Hargreaves Lansdown could be set to charge lower-end clients around 70bps when it publishes its new clean fee structure, expected this week.
The firm is set to announce a tiered pricing model similar to most advised platforms, with charges for lower-end clients starting at around 70bps and sliding to around 30bps for larger accounts.
Although peers have already announced cheaper models, with Charles Stanley Direct charging 25bps for assets under £500,000, Hargreaves’ head of advice Danny Cox said the firm’s own charging structure will be reflective of the “premium” service offered to clients.
Estimates from analysts at Barclays, which put charges for clients with assets below £50,000 at 70bps, are “a reasonable representation of how things might work”, Cox added.
Assuming assets of £46bn by the time Hargreaves reports its annual results in 2014, the bank calculated the fees Hargreaves would need to charge its various clients – 45% of whom are estimated to have assets below the £50,000 figure, and 75% below £100,000.
The bank estimates fees of 65bps on assets between £50,000 and £100,000; 60bps for £100,000-£250,000; 55bps for £250,000 to £500,000; 45bps for £500,000 to £1m and 35bps for above £1m (although only 2% of clients have assets of more than £500,000).
Alternatively, if Hargreaves decides to continue charging for individual transactions, fees could be 7bps lower for each segment, Barclays said.
“There will always be providers in the market that do not have the level of service we offer, or do not take the same approach to profitability that we do,” Cox said.
“The growth in our client numbers shows people like and value our service: when we talk to clients about price, it does not come high up the list.
“We are often compared to supermarkets: do you want to do your shopping at Waitrose or Lidl?”
Hargreaves’ announcement is expected to kick-start a raft of pricing announcements from direct to consumer rivals waiting for the platform giant to show its hand.
Since listing on the London Stock Exchange in May 2007, Hargreaves has been one of the industry’s biggest success stories, with shares rising 600% to over £12, as the firm’s assets continue to grow at a record rate.
In its annual results to 30 June, the platform reported net new business of £5.1bn, a 59% increase, as well as record revenues, profits, and assets under administration.
Hargreaves has also been able to offer shareholders huge margins on investment due to its dominance in the direct to consumer market.
With profits of £195.2m for the year to 30 June, an operating margin of 66% and £39.3bn in assets under administration as of 30 September, the business is currently valued at £5.8bn.
By contrast, Cofunds, the UK’s largest advised platform with £60bn of assets under administration, was valued at just £175m after being bought out by L&G earlier this year.
Cox said the operating margin on Hargreaves’ Vantage platform, which currently stands at 0.66%, will not be materially impacted by the unbundled model.
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