The logic was simple: consumers cannot afford advice in the post-commission market, Hargreaves Lansdown’s Vantage has the greatest consumer penetration among the major direct-to-consumer platforms, therefore Hargreaves would emerge as one of the major post-RDR winners.
It was a hypothesis that became consensus, and many institutions and traders bought into the firm on the back of it. Its share price more than doubled from the 680p it dipped to just prior to the January 2013 implementation, to a soaring high of 1,581p in January of this year.
Since then, however, the tide has turned. Following a dip of close to 3 per cent yesterday (12 August), at a time when the wider FTSE 100 was flat, shares closed more than a third down from this peak at 1,050p. Shares are more stable today, but still the trajectory is downwards.
The cause of this sharp slide was a UBS report, which slapped a ‘sell’ rating on the once revered stock and questioned the firm’s ability to cash in on the often cited ‘advice gap’, amid early signs that alienated mass-market consumers might stick to cash deposits.
According to the bank’s analysts, Hargreaves’ ability to add just 200,000 new clients, despite estimates of 5.5m mainstream prospective advice client being disenfranchised, shows the limitations of the ‘do-it-yourself’ investing boom many had forecast.
It cited the need for Hargreaves to boost inflows by 25 per cent annually until 2016 to justify its current near-£5bn valuation, which was described as “challenging” given that in the most favourable 12 months after the RDR came into force it added just 20 per cent.
UBS has put an 850p target price on the shares, which would push it back to a level not seen since February 2013, when it was on its steep upward curve.
Of course all of this has also coincided with official figures showing not only that the decline in the number of advisers has fallen short of the doom scenarios touted prior to 2013, but that the community of dedicated financial advisers has in fact marginally grown since December 2012.
UBS noted this change, citing it as further evidence that the ‘advice gap’ thesis has not come to pass in the way many had expected.
That is not to say the broad tenets of the predictions are not in some way evident: Hargreaves is still adding customers, DIY investing is still widely said to be on the rise, and just last week there were further predictions that the advice gap could growth further.
Danny Cox, head of financial planning at Hargreaves Lansdown, said: “In our experience, DIY investing is becoming more popular and more clients are moving away from the old advice model... to one-off advice events.”
This morning Hargreaves sought to boost the appeal of its Vantage service by adding 80 funds to its Vantage Service offering, including adding CF Woodford Equity Income fund, and by removing controversial corporate action fees and probate charges, often referred to as ‘death fees’.
It has also opened a new service for dealing in onshore bonds, and lowered the minimum amount required to open an account or make an investment from £500 to £100, to “encourage first time investors”.
Ian Gorham, chief executive of Hargreaves Lansdown, said: “All improvements make our clients better off – either financially, through access to a better service or both. Many improvements have been made in response to client suggestions.
“The varied nature of the requests we receive means we cannot accommodate them all, however we do care greatly about all our clients, and listen carefully to their feedback, identify the most popular requests and invest heavily to incorporate them into the Vantage Service where possible.”
