The retail distribution review (RDR) has brought about a surge in the number of advisers launching execution-only platforms, but Peter Hargreaves, the man who led the way, is not worried about increased competition.
A vindication of past decisions
Nationals and networks, including Openwork, RSM Tenon, Succession Advisory Services and Lighthouse, have all unveiled plans to offer face-to-face advice for their higher-net-worth clients and set up a low-cost execution-only service for those with smaller portfolios, a move Hargreaves, the founder and executive director of Hargreaves Lansdown, welcomes rather than views as a threat.
He said these services would get business from advisers’ existing clients rather than steal from an established player like Hargreaves.‘They won’t compete with us. We won’t notice they’re there and they won’t be chipping at the edge as far as we’re concerned. But it will be reinforcing what we’ve said for years: clients want to do [investing] themselves.’
He said the rise of self-directed investing vindicated the decisions he and his firm had made over the past 30 years, moving from traditional IFA status in 1981 to become the UK’s largest execution-only platform and a FSTE 100 company.
‘Everybody’s finally agreed with us because we’re right. They’re not a threat, but competition increases the pond,’ he said.
An ‘unprecedented’ number of new clients
The business model was further vindicated by the company’s results for the last six months of 2012 when it posted a record pre-tax profit of £94 million and record revenues of £140 million.
It also attracted 21,000 new clients in the first half of 2012, a rise from the 16,000 new clients over the same period in 2011.
Hargreaves said he expected even more new clients over 2013 because the RDR had widened the advice gap, with IFAs retiring or dropping unprofitable clients.
‘There is a whole raft of commission earners who suddenly aren’t available to look after their clients anymore because they were never going to get the qualifications and they were in their 50s, so they just decided to pack up. Clients of those advisers have realised [this] and they don’t want to go back to another adviser but [they would rather] learn how to do it themselves,’ he said.
‘It provides a huge opportunity for us, and every year the number of new clients coming to us increases. When they join, they only dip their toe in and invest £1,000 or £2,000. But when we service them and do it extremely well, they come in with £100,000.’
‘New clients are our lifeblood and we’re seeing unprecedented numbers coming to us because they’re not being serviced elsewhere,’ he said.
If your heart’s not in it
While dismissive of the threat from advisers, Hargreaves views stockbrokers as potential competition in the execution-only space, although he questions their focus.
‘Execution-only stockbrokers with nominee systems could be competition, but their hearts are never in it because they don’t get involved with funds,’ he said.
‘They also always regard that side of the business as the “little part” and if you only put half your efforts in, you’re never going to do well.’
But the company’s recent results were not all good news, as an old foe came back to haunt Hargreaves: the Financial Services Compensation Scheme (FSCS).
Hargreaves’ FSCS levy more than doubled from £500,000 in the last six months of 2011 to £1.2 million in the same period in 2012.
Never one to mince his words, he has some strong opinions on the FSCS, which has been a bugbear of many advisers for the past few years as they have continued to be landed with hefty bills.
Hargreaves branded the scheme ‘incompetent’ and called for it to be closed down in favour of stricter regulation from the Financial Services Authority (FSA) and improved client awareness.
He said it was unfair his company had paid so much, considering it had publicly criticised products that had led to big bills, including Arch Cru and Keydata.
‘Close the compensation scheme and tell people to be aware. The FSA should be doing regulation, so why do we need a compensation scheme as well? Surely we don’t need both,’ he said.
1981-present Hargreaves Lansdown, founder and executive director
1979-1981 Sandham Davies, IFA
1974-1979 Whitbread & Co, internal audit
1972-1974 Unisys, technical sales support member
1970-1972 Peat Marwick Mitchell, audit senior
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