Hargreaves Lansdown profits rise despite UK savers’ flight to cash

Low consumer and investor confidence has led British savers to stick to cash and steer clear of funds and shares, the UK’s largest investment platform Hargreaves Lansdown said as it released results on Wednesday.

The funds supermarket said most of the net £1.6bn pulled in from customers in the second half of 2022 went to its cash savings service, which allows customers to compare interest rates from different banks and building societies.

The flight to cash was the highest inflow for the savings service since Hargreaves Lansdown, which has 1.8mn customers, launched the product alongside its stocks and funds trading platform in 2018.

“With low consumer confidence and low investor confidence, people are really focused on cash,” said outgoing chief executive Chris Hill.

The war in Ukraine, high inflation and interest rate rises all contributed to daunting market conditions and record lows in investor and consumer confidence in the second half of last year, he said.

Rising interest rates were a boost for Hargreaves Lansdown. Despite a slump in trading volume, it benefited by pocketing a larger share of the interest rates on customers’ cash as central banks pushed rates higher.

Revenues rose 20 per cent year on year to £350mn while profit before tax jumped 31 per cent to £198mn. The improved earnings came despite a 30 per cent fall in net new business and a 10 per cent drop in assets under administration to £127bn.

The FTSE 100 group lifted its dividend by 3.6 per cent to 12.70 pence per share.

However, analysts warned that the earnings from cash come primarily from money sitting on the investment platform, an income stream that increased 10-fold from the year before to £122mn.

Cash moved to savings products yields less for the company. Customers transferred $400mn from the investment platform to the saving service in the last six months of the year. Counting those transfers, the investment platform suffered a net outflow of £100mn.

Julian Roberts, analyst at Jefferies, said the growth in savings could hurt the company’s margins but that this was at present offset by interest income from the investment platform. “The core platform has seen an effective outflow,” he said.

Operating costs grew 15 per cent from the year before, and the company continued to pump money into upgrading its technology and pushing into wealth management with high-tech financial advice.

Hill announced the strategy a year ago but has since said he will retire in November and hand over the execution to Dan Olley, chief executive of Dunnhumby, the data analytics firm behind grocer Tesco’s Clubcard loyalty programme.

Hargreaves Lansdown has stuck to its strategy despite coming under pressure to cut costs in a stinging attack from the group’s co-founder, Peter Hargreaves.

The billionaire, who founded the business with Stephen Lansdown in 1981 and remains its largest shareholder, told the Financial Times last month that the company had at least 1,000 surplus jobs and should undertake “a huge round of cost-cutting”.

“The board indulged in completely unnecessary irrelevant programmes, which have distracted the firm from its prime objective. It’s hardly surprising the shares have collapsed,” he said.

Hargreaves Lansdown shares, which have fallen by a quarter since Hill took the helm in 2017, were up just over 1 per cent in early trading in London on Wednesday.