Hargreaves Lansdown sees strong demand

The modest earnings performance was significantly due to the low-interest rate environment: income generated from client money held in cash slumped 43 per cent to £34.1m. Exclude that and broker Numis Securities reckons operating profit would have risen by over 20 per cent. Another factor was higher costs - total operating costs rose by a half - partly due to the implementation of the Retail Distribution Review (RDR), which banned commission payments.

Described as a “massive undertaking” by chief executive Ian Gorham, the RDR prompted Hargreaves to introduce a competitive charging structure. This impacted profit margins: the pre-RDR net margin on funds was 60 basis points, but has since fallen to 49 basis points, and is expected to hit 44 basis points after April 2016, when all commissions have to be handed back to clients.

Impressively, however, the transition hasn’t hit demand, and the client retention rate remained high at 93 per cent. Moreover, the reforms in this year's Budget - axing the compulsory purchase of annuities and the hike in ISA allowances - should drive demand. Indeed, while the reforms led to a 50 per cent reduction in annuity business, giving retirees more flexibility has boosted demand elsewhere. New assets going into pension drawdown products, for instance, rose 35 per cent in the period.

A busy year for IPOs - including TSB (TSB), but especially Royal Mail (RMG) - also helped drive demand. Fully 18.5 per cent of private investors who bought shares in Royal Mail did so through Hargreaves Lansdown, the group claims. Overall, net new business for the year grew 25 per cent to £6.4bn, helped by 144,000 new clients. Total assets under management jumped 29 per cent to £46.9bn.

Numis expects pre-tax profit of £241m this financial year, giving EPS of 39.7p (from £210m and 34.5p in 2014).