Wealth Manager - the site for professional investment managers

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

FCA study overshadows Hargreaves Lansdown premium

1 Comment
FCA study overshadows Hargreaves Lansdown premium

Hargreaves Lansdown’s sector leading premium is likely to be overshadowed until at ‘least 2019’ as the Financial Conduct Authority probes sector businesses, RBC analyst Peter Lenardos has warned.

The FCA published the scope of its review today, saying it would examine sector competition and whether the biggest distributors use their pricing power on behalf of end consumers.   

Taking the example of the regulator’s recent asset management study, which some consumer champions claimed had pulled its punches, Lenardos said it was not clear that the study would have much impact on Hargreaves’ business model.

‘But from a sentiment point of view, we believe this regulatory overhang is unhelpful to a share price that consistently trades at a sector leading multiple.

‘The financial impact to Hargreaves Lansdown – while unquantifiable – could be minimal and at most moderate in our opinion (based upon the asset manager precedent, we do not anticipate a material financial impact on the business, and acknowledge that the resulting impact could indeed be quite immaterial).’

The house left its outlook unchanged on a negative rating and a £14 price target, versus this morning’s share price of £12.82, up 0.23% on the day.

Hargreaves’ business model has been a perennial source of fascination in recent years as it consolidated a broad swathe of the market for Sipp and ISA investment brokerage.

While the company’s pre-tax profit margin has slid from a high of above 73% in 2009 it continues to retain 56.4% of revenue, versus an industry median of 26.7%.

In a statement, the company noted the FCA study’s ‘broad scope’ which will encompass effectively any business which offers an online investment service.

Hargeaves head of policy Tom McPhail (pictured) pointed out that the buying power of the biggest third-party intermediaries offered valuable wholesale pricing power, however.

‘This study recognises the vital service platforms now provide to millions of people, helping them to save and invest for their future,’ he said.

‘Platforms can also bring pressure to bear on asset management costs, negotiating discounts for investors, promoting good funds and highlighting poor performers.

‘As with the asset management study, this paper is not simply about the price charged by retail investment service providers, it is about the value they deliver to investors.’ 

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play On the Road Challenge: Clay pigeon shooting with Thesis' Lansdowne

On the Road Challenge: Clay pigeon shooting with Thesis' Lansdowne

Eleanor Mahmoud goes clay shooting at the National Clay Shooting Centre with Sam Lansdowne from Thesis Asset Management

Play AA-rated Flood on gov't bonds: 'the maths doesn't add up'

AA-rated Flood on gov't bonds: 'the maths doesn't add up'

He also addresses why his Newton Multi-Asset Income fund has such a high cash weighting and why he sees renewables as such a good opportunity.

Play AAA-rated Ali: Identifying the peripheral European plays

AAA-rated Ali: Identifying the peripheral European plays

Citywire AAA-rated Tawhid Ali thinks that plenty of good stocks in the European periphery are being thrown out with the proverbial bath water.

Read More
Your Business: Cover Star Club

Profile: Brewin's Cardiff boss on the Welsh opportunity

Profile: Brewin's Cardiff boss on the Welsh opportunity

Prior to becoming head of Brewin Dolphin Cardiff, Welshman David Myrddin-Evans had only previously visited the city to watch the rugby.

Wealth Manager on Twitter