The last 18 months have been a period of strong growth for investment platforms and businesses within financial services particularly those that meet the needs of retail clients. Or so we thought because, despite headlines about sharply increased online trading activity and thousands of new accounts being opened, that hasn’t translated into increased profitability at one of Britain’s largest retail stockbrokers and investment platforms, Hargreaves Lansdown.
Hargreaves Lansdown published FY 2021 results in early August and the numbers disappointed the market, with the firm reporting flows and revenues below forecast and costs that were above expectations.
Hargreaves Lansdown’s stock price has fallen by more than 8.0% since the figures causing analysts and commentators to question whether the business is in danger of losing its number one position in what is a highly competitive and dynamic sector.
How do Hargreaves Lansdown’s costs compare to cheaper alternatives?
Hargreaves Lansdown is a low-cost execution-only business with share dealing commissions that start at £11.95 per trade, and then reduce based on a clients trading activity in the previous month.
For example, if you traded 20 times through the company last month, then your commission rate falls to £5.95 per trade for the current month.
That compares to a £9.99 per month membership fee (much of which is rebated as a credit against commission charges) and £7.99 per trade at Interactive Investors, and a commission of £9.95 per trade at AJ Bell. Though if you were active in the previous month, with AJ Bell, and traded 10 times, then that figure falls to £4.95 per deal.
Low cost of course is not the same as no-cost and competitors such as Freetrade offer their customers the chance to trade stocks and shares commission-free, though there are compromises attached to that offer.
Is Hargreaves good for young investors?
Millennials, Gen X and GenZ investors are where the future of all financial service businesses are to be found. Hargreaves Lansdown‘s CEO Chris Hill was quick to highlight that the average age of the company’s client base was falling and that 83% of its customers were now below 55.
On the face of it that seems like good news for the business, however, it’s a trend that raises several issues. Firstly younger investors tend to have smaller portfolios as they are building their wealth and secondly younger investors and traders have very different expectations compared to clients in older generations.
We like the Hargreaves Lansdown trading platform and apps, and think they are some of the best out there, but younger demographics have become used to the gamification of investing and trading, and to features such as social trading and fractional share ownership, services that Hargreaves Lansdown don’t currently offer.
Are cheaper brokers better than Hargreaves Lansdown?
Hargreaves Lansdown is in our opinion still one of the best overall investment and trading platforms out there, for UK execution-only retail investors and traders.
We base that view on their breadth of market coverage, and the number of instruments and products that you can access through them added to the quality of and depth of information available on their trading platforms.
However, this is an ecosystem that is constantly evolving and their competitors are always looking for ways to take market share from them.
If you are looking for a broker and make a choice based solely on cost, you will find cheaper alternatives to Hargreaves Lansdown and their peers. However, the less you pay for a service, the less likely it is to have other features attached to it.
This is why we encourage Good Money Guide users to view things holistically rather than just based on one variable such as costs.
Darren is a veteran of the financial markets with almost 36 years of experience under his belt. He has worked in trading, sales, analytical, and research roles, he has been a regular guest & commentator on financial television channels and publications. During his career, Darren has been fortunate to act for and advise major hedge funds and investment banks as well as HNWI. Darren analyses the markets using a blend of technical and fundamental analysis