Hargreaves Lansdown bets on ‘hybrid’ financial advice to keep aspiring retirees on board

Chris Hill, CEO of investment platform Hargreaves Lansdown, finds himself in the same position as many of his most important clients.

In the years leading up to his retirement, he would like to strengthen confidence by having a financial advisor look into his affairs. According to him, the company’s data show that around the age of 48 many of its customers have the same idea, as they begin to address the daunting prospect of turning savings into something they can live off in retirement.

“At that moment their self-confidence goes down,” said Hill, 51. “Retiring is a really, really complicated time. And I think that’s one of the times you need to get advice.”

While the end of the Baby Boomer generation is nearing retirement, and the next group of savers is exploring the possibility, their changing need for financial advice is a problem for The Hargreaves.

Clients who want personal advice, many with a healthy savings and investment fund, often turn to more expert capital managers such as St James’s Place or Brewin Dolphin, who are more focused on providing personalized advice, usually for an annual percentage fee. .

Of Hargreaves’ 1.7 million customers, only 10,000 receive personalized financial advice – whether in person, by phone or online.

Hill wants to greatly increase that number and provide more consulting options to help these clients think about going somewhere else.

With this in mind, the UK’s largest fund supermarket has recently introduced plans to expand beyond its home ground to a do-it-yourself investor server and build its own financial advisory business, using technology and customer data to give it a competitive edge.

She wants a quarter of her new business, £ 5 billion, to come from her new consulting service in five years, and plans to recruit 100 consultants – an increase from the current number of about 70 – by 2026.

The intent is to try to prevent some of Hargreaves’ wealthiest clients from retiring and offer additional services to existing clients by competing directly with wealth managers who provide advice, usually for an annual percentage rate.

“This is a real challenge to the existing consulting model where people say‘ what am I actually paying for and where do I get the value from, ’” Hill said. “We can help people on a one-time basis, because that’s all they’re looking for. You don’t have to pay 1.5 or 2.5 percent every year.”

Financial advisers are overseeing around £ 700 billion, the UK’s largest share of the £ 2 billion wealth management industry, according to LEK Consulting. Research suggests that there is room for this number to grow.

About 70% of the wealth of a household in the UK is held by people over the age of 55. Among people close to retirement, 80 percent say they probably need financial advice, LEK found, but only a fifth seek it.

According to the consulting firm Boring Money, 13 million people in the UK are in the “advice gap”, unable or unwilling to pay the high fees of financial advisers.

Platforms like Hargreaves, which have already replaced paper and phone-based brokers, think that “hybrid consulting” – some automated and some custom – offers a way to take advantage of this market. Hargreaves said its plans have been based on consultants five times more efficient thanks to technology, making the service cheaper.

The rival investment providers, Vanguard and Steinvest, along with the asset managers of FTSE 100 Abrdn and M&G, are among those who want to expand in this market.

Hybrid consulting promises a more sophisticated product than reputed robo-consultant services, start-ups that use online questionnaires to guide clients to appropriate investments and have failed to meet their promises to capture significant market share.

Uses it Lots of customer data, Hargreaves strives to provide features like letting customers see if they are saving like similar people or pushing them to seek support at times when they may be tempted to panic and sell if the market moves sharply. People will also be able to pay to talk to a counselor.

“The Cold War between full financial advice and investing in yourself is over,” said Holi Mackie, CEO of Boring Money.

Hargreaves’ plan did not return its share price. Earlier this year, Hill announced the plan as part of a £ 175m investment in technology, funded in part by the company’s special dividend suspension.

Column chart of new clients net for a financial half-year showing the growth of Hargreaves Lansdown slowing down after a record year

Shares were down nearly 16%. And they are now at their lowest level since 2013, having lost a third of their value this year. “They rested a bit on laurels,” said Julian Roberts, an analyst at Jeffries. “They could have done something strategic to prepare for the disaster that has now befallen their share price.”

One former Hargreaves executive questioned technology-based advice is the magic bullet, saying: “People have been looking to automate tips for years. It’s almost impossible.”

The business, founded in 1981 and expanded to fund management and then to online stockbroking in the late 1990s, came out well in the early plague, enjoying the momentum of retail stock trading and lots of new clients.

This boom is now over, but the new customers, sometimes younger, who are expensive to fly but do not have that much money to spend, are one factor that puts pressure on profitability.

Hargreaves was popular with investors due to its impressive margin, with an operating profit margin of 63% before the plague. The company expects margins to shrink to the mid-1940s in the coming years, returning to just 55% by 2026. Hill said being a more data-driven business would require constant investment.

Nick Train, the company’s largest external shareholder, lamented that the market would not “reward [this] Entrepreneurial spirit. ”

“We’re always shocking Hargreaves to stop paying so many special dividends and invest more in functionality and opportunities,” he said at a recent event.

Even with the new consulting service, Roberts claims it will be difficult for the company to overcome demographic trends. “I do not think people often have money with Hargreaves from which they survive,” he said. “It’s not just that they were late for it. It’s a structural problem that may not have a complete solution.”

Hargreaves Lansdown bets on ‘hybrid’ financial advice to keep aspiring retirees on board Source link Hargreaves Lansdown bets on ‘hybrid’ financial advice to keep aspiring retirees on board

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