Hargreaves Lansdown has promised to reduce its share of the interest it earns from customer balances in an effort to see off a regulatory clampdown, but signalled it would not be sacrificing much.
The concession on cash windfalls came when Britain’s biggest investment platform reported dwindling new customer numbers and a slowdown in the rate of new business won.
Shares in the former FTSE 100 company were marked down 58¼p, or 7.2 per cent, to close at 747¼p on the back of the first-half results, which showed pre-tax profits falling 8 per cent to £182.5 million.
Hargreaves revealed it had kept £132.8 million of the interest earned from clients’ balances in the six months to December 31, which was 9 per cent higher than last time.
However, it said it would reduce its share of the total interest windfall from 41 per cent in the first half to 36 per cent in the present quarter, after lifting interest rates last month.
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Investment platforms are under pressure to pass on more of the interest they earn on customer balances after the Financial Conduct Authority in a “Dear CEO” letter sent to all platform chiefs said they were not doing enough to meet its expectations under the duty to consumers.
Amy Stirling, chief financial officer, said the group had repeatedly moved its rates up in the past 12 months. “The consumer duty is new. We’re all working our way through it, including the FCA.”
But she added: “We’re not changing our policy or approach as a result of the Dear CEO letter.” She raised guidance for net interest margin fractionally from the range of 1.8 percentage points to two percentage points to “the top end” of that range.
Sources close to Hargreaves argued that it had gone further than competitors in reducing its take of customer interest. Barclays takes 3 percentage points of interest from its “smart investor” customer balances.
Hargreaves won 20,000 net new clients in the period, boosting its customer base to 1.82 million. This was a slowdown on the 31,000 attracted in the corresponding period of 2022.
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Net new business also dwindled, with clients adding £1 billion to their accounts, compared with £1.6 billion won last time.
Hargreaves said that while gross inflows remained strong, it was being hit more by outflows from clients pulling money out to pay household bills or reduce mortgages. Client retention was 91.6 per cent, down from 92.7 per cent.
Strong markets in the half year added £7.2 billion to customer portfolios, pushing up total assets under administration to £142.2 billion.
Bristol-based Hargreaves has been through a choppy period in recent times, targeted by short-selling hedge funds. Peter Hargreaves, its co-founder, pushed for the departure of the chairwoman, Deanna Oppenheimer, who was replaced this month by Alison Platt.
Dan Olley, the chief executive, who replaced Chris Hill in August, said he could see “tangible progress”, but conceded it had more to do to improve customer service and execute on strategy.
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One development is that the average age of new customers dropped below 30 for the first time. Hargreaves has traditionally been used by an older demographic. The average age of its customer base is 45.
Olley said that customers were continuing to shift savings into overseas equities, in spite of a push by ministers and the City to encourage investment in London-listed shares.
Investors opening up to riskier assets, says Jupiter
Jupiter Fund Management reported better-than-expected annual profit yesterday, helped by firm institutional client demand, and said the year had started off on a better note with investors opening up to riskier assets.
Matthew Beesley, chief executive, said that since the beginning of the year there had been “a very marked shift in tone by clients wanting to look at risk assets”.
Active asset managers have struggled in recent years after the end of the bull market that buoyed their investments for more than a decade.
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Investors have also preferred cheaper passive index tracker funds, while the market volatility caused by geopolitical conflict and high UK inflation had made retail investors shun “risk assets” in favour of the relatively high yields available on cash and cash-like instruments.
Jupiter recorded net outflows of £2.2 billion for the year to the end of December. However, steady institutional demand had been a bright spot, with inflows amounting to £1.8 billion.
The company said profit rose by 36 per cent to £105.2 million for the year, above analysts’ expectations of £91.5 million.
The shares closed up 8¾p, or 10.7 per cent, at 90¾p.
