You’d have to have been on Mars this week not to notice the UK’s largest direct platform, Hargreaves Lansdown, announce its new pricing structure to the market. The upshot is cheaper charges for the vast majority of its current customer base and £3.5bn in additional AUA needed to compensate.
If the past is any indicator of future performance, we think they’ll romp this in over the next nine months. Hot on the heels of the Hargreaves pricing news, we can announce today that direct platform AUA rose to £116bn in Q3 13 (a 23 per cent year-on-year increase and up 59 per cent over two years). Hargreaves’ market share rose slightly to 32 per cent despite the pool of players increasing due to new entrants and broader stockbroking propositions.
We attribute this increase largely to its success in consolidating client assets as well as new customer acquisition. The firm’s average account size rose to £71,200, compared to a direct platform average of just £27,400.
So what do we make of its pricing?
Well, they’re Wily Wurzels. Years of experience in working under the public scrutiny of being a listed company has made them experts in how to avoid nasty surprises. So they doubtless chuckled into their pasties as Barclays analysts set expectations at 70bps in December last year.
Whilst the tiers are largely irrelevant given their customer accounts above £250,000 are pretty small, 45bps for a damn good service which includes a Sipp feels broadly speaking Okay. And we’ve always believed that negotiating lower AMCs for investors is generally a good thing (assuming this also translates to much lower TERs too). So that’s all good.
Getting more critical now, there are a fair number of event-driven charges and little extra bits and pieces to contend with. One reader of the Daily Mail’s online column complained about all platform pricing – “It’s like a dog’s dinner”. Hargreaves are not alone in this but add a few paper statements, chuck in a few equity trades and other activity and it doesn’t take much to push smaller accounts up to the 60bps level. Welcome to the era of confusion pricing espoused by airlines and phone providers.
Secondly we reserve some judgement until we see how they position the 27 funds which gave the best deals. Price is a factor of performance, yes, but only one. Mingling commercial drivers with fund research was never going to be the purest model. The devil will be in the detail here. There’s a world of difference between “Hello dear customer, here are 27 fabulous funds” and “Hello dear customers, here are 27 funds which we think are quite good and where we’ve also got you some biggish discounts too.”
Overall view? The general absence of much commentary from their competitors says it all. The share price is down just 0.2 per cent over a week. They can raise a cautious glass of Scrumpy to celebrate a difficult company hurdle pretty well jumped.
Holly Mackay is managing director of The Platforum