Hargreaves Lansdown shares have tanked as chief executive Chris Hill pledges to disrupt a “failing” wealth management industry in the UK.
The D2C platform’s half-year results outlined a £175m plan to “redefine wealth management” and increase its client base around 50% to 2.6 million by 2026, as well as deliver £20bn in net new business by the same year. It will seek to have over 20% of assets under administration run in-house to help deliver total revenue margins of 42-44 basis points.
The proposals would come at a cost of £175m over the five years up to the 2026 financial year, with cost savings over that period funding approximately 80% of the investment spend. There will be an additional £50m cost in the period up to 2025 as it shifts from legacy tech to new systems.
Hargreaves Lansdown shares slumped over 21% at one point following the announcement, before rising slightly to end the morning down 14%.
‘Hargreaves Lansdown was the original disruptor’
In his prelude to revealing the new strategy, Hill said the UK wealth management industry was at a key inflection point, but that incumbents in the market were “failing” customers. “The size of the market opportunity has never been this significant.”
He listed five key drivers of the opportunity:
- – The pandemic reminding households of the importance of financial resilience
- – Clients seeking the “Amazon” experience of digital, personalised and on-demand technologies
- – “Expensive adviser fees and confusing, time-consuming and jargon heavy investment providers and services”
- – Growing competition pushing Hargreaves to invest in order to keep its market-leading position
- – The regulator’s support for long-term investing, which targets a “20% reduction in the number of consumers with higher risk tolerance holding over £10k in cash by 2025”
“Hargreaves Lansdown was the original disruptor and successfully established the D2C market,” Hill said. “The evolvement of our proposition and strategy means now is the right time to target the broader wealth management market and rethink how we set a new standard for how the UK saves and invests.”
Under its new strategy, Hargreaves would present clients more investment solutions and digital tools to manage and monitor wealth.
Hill detailed five core elements of the strategy:
- – Investing in digital capabilities such as data analytics and transferring data to the cloud
- – Leveraging data insights to build new products and services faster
- – Launching 19 new funds by 2024 with ESG funds representing a critical part of this
- – Growing its Active Savings business on the back of rising UK interest rates
- – The new HL Advice offering bridging the gap from D2C to advice
Hargreaves assets rise to over £140bn
For the half-year results, Hargreaves Lansdown brought in net new business of £2.3bn in the period to 31 December 2021 taking AUA to £141.2bn.
It now has 1,693,000 active clients, up 48,000 since 30 June 2021.
“In the first half of this financial year, we saw a gradual return to the office and calmer markets which led to more normalised share trading levels, albeit still higher than before the pandemic,” Hill said.
But the period since has been more volatile. Hill said it is not currently clear how significant levels of inflation and geo-political tension would impact on markets and investor confidence in the coming months.