It’s an ill wind that blows nobody any good, so the recent upheavals in the retail investment market had to spell good times for someone. That someone was Hargreaves Lansdown. Middle England’s favourite investment service graduated to the FTSE 100 in March 2011, since when its shares are up another 65 per cent. The company is worth nearly £5bn and its profits are racing ahead.
HL has benefited from two big trends that converged. Thanks to new rules that came in at the end of last year, it is no longer as attractive for financial advisors to serve investors with small portfolios and so many have ditched them to concentrate on wealthier clients. High street banks balked at the cost of training their teams of advisors to the new standards and quit the market, leaving yet more small investors to fend for themselves.
HL’s latest annual results showed very clearly where a lot of these people turned for help. The company’s Vantage service is easily the UK’s biggest online platform for “self-directed” investors, looking after £34.2bn of its clients’ money. So taking a look at how Vantage is doing offers an insight into the service that Britain’s biggest group of DIY investors is receiving. Two things stand out: approval rates of 96 per cent from Vantage customers and stellar levels of profitability. It looks as if everyone’s a winner.
In the year to 30th June, 75,000 people—many of them “orphans,” rejected by their bank or advisor—opened Vantage accounts, lifting the total to 500,000, who between them placed a net £4.8bn with HL during the year. If a third of that new money came from the 75,000 new customers, that would suggest they transferred an average of about £21,000 each to HL—exactly the sort of portfolio most advisors don’t want to know about any more.
Are these Vantage customers getting a good deal? There are some clues in the numbers. Revenues at Vantage rose 22 per cent from £185.7m to £227.2m and the profits on those revenues are huge. HL reports an operating profit margin of nearly 66 per cent—in other words very nearly £150m of that £227.2m flows directly into its coffers.
Vantage’s revenues from all sources represented 0.75 per cent of its clients’ assets, which happens to correspond exactly to the cut that typically goes to the fund manager. But HL isn’t managing its Vantage customers’ money, it’s simply…