UK fund groups have just had their Christmas cancelled. The markets regulator is calling on platforms that hold investments for customers to keep less of the money they earn by reinvesting clients’ spare cash. Shares of Hargreaves Lansdown (HRGV.L), AJ Bell (AJBA.L) and Abrdn (ABDN.L), the key players, fell between 4% and 7% on Tuesday.
The move is a little tardy. Such platforms have enjoyed a windfall as interest rates rose, allowing them to park customers’ cash at a high rate with banks and keeping a chunk for themselves, earning margins of around 2% typically. The Financial Conduct Authority’s “Dear CEO” letter is likely to put pressure on them to give more of that margin back to clients.
With rates set to fall next year, the pain to customers was likely past its peak. But the stakes are still high: JPMorgan analysts reckon that such cash margin accounted for nearly 10% of revenue at Abrdn in the six months ending in June, and over 30% at Hargreaves Lansdown. While some of those revenues will remain, lower margins will come just as competition is picking up, with Robinhood eyeing an entry. Abrdn CEO Stephen Bird, who is already wrestling with a struggling fund management operation, will come under even more pressure to turn his business around. (By Neil Unmack)
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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)
(This story has been refiled to fix punctuation in the headline)
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