National Savings & Investments’ (NS&I) sharp cuts to its accounts’ interest rates has resulted in a “marked impact on flows” to Hargreaves Lansdown’s (HL.) investor savings portal, the DIY investment platform revealed in a first quarter trading update.
Prior to last month’s announcement by the state-owned savings bank – which included an 85 basis point cut to NS&I’s popular Direct Saver account from November – Hargreaves said that cash flows into its Active Savings portal had been “hampered” by the market leading rate on offer from the government.
This has now reversed, with important consequences for Hargreaves’ most profitable source of revenue. In the 12 months to June, customers’ average cash on the platform rose 21 per cent to £12.3bn, contributing £91m of the FTSE 100 firm’s £551m annual revenue in the process. At 74 basis points, the revenue margin on this cash also eclipses the cash earned on the platform’s own funds.
Hargreaves did not detail what proportion of the £106.9bn in assets on its platforms at the end of September are now in cash, though flows to more conventional products have been challenged despite the strong run in market performance over the summer.
Net new business growth slowed to £0.8bn in the three months to September, down from £1.7bn in the same period in 2019 when back book transfers from JP Morgan and Baillie Gifford added £0.9bn of new client funds. Management described this as a “pleasing” result amid weakened investor sentiment due to the Covid-19 pandemic, and what it termed a “re-emergence of Brexit uncertainty”.
Though the shares slipped 5 per cent on the trading update’s publication, analysts at Peel Hunt described the update as a “positive start to the year”, citing strong stockbroking volumes and a 31,000 rise in client numbers.
