Financial services firm Hargreaves Lansdown plunged 13% on Tuesday after the Financial Services Authority (FSA) proposed banning commissions from fund managers to intermediaries. This change could have major consequences for the firm and many rival fund supermarkets.
What the commentators said
“The company does very nicely out of Vantage, its online platform,” said Oliver Ralph in the FT. “Private investors buy funds through the platform and in return the fund management share some of their fees with Hargreaves Lansdown.”
The firm passes some of these rebates onto customers, making it cheaper than using most financial advisers, who also receive commission from fund managers. But the FSA has already decided to ban advisers from receiving trail commission and the new proposals will extend this to fund supermarkets. This may be smart, improving transparency – but it will be hard for firms now to persuade clients to pay up front for advice and services.
Hargreaves Lansdown could be especially hurt, since around one-third of its revenues last year came from such payments, said Patrick Hosking in The Times. The firm says that it would be able to bring in a new business model, with an explicit management charge directly to clients. In its favour, it has excellent client loyalty, losing only 2% of users per year. But it trades on a “racy multiple” of 27 and is vulnerable to bad news. “The crackdown and associated uncertainty will overshadow the shares for years.”