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The last time Hargreaves Lansdown overhauled its prices, trading app Robinhood Markets hadn’t even started beta testing. These days, Robinhood is a $100bn company whose commission-free offering has reshaped US stock markets and which now has designs on the UK. Hargreaves is belatedly moving with the times. Retail traders will be the winners.
Hargreaves pioneered “do-it-yourself” investing in the UK. That gives the Bristol-based company a first-mover advantage and helps explain why it is the market leader with 2mn customers. But the basic services of different investment platforms are largely interchangeable. So while incumbency is helpful, price should also be an important factor in competition.
Compared with the market in 2014, that competition has grown fiercer. Interactive Investor, then a tiny online brokerage, now administers close to £100bn. High street banks such as Lloyds, meanwhile, have gone from fleeing the investment business to pouring back in.
Hargreaves’ move on Monday to cut prices for many customers may not prompt an immediate reaction from rivals ahead of the all-important “Isa season” — the last few months of the UK tax year, when investment flows are particularly lively. Some rivals, such as Interactive Investor, had already tweaked pricing recently, and Hargreaves remains on the more expensive side; analysts at the personal finance site Boring Money characterised the changes for fund investors as a shift from “too expensive to just about okay”.
But the company, now owned by a band of private equity firms led by CVC Capital Partners, has signalled that this is just the first of several bids to hold on to its leading market share and lure in new customers.
Add that to JPMorgan Chase’s plans for a DIY platform, the growth of cheap apps such as Robinhood, and regulatory changes that make wealth management more attractive for high street banks, and every company in the sector is going to be under pressure to up its game.
Further consolidation is likely as smaller businesses struggle to keep up, especially those whose assets under administration are in the single-digit billions of pounds. Freetrade, which had about £2.5bn in assets, was snapped up by spread betting group IG last year. Bestinvest, with about £3.5bn, may be subsumed into a bank such as Barclays or NatWest as part of a sale of its parent group, Evelyn Partners.
Larger specialists such as Hargreaves, AJ Bell and Aberdeen-owned Interactive Investor will hope their strong brands and laser focus on retail investors will offset the greater resources of giants such as JPMorgan. Banks have sometimes found it surprisingly difficult to convince existing customers to start investing with them. Regulations also make it harder for companies such as Robinhood to make money on commission-free trades the way they have in the US.
Hargreaves’ net profit margin fell from almost 60 per cent in its financial year ending 2020 to 33 per cent in its last financial year. Favourable demographic trends and a government desperate to get more people investing should supply growth for the entire sector. But the scale of competition means whoever wins, customers will come out on top.
