Hargreaves Lansdown fights back as shares tumble

Hargreaves Lansdown has seen its shares drop 9% after the Financial Services Authority’s paper indicated it will ban payments from fund managers to platform providers.

Shares in the fund supermarket dropped 9% or 52p down to 528p at 10:30am, as broker notes from Citigroup and Morgan Stanley warned the FSA’s proposals could mean Hargreaves will have to remodel its business.

The FSA released its platform paper yesterday, in which it proposed to ban any payments from fund managers to platforms, which would require substantial changes to the current bundled charging structure of Hargreaves Lansdown and fund supermarkets.

Morgan Stanley said: ‘Assuming these proposals were implemented, our interpretation is that HL would have to introduce a discrete customer charge – which would be a shift in business model (although not necessarily a negative). We think that adviser platforms would quickly shift to a discrete fee-based, fully unbundled model.’

Citigroup said Hargreave’s Vantage Business model must move to customer charging, as the platform currently takes payments from fund groups, some of which is then passed on to investors as a loyalty incentive.

The broker said: ‘We believe somebody must pay for these services, and if it is not the fund management firms, it will have to be retail investors. This is a significant model change not just for HL but for the entire industry.

‘The FSA stance is unexpected but we would view any share price weakness ... as a buying opportunity.

Citi added its buy rating for the fund supermarket and its 700 pence price target on Hargreaves Lansdown.

However, Hargreaves said in a note that the FSA’s proposed changes will require ‘little work’ to implement and will result in ‘no material impact’ on its business.

Chief executive Ian Gorham (above) said: 'We remain of the view platforms provide valuable services which improve efficiency for both investors and product providers and will continue to seek the best outcome for retail investors in dialogue with the FSA.