Canny market timing is a must for good brokers. Hargreaves Lansdown boss Chris Hill demonstrated an astute grip of this with the announcement of his retirement on Monday.
Shares dropped up to 7 per cent in response. The official reason was that the company was losing a leader of six years’ standing. The decline, of course, had nothing to do with an update that showed client growth was weak. Or news over the weekend that 3,200 ex-investors are to sue Hargreaves for promoting funds run by Neil Woodford, a stockpicking star who crashed to earth.
Marrying cause and effect is tricky. Hill will be missed. On his watch Hargreaves’ client base doubled to 1.7mn. Assets under administration rose to more than £120bn to the end of last year. Nonetheless shareholders are sitting on losses of more than 40 per cent over his tenure. They have racked up the bulk of the deficit since the start of 2020. The collapse of Woodford Investment Management in autumn 2019 was followed by a pandemic and cost of living crisis.
However, high fees probably remain a bigger obstacle to attracting new clients than reputational issues, or asset prices.
Hargreaves remains the UK’s largest retail platform with 40 per cent of assets under administration in the second quarter of this year. An outflow of enraged investors never materialised. Customers have not seemed too worried about the collapse of Woodford funds, except for clients who lost out directly.
But new client growth is still slowing; 17,000 in the three months to September, down from 23,000 during the same time last year.
Cheaper competitors are chipping away at the company’s dominance. Hill made plans to address the decline with investments in new digital tools. More will be needed from his successor.
Falling asset values are compounding expected earnings declines. Its shares currently trade at 15 times forward earnings. The multiple in line with previous market dips seems about right. Earnings estimates, still 16 per cent above recent lows, have further to adjust. Prospective shareholders should keep their own brokers on hold until that happens.
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