Consumer Duty risks drive Hargreaves Lansdown and AJ Bell 'Sell' rating from UBS
UBS said HL's premium pricing looks 'increasingly unjustified' when compared to similar product ranges, quality and customer service at lower cost competitors.
In a research note published on Wednesday (7 November), the Swiss bank's equity research division said both firms are set to face revenue growth headwinds from cyclical challenges to net new business and market returns.
However, analysts argued that the biggest risk is to interest earned on client cash. UBS has estimated that interest earned on client cash makes up more than 80% of AJ Bell's pre-tax profit for this year, and 55% for Hargreaves Lansdown.
The firm said that regulatory risk to revenue was high for both providers in light of the Financial Conduct Authority's Consumer Duty obligations. Given this, UBS forecasts both firm's retained interest spread on client cash to fall to 150bps in 2025.
AJ Bell sees £4.2bn net platform inflows against 'challenging' backdrop
«This follows the latest 'Dear CEO' letter from the FCA to platforms on 28 September, which highlights interest on client cash as an emerging risk of harm,» it said.
UBS said it expects a more positive macroeconomic environment to support stronger fund flows and market returns for all investment platforms.
However, it noted that HL's premium pricing looks «increasingly unjustified» when compared to similar product ranges, quality and customer service at lower cost competitors.
«We see this keeping HL's net flows at lower levels than history — with further deterioration in its market share. For example, new competitor Vanguard has grown since launch in May 2017 to more than £16bn AUA in April 2023,» UBS said.
Deutsche Bank downgrades Hargreaves Lansdown to 'Sell'
For AJ Bell, UBS said it
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