Forty years after a pivotal meeting between Hargreaves Lansdown founders Peter Hargreaves and Steve Lansdown, where they set out the vision for the company, it now finds itself at a crossroads.
At a meeting where the two executives decided whether to be the "biggest" or the "best", they concluded that in fact they needed to be both. But while they are both billionaires, and now past retirement age, various challenges have caught up with the firm, and have cast a pall over the once indomitable business.
Changes to markets, regulations and technology have all had an impact, so that the shares now trade at a third of their initial public offering price, and the latest set of results, released on February 22, revealed declining growth in new money coming on to the platform and lower profitability.
The share price fell 8 per cent on the day as a consequence.
While profit levels reached £183mn, £132mn of that figure was attributed to the interest the firm earns on client cash, that is, clients that have cash balances.
The money is placed by Hargreaves Lansdown into banks, and the business retains 41 per cent of the gain, with clients getting the rest.
That figures implies the core Hargreaves Lansdown business, with its £142bn of assets under management and 1.2mn customers, generates an operating profit of around £51mn.
Challenging times
The business is facing a number of challenges. Among them are regulatory issues, an ageing client base, challenges from newer incumbents and changing technology, and the prevailing economic conditions.
Stuart Duncan, analyst at Peel Hunt, says in a broker's note that the sluggish growth in new customer numbers this quarter was made up for by the gains on client cash.
This feeds into some of the regulatory challenges, notably that the Financial Conduct Authority wrote to platforms, including Hargreaves Lansdown, in 2023 via 'Dear CEO' letter to remind all firms of their responsibilities to treat customers fairly on this issue.
In a call with media on the morning of the results, the company’s chief executive Dan Olley said the 'Dear CEO' letter had not prompted a change in policy from the firm, as they felt their current approach satisfies any regulatory obligations.
Lower base rates are likely to impact the amount of cash that is generated from this source, as the commercial banks offer lower savings rates.
At present, Hargreaves Lansdown bundles together all of the client cash and uses the scale of this deposit to attain higher rates on saved cash than each client individually with a smaller pot of money could.
In terms of where the turnover was generated, advice produced turnover of £3.5mn, platform charges generated £1.35mn, while fund management turnover was the bulk of the remainder.
A second regulatory issue may be the impact of a potential legal action by a group of claimants who had invested via Hargreaves Lansdown in the stricken Woodford Equity Income fund.
