Hargreaves Lansdown is now offering annual loyalty bonuses on Isas. Most of the investment industry will be surprised we have thrown our cap in the renewal rebate circle by reducing our margins, especially since the few back-street proponents have so far hardly damaged our market share.
Perhaps even more surprising, Hargreaves Lansdown has done what other firms should always have done – provided the deal retrospectively for existing clients. The number-one rule in business is always look after your existing clients first.
Pressure for renewal rebates was purely a matter of course as long as renewal commission was widely available. We still remember the initiative seven or eight years ago when a few brokers perceived renewal commission was more valuable than initial commission and began discounting initial commission completely.
At that time, a rival IFA was probably the market leader in Peps on the back of its excellent Pep guide. We probably came second. We dillied and dallied for two years, worrying whether we could deliver discounts without compromise before matching the initial commission rebates.
Within months, we captured our market-leading position. We had to turn our entire organisation on its head and, if anything, this pressure also forced us to improve our service and information.
The other reason Hargreaves Lansdown has been forced into the renewal rebate arena is we have given our clients a stick with which to beat us – our promise to deliver not only the best information and the best service but also the best prices. Many pundits will be incredulous we intend to give better service and better information on Isas even though we are reducing our margins.
Every business in the world today is finding out that their customers want more for less and only businesses delivering though efficiencies and belt-tightening will survive.
The new initiative puts Hargreaves Lansdown in a position where anyone would be crazy not to buy their Isa from us. We have pledged we will match or beat anything anyone else can do. We perceive the current retail investment situation to be similar to when Jack Cohen started stacking them high and selling them cheap at Tesco.
The next stage of the initiative – the ability to bring in existing Peps and Isas to benefit from annual savings – makes the offer irresistible.
As I write this article, 40 new desks are being delivered to our offices and our systems people are working 18 hours a day in the hope this initiative will improve volume radically.
We know many brokers will walk away from the Isa market as they did when deep discounting occurred on Peps. They will, however, return one day with a vengeance when they have established that 0.5 per cent a year is better than nothing. Eventually, they will come to the conclusion that 0.25 per cent is better than nothing.
The lack of control on availability of commission will always allow back-street brokers to come in at the bottom and pressurise all our margins. This year has been an exceptionally difficult one for all Isa retailers, having been hit first of all by the sheer volume of free “independent” guides dropping out of every Saturday and Sunday newspaper and fragmenting market share.
Individually, those guides have probably not been particularly lucrative either for brokers that have put them together or for the groups that have supported them with their advertising chequebook. They have, no doubt, been very lucrative for the commercial and advertising operations of the newspapers in question.
Second, volumes are down probably more than the industry is letting on.
Investors nursing 50 per cent losses in technology and 10 per cent or more losses wherever they have been invested over the last 18 months are paralysed, wondering whether they should forgo their Isa allowance on the basis that a tax break is only worth anything if a taxable gain is produced.
Unfortunately, the reduced volumes are probably not enough to cause the demise of many of the part-time meddlers but it will certainly cause all intermediaries to take stock of how they are doing business and examine their cost base seriously.
It might even result in marketing directors looking seriously at analysing the effectiveness of their advertising spend.
Finally, for all the people in the industry who are sitting with their fingers crossed, hoping that the last three weeks of the Isa season will produce the flurry of business we have become accustomed to, my message is do not hold your breath this year.