Hargreaves Lansdown rejects FSA platform paper concerns

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.”

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Comments

There are 6 comments at the moment, we would love to hear your opinion too.

  1. Disclosing the commission I get on a transaction is commercially sensative. You either have disclosure or you don’t. Hargreaves Lansdown shouldn’t be able to pick and choose what they want to disclose.

  2. Pauline Appleton 2nd August 2011 at 6:11 pm

    I was shocked to read in the news media that Hargreaves Lansdwon was given £600,000 to promote Fidelity International’s China Special Situations Fund.It has been an abismal performer to boot – costing me dear. Had I known this previous to purchase, it would have made me think twice. I am keen for disclosure from all providers so that people can make a more balanced and cautious judgement with their hard earned cash. What’s to be scared of ?

  3. Asking Anthony Bolton to manage money in China is like asking Wayne Rooney to play fly-half for England. It was always a dead-cert failure. I had a large bet with my friend and won hands down.

  4. Anonymous @6.11am

    I’m shocked that you were shocked [actually I’m not but that was for poetic effect] How do you think H&L have become billionaires? H-L isn’t a charity yet as far as I’m aware.

    These backhanders are obscene and the regulator really should be on the case in an era where disclosure and transparency are all the rage. We have to disclose our income and will have to do so increasingly after RDR.

    Something’s a shade billingsgate-esque n’est pas?

  5. Whose fault is it the Special Situations *Trust* perfomed badly – Anthony Bolton. Whose fault was it that you invested in to that trust – yours.

    Just because your investment undeperformed does not give you the option to blame someone who facililated that investment choice. People lose money every day investing in poor decisions – deal with it. HL allow investors to invest in thousands of funds and shares at their own discretion, you pay for ease and convenience.

    Ironic that wishing to disclose every detail of a company’s transactions and you post a comment “anonymously”?

  6. I invest my money via HL and find their service easy to use and very convenient. They offer a non-advised service which is especially convenient to me, having worked in financial services for many years.
    Personally, I do not care what they receive from providers. What I do not do is take any notice of their fund marketing or any other of their advertising to encourage me into specific funds or investment areas. I have my own investment strategy and if I wanted advice, I would see an IFA and actually pay for it. As such, I take responsibility for my investment decisions re the performance of the funds I have chosen.

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