Total Fees

Currency Exchange fees

HSBC Direct Invest does not directly charge currency exchange fees and has a variable conversion rate that is posted live on their website. However, transactions in currencies other than GBP have a very high price. 

Other fees

Deposits are free of charge.

Share Transfers out are charged at £15.00 per line of stock.

III. Platform & Features

HSBC Direct Invest has a straightforward – but old-school – interface, ideal for beginners. It only offers access to the New York Stock Exchange outside of the UK. It offers regular investment service. However, the platform may feel outdated and could be restrictive for advanced investors, and the full access to the mobile app is available only to customers who also hold a bank account. HSBC Direct Invest does not pay interest on cash held in your accounts.

Account Opening Process

Opening an account with HSBC Share Dealing  may be longer if you do not have an account with  HSBC bank. The website gives a three day waiting time for opening an account online but longer if you do it on the phone. They offer two major accounts type (custody fees are the same for both):

  • Invest Direct: it is linked to  a current HSBC account where you can withdraw your cash directly. This option is only available for HSBC Bank customer. 
  • Invest Direct Plus: it offers the possibility to have US and EUR accounts (for trading purposes only) and to transfer money to a non HSBC account. In addition, if you trade more than 9 times a quarter, you will be able to get the discounted trading rate. 

account Features

HSBC Direct Invest offers the following features:

  • Foreign Stock Exchange: NASDAQ.
  • Standing Orders: the transaction cost for those is not discounted as commonly offered by the other banks and Tier 1 brokers operating in the UK. 
  • Share Transfer: charged £15 per stock line when you transfer out. 
  • Mobile App only for Bank customers: if you have a regular HSBC bank account, you can use the same app to trade. However, if you only have the investment account, you can check your investment trough the app but you have to operate via web platform. 

Internalisation and PFOF

PFOF is not allowed in the UK therefore HSBC Direct Invest does not engage in this practice. 

Cash Interest

HSBC Direct Invest does not pay cash interest. 

Advanced Features

HSBC Direct Invest  prioritizes simplicity and user-friendliness, with a focus on traditional investment products. As such, it does not offer advanced trading features like Futures, Options, Derivatives, and Margin Loans, catering more to investors looking for straightforward investment options. Below a summary of the available investment types:

Features

Investment TypeAvailability
ETFs
Stocks
Bonds
Funds
Options
Derivative
Futures
CFDs
Forex
Crypto
Commodities

IV. Taxes

Tax Wrappers

As tax wrapper, HSBC Direct Invest offers ISA accounts only. 

Tax Reporting

HSBC Direct Invest provides tax reports, however the reporting functionality to the tax authority is not automated and is responsibility of the individual investor. 

Thank you for reading.
Good Luck and Keep’em* Rolling!

(* Wheels & Dividends)

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