A Great British Success Story

Wednesday, Sep 05 2012 by

A company I have long admired is Hargreaves Lansdown (HL.), a retail investment broker co-founded by two former accountants — Peter Hargreaves and Stephen Lansdown. They founded the company in 1981 with just £500 each and turned it into one of the UK’s largest independent financial service providers. Today, the company is a FTSE 100 giant with over £25 billion of assets under administration.

Secret of success

In an interview with the telegraph, Peter Hargreaves put HL’s phenomenal success down to “giving clients what they want”. Speaking in the Daily Telegraph, he said:

“If you call our helpline, a real person answers. If we say we will get back to you, we will. Emails are answered within four hours and letters answered by return of post.”

It sounds beautifully simple. They pride themselves on delivering a “knock your socks of customer service”, as a delighted customer I can testify to this. The firm’s philosophy of putting clients first is underpinned by its marketing strap line “to provide the best service, the best information and the best prices”, displayed on the front page of its website.

A Competitive Advantage

When looking for great companies, one of my most important criteria is to identify businesses with large economic moats. In this case, HL’s competitive advantage is its flagship vantage service. This is a wrap platform which allows clients to manage all their investments under one roof; it’s essentially a one stop-shop for your investments.

Also, while most of its competitors in the platform market sell through Independent Financial Advisors, HL is one of the few businesses to operate an investment platform which deals directly with the customer. This not only enables it to build closer relationships, but extract higher margins aswell. For example, its operating margin presently stands at a lofty 62.50% — demonstrating the firm’s low-cost business model.

Structural drivers

Its strategy is built around increasing the amount of assets under administration; this is aided by two important structural drivers of growth. Firstly, we have ultra-low interest rates, courtesy of the bank of England. This provides a strong incentive for savers to move their savings into higher yielding investment vehicles, such as equity income funds which HL specialise in.

Secondly, the UK has very high rates of personal taxation and faces the prospect of even higher taxes to pay down the large fiscal deficit. This…

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Hargreaves Lansdown plc offers a direct to investor investment service. The Company provides execution only, advisory services and third-party investments for individuals and corporates. Its segments are the Vantage division, the Discretionary/Managed division and the Third Party/Other Services division. The Vantage division represents activities relating to its direct to investor platform. The Discretionary/Managed division provides managed services, such as its Portfolio Management Service (PMS) and a range of multi-manager funds. The Third Party/Other Services division includes activities relating to the broking of third-party investments and pensions, certificated share dealing and other services, such as currency, contract for differences (CFDs) and spread betting. The Company's Vantage service allows clients to hold all their funds, shares, exchange traded funds (ETFs), bonds, investment trusts and self-invested personal pensions (SIPPs) in a single service. more »

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About Christopher OLeary

Christopher OLeary

Financial blogger, market contributor and private investor. Author and creator of ‘The Astute Investor’, an investment blog designed to help investors preserve and accumulate wealth. This blog also voices my thoughts and ideas to help my development and progression as a private investor. Furthermore, I  contribute investment ideas and analysis through 'Seeking Alpha' and 'The Motley Fool',  global financial media sites. http://seekingalpha.com/author/christopher-o-leary http://www.fool.co.uk/news/investing/company-comment/2012/05/30/why-you-might-buy-pearson.aspx more »


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