Hargreaves Lansdown plc (LON:HL) has announced its results for the year ended 30 June 2021.
Highlights:
· Net new business of £8.7 billion
· Strong growth in Assets Under Administration, up 30% to £135.5 billion
· 1,645,000 active clients, an increase of 233,000 in the year
· Underlying profit before tax increase of 8% to £366.0 million
· Profit before tax decrease of 3% to £366.0m
· Total dividend down 8% at 50.5 pence per share
| Year to 30 June 2021 | Year to 30 June 2020 | Change % | |
| Net new business inflows | £8.7bn | £7.7bn | +13% |
| Total assets under administration | £135.5bn | £104.0bn | +30% |
| Revenue | £631.0m | £550.9m | +15% |
| Underlying profit before tax* | £366.0m | £339.5m | +8% |
| Profit before tax | £366.0m | £378.3m | -3% |
| Diluted earnings per share | 62.5p | 65.9p | -5% |
| Ordinary dividend per share | 38.5p | 37.5p | +3% |
| Total dividend per share | 50.5p | 54.9p | -8% |
*Underlying profit before tax excludes a one-off gain of £38.8m on the disposal of Funds Library in the year to 30 June 2020
Chris Hill, Chief Executive Officer, commented:
We have delivered a record performance and exceptional growth during an extraordinary and challenging year. Our investment in the scalability, diversity and resilience of HL’s business model has resulted in a record 233,000 net new clients and £8.7 billion of net new business in the period, taking total clients to 1.645 million and assets to £135.5 bn.
The pandemic has accelerated two trends that were already evident to us: a permanent shift to digital; and a change in the demographic mix. Demand for our digital services has soared with 393 million digital visits and 98% of trades being done online. In FY21, 83% of our new clients were under 55, as we saw younger clients showing an interest investing and saving, prioritising financial resilience as they benefit from the transition of wealth from older generations.
This has been an extraordinary year and I am proud of how our colleagues responded and continued to deliver to clients throughout this challenging period. We have not furloughed our people, enacted any COVID related redundancy programmes or sought any Government assistance.
Our focus is, as always, on our clients and their lifelong needs, not just their short-term interests. We have been able to capitalise on this extraordinary year – and enlarge our client base substantially – due to our previous investment decisions and confidence in the opportunity ahead. As the UK’s market-leading digital wealth management service we have continuously advanced our service and broadened and strengthened our proposition, as client needs evolve, and the wealth market continues to broaden and digitise.
Chief Executive’s Review
Exceptional growth in unique market conditions
Any one of us who looks back on the challenges of the last year – from both a business and a personal perspective – would appreciate that it might count as a success to simply have ended the year with our own health, the health of our employees, the health of our clients and the health of our business intact. For a business like ours, alongside the impact of COVID, we have also faced further volatility from political uncertainty – from Brexit to the US elections.
But while it has been a challenging year on so many fronts, these pressures have also caused enormous change. Demand for online services of all kinds has soared. There has been a permanent shift in consumer behaviour in areas from groceries to health services, from online investing to wealth management. We have also seen a rapid acceleration in the importance of ESG for consumers, investors and policy makers. It has not been a year when you could stand still. And at HL we haven’t.
Instead, 2021 has been a year of exceptional growth. We have continued to deliver our client-focused growth strategy – welcoming a record 233,000 net new clients in the year. We have achieved this by ensuring we can provide our service to clients through any channel: via mobile, the website, or by phone. Our focus on service has meant we have seen £8.7 billion of net new business flows, the first time we have ever generated over £8 billion in a single financial year. Confidence in both the quality of our service and our offering has driven these flows and, when combined with market growth, has also led us to reach new AUA highs of £135.5 billion, a 30% increase on the prior year.
If the biggest trend has been the change in demand for online service, the second biggest trend has been in the demographic mix. This demographic change has been underway for some time across the industry but has become more noticeable through the pandemic. In FY21, 83% of our new clients were under 55. We are seeing younger clients show an interest in – and willingness to learn about – investing, prioritising financial resilience and saving. They are starting to benefit from the transition of wealth from older generations. The fact that we have attracted so much of this generation to our service gives me confidence that our investment in our proposition and user experience is paying off. This younger mix of clients underpins our future growth because their investment behaviours mirror the trends of previous cohorts: we know what they need from our 40-year track record of supporting clients through their financial lives. As we work with these new clients on similar paths, the lifetime value of our overall client base will increase.
Thirdly, we benefited from the market volatility that has been the inevitable outcome of the challenging year. Investor confidence started the year at a low but swung dramatically on the positive news of COVID vaccines and the political certainty provided by the US election and Brexit. The subsequent upwards trend in confidence, alongside a greater interest in markets and trading during lockdown, led to record equity trading volumes – up 54% on the previous year. This was one of the drivers of strong underlying profit before tax growth, up 8% to £366.0 million. To put those profits in context, they are now bigger than our net revenues were five years ago.
Whilst some of this volume of trading has clearly been exceptional – and we do not expect it to remain at such high levels – there are two key lessons for us from the year. First, we believe there has been a permanent shift in behaviour, and the key structural drivers for the wealth management industry will continue to underpin our long-term growth. Second, we have been able to capitalise on this extraordinary year – and enlarge our client base substantially – due to our previous investment decisions and confidence in the opportunity ahead.
Hargreaves Lansdown has become the market-leading digital wealth management service for a reason. We have captured a 42.9%1 share of the direct to consumer market due to our highly differentiated service. We have continuously advanced our service as client needs have changed and always ensure they can access our service in the best format for them; and will continue to do so in the future as the wealth market continues to broaden and digitise. We think deeply about our clients’ lifelong needs, not just their short-term interests. And we have been disciplined in our investment to ensure we deliver sustainable growth for our investors.
I would like to thank my colleagues for their hard work and energy over the last year that has ensured we have been able to provide a market-leading service for even more clients, especially given the personal pressures from the COVID pandemic on their home lives. I also want to thank our clients for their engagement and enthusiasm as we expand the ways we support them through their financial lives. Our goal now is to continue to enhance the UK’s financial resilience, building on the work of the last 40 years – with the leading digital wealth management service.
Changing demographics
The COVID pandemic has reinforced the importance of effective savings and the need for individuals to be financially resilient. This is not a new trend and the structural growth drivers are clear and consistent: enduring low interest rates over the last decade; greater individual responsibility for retirement saving; the generational transfer of wealth; and an increasingly complex savings environment. Each of these are significant societal changes underlining the growing importance of the wealth management industry.
Furthermore, COVID has accelerated these trends and has driven more people of all ages to engage with their finances. Younger people now have a greater appetite for investment. In 2007, the median age of our client base was 58, by 2014 this was 54, and in 2021 this is now 46. During FY21, nearly half the clients joining our platform were in the 30-54 age bracket – one of the key demographic groups who build wealth over time. Getting clients onto the platform earlier means that we can support them for longer as they grow their wealth.
Driving client engagement
Clearly, it is not enough to simply add new clients in record numbers. We have always served an engaged audience with ‘best insight’ and built a trusted relationship with our clients. We have continued to invest in both our proposition and our service to ensure we adapt to meet the varying needs of our expanding client base – and add value to them. That has been helped by our unique access to client data and behaviours built up over 40 years.
You can see the results in the levels of engagement we have seen in. We had 393 million digital visits in FY21 compared to 249 million in FY20. What is also welcome is how our clients are engaging with us: 98% of trades are digital; desktop log ins were up by 28% and mobile log ins up 110% over the last year. Overall, these levels of engagement led to a record 26.9 million transactions.
These high levels of engagement were not by accident. We invested in our helpdesk support. We made some clear choices to prioritise our approach to guidance, our educational tools and making our platform easy to use. Over the year, we had over 3.64 million visitors to HL articles (3.64m prior year), saw 398,000 guide downloads (280,000 prior year), uploaded 1,192 new articles to our website and our Helpdesk received 1.7 million calls (1.3m prior year).
In these interactions our goal has been to drive better client outcomes and responsible investment behaviours. Across FY21, this has been a particular focus with the rollout of our ‘Better Investors’ campaign which targets new joiners with education and behavioural nudges to help educate clients to make better decisions – and has driven high levels of engagement. This work has focused on providing relevant information that helps clients to target their investment choices around their goals, raise awareness of how changing conditions suit different investments and how they can build long-term savings. Alongside this we have also continued to engage with regulators, working on how we can continue to serve our clients better, deliver the right outcomes and set an example as the market leading service in our industry.
Our close relationship with what our clients want to know – and how they are using our platform – also helps us identify key trends in investor interest, with a step change in retail investor interest in ESG being the most notable. We have continued to respond to that interest by making more online resources available, integrating ESG considerations into our Fund research process and adding further responsible funds to our Wealth Shortlist. Other examples of this dynamic approach to content include our “financially fearless” campaign for women, materials on market volatility due to COVID and the trading phenomenon around GameStop and so-called meme stocks.
Given these high levels of engagement, it is essential for digital wealth management services to continue to be both secure and stable. In November, very high levels of volume associated with market volatility led to a brief outage of our system. We learned from that experience and have implemented a number of changes to capabilities, processes and systems to mitigate risk and ensure we maintain robust client service as we scale.
Prioritising client experience
Our position as the market leader, with our levels of engagement and quality of client insight, gives us an advantage in the design and delivery of improvements to our proposition and service ahead of the competition.
We have continued to improve our proposition in 2021 with the launch and enhancement of our Wealth Shortlist which now offers new tools and greater insight to help clients make their investment decisions. The addition of fund charge comparisons has also led to better pricing across the platform and we have increased the number of segregated mandates in the HL Multi Manager range such that 41% is now managed this way, giving us greater control and passing on better pricing to clients.
We expanded our Active Savings service with the addition of two new banks and extended our product range to introduce limited access accounts, providing even more choice for clients. The service has now reached £3.1 billion AUA and plays a vital role in the savings market where the rates clients can achieve are so important, with at least one market leading rate available through the platform for 90% of this financial year. We launched our Cash ISA which will be rolled out more widely in the new financial year. This offer also helps us reach different groups of future investors to help them engage with their finances.
Client Experience is not just about the proposition; it is also about building our differentiated service. Over the year, we prioritised service, enhancing practical capabilities in areas such as payments where we formed key partnerships with FinTechs, such as Stripe, to accelerate the roll out of better digital payments solutions. We also launched 24/7 faster payment bank transfers in our SIPP and Fund & Share Accounts.
We have made our service easier to use in a number of ways, by actively analysing our client data to understand what they want from us. As a result, we improved the functionality of our mobile app which has seen an 81% increase in average daily users accessing our service over prior year. We made it easier for clients to view and engage with individual investment information including purchase and sale history, average prices, total income values received and next expected dividend dates. Fund switching functionality was introduced in March and we used banners on the app to guide and nudge client engagement.
For clients approaching retirement we added a new online drawdown journey, with 76% of applications now using this route and providing positive client feedback that allows us to continue to improve the experience and engagement with this key group. As the wealth management platform with the broadest suite of products to manage retirement, we will continue to invest to ensure we have the best tools.
Building financial resilience
At HL, building financial resilience is at the heart of what we do. The COVID-19 pandemic has reinforced the importance of effective savings and the need for individuals to be financially resilient but, while it has led many to engage more with their savings, we also recognise that this extraordinary year has reinforced a financial divide in this country. Every year millions of people experience life events that can cause a sudden loss of income or increase in expenditure. Yet many households lack the financial resilience to withstand such an event and have little protection against falling into difficulty. The impacts can be severe.
According to a national representative survey of 10,030 UK adults by Focaldata 18 months into the pandemic, just a third of Britons believe they’re in good financial shape. And a quarter say their situation has worsened over the last six months. Those with the lowest levels of savings resilience are seeing their situations worsen.
I believe that we have a responsibility to play our part, so we are looking to add value to this important debate through additional insights, tools, guidance and advice. We launched the 5 to Thrive campaign, the 5 key building blocks needed for financial resilience. Before the pandemic in 2019 the Financial Resilience Taskforce called for the development of a new index to track the nation’s financial resilience to help improve it. This is needed now more than ever. So, we intend to help by launching a new Savings and Resilience Barometer in January 2022, as a regular tracker of the nation’s progress on resilience dimensions to create a dataset for regional and national policy makers to highlight where help is needed.
Outlook
Our performance in 2021 reinforces our position as the UK’s leading digital wealth management service. It has also underlined the significant opportunity ahead for us to transform what it means to be truly ‘market-leading’. Our past investment has helped us meet the demands of an exceptional year in a way that has left us with an expanded client base of 1.65 million clients, record-breaking levels of trading and a broader suite of services. We have continuously advanced our service as client needs have changed and we will continue to do so in the future to retain our leading position as the wealth market broadens and digitises further.
The size of the opportunity ahead is significant and our ambition to extend our position as the leading digital wealth management service as the market faces a structural shift in growth is clear. We expect the UK addressable wealth market to grow from £1.4 trillion2 in 2021 to £1.8 trillion2 by 2025, with the Direct Platform Market making up almost a quarter (23%) of this future pool.
Structural changes in the UK wealth market have been accelerated by the pandemic and we have learned from experience that clients expect ever-improving levels of service, increasingly delivered on a multi-channel basis via mobile, website, webchat and telephone helpdesk. The drivers of our success over the last five years will inform our response to the challenges and the opportunities we face over the next five years, with the ambition of providing our clients with the best services, products and tools to manage their savings and investments. To that end we have made some significant new senior hires during the period to strengthen our management team as we look to drive the next phase of our digital transformation, with the appointment of a new Chief Information Officer, Chief Technology Officer and a new Chief Risk Officer. In addition, following the recent announcement that our CFO, Philip Johnson, is standing down, we have commenced a search process to identify and appoint his successor. Philip has been a highly valued member of the management team and he will continue to work alongside myself and the Board to ensure an orderly transition.
With this continued investment in our people, proposition, service and technology as well as the cost of servicing an enlarged and growing client base, we expect FY22 costs to reflect this investment and continue to be broadly aligned to client growth.
The impact of COVID on individuals, businesses and the economy still provides an uncertain backdrop to the current year. As we have eased out of lockdown and entered the summer months, we have seen a slowdown in dealing volumes and client activity versus the elevated levels this time last year, which is also normal for this time of year and in line with management expectations. However, given our enlarged client base, we would still expect to see stronger client activity in FY22 versus FY20 (which also included a few months of elevated activity during the peak of the pandemic period) and the breadth of proposition and client focus gives us confidence that as the year progresses, we will continue to win in this growing market.
We are also confident that in the medium term beyond this period of post pandemic ‘normalisation’ and investment, as demonstrated by the benefits we are already seeing from our previous investments, Hargreaves Lansdown will continue to deliver attractive earnings growth with improving operating leverage as the benefits of this investment deliver.
Chris Hill
Chief Executive Officer
8 August 2021
1 Source: Platforum UK D2C Market Overview (June 2021).
2 Source: FCA, Platforum, Pimfa, PAM Directory, Oliver Wyman estimates – Summer 2021. Addressable wealth definition = wealth served by Financial Advisors, Wealth Managers and D2C market.
