Hargreaves Lansdown has tried to allay concerns about the impact of yesterday’s FSA platform policy statement, suggesting the changes required will have no material impact on the firm.
However, the firm’s share price has dropped nearly 9 per cent this morning,making it the biggest faller in the FTSE100, following news that the FSA will consider the treatment of both advised and non-advised platforms as part of its payment ban proposals and confirmation that execution-only platforms will have to fully disclose commission or fees from fund managers.
Hargreaves Lansdown chief executive Ian Gorham says he is against disclosing “commercially sensitive” information on fees paid to the platform from third parties. He says: “It seems odd that we would be required to disclose this information and we are concerned about the consequences for clients if fund managers have to disclose the deals they are giving to everybody. You could end up with a market that offers the same deal everywhere rather than one where firms compete to give the best price.”
As part of its latest paper on platforms, the regulator says it believes it is “desirable” to ban cash rebates from product providers to investors and product provider payments to platforms but wants to conduct further research into the implications of the rules. It will consider the treatment of provider payments to both advised and non-advised platforms as part of its platform payment ban proposals.
The policy statement also makes clear that execution-only brokers will be required to present products in an unbiased manner and disclose any commission or fees from fund managers.
The paper says: “It is our view there is no meaningful difference in the services provided by execution-only stockbrokers, equity Isa managers, and wraps and fund supermarkets.”
“Stockbroking firms that provide execution-only trading services and equity ISA managers that offer funds from different product providers will therefore come within our definition of ‘platform service provider’ and be required to comply with the rules regarding the disclosure of third party remuneration and unbiased presentation of products.”
In a statement released this morning, Hargreaves Lansdown says it already uses a range of proven revenue models and can apply them to the fund market to create a “competitive, low-cost, high quality execution-only service”.
It says: “As such we are relaxed about both the short and long term outcomes of any revenue model changes and any additional disclosure. Indeed, we see additional opportunity in the potential changes to regulation over revenue streams. We do not believe any changes will materially affect profitability or revenue given our exceptional client base, retention and high service levels.”
An analyst note from Citigroup Global Markets suggests the share price fall is a buying opportunity. It says that while the news impacts 35 per cent of Hargreaves Lansdown’s group revenues courtesy of the Vantage Business Model, the platform is still cheaper than most advisers and that there may be a volume uplift.
The notes states: “With the costs of investment clearer to retail investors, we expect a shift from the advice route to the cheaper non-advised platform route. We estimate that 85 per cent of all retail fund flows currently go through advisers. Our 700p DCF value assumes a fall in net Vantage revenue margins from 0.68 per cent to 0.50 per cent in 2015 due to extra competition, with a fall in fund flows in 2013 due to regulatory disruption but then a 25 per cent per annum growth.”