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Business Model

Business model

Using scale and market position to drive value

As the UK's largest direct to investor "Investment Company" Hargreaves Lansdown aims to make profits by providing investors with a competitively priced service for acquiring, managing and disposing of a wide range of authorised investments. The service incorporates provision of a wealth of information and research into opportunities with potential. We aim to be the best place in the UK to buy investments directly.

We operate a single platform across our entire client base, allowing us to support our growing business while maintaining client service levels. We are continually investing in this platform to enhance its robustness, security and efficiency. This approach has allowed us to generate industry leading operating margins of 65%.

We look to use this scale and market position to benefit our clients. It allows us to invest in extending our offering and capabilities while ensuring we maintain service levels to our desired standard. It also allows us to secure attractive fund discounts, competitive share dealing and access to a broad range of fund launches and retail IPOs.

Our success is built around providing our clients a high quality service tailored to their needs, and ensuring that they have access to relevant information to support them with making their own investment decisions. We also provide a discretionary service (the Portfolio Management Service) if clients prefer not to make their own investment decisions. Our knowledgeable and helpful staff, technology and experience enable us to provide an excellent and convenient service to our clients.

How our business generates value

Fund supermarkets and wrap platforms more typically focus on servicing the independent financial advice (IFA) community. Our investment platform services the private investor directly. The Hargreaves Lansdown business model allows us to offer highly competitive prices to our clients, achieving high quality recurring revenue streams and strong profitability. We aim to create shareholder value by retaining our position as the best place in the UK for private investors to buy investments and savings products.

We generate revenues based on the value of assets managed on our platform, activity levels of our clients and a net interest margin on un-invested cash. By attracting net new business and providing incredible service we are well positioned to grow revenues across the market cycle.

We generate an attractive stream of profits which convert almost entirely into cash. Our use of profits is determined by our dividend policy, which takes account of market conditions and the Group’s growth, investment and regulatory capital requirements at the time. Although the Board retains the flexibility to change how we deploy profits, we have consistently returned a high proportion of profits to shareholders via dividends.

Reinvesting part of our profits enables us to grow our business by retaining existing clients, obtaining new investments from our existing clients and by winning new clients. We do this by providing market leading service, information and value. When combined with the security we offer and the trust in our brand it provides a compelling reason for clients to choose and remain with Hargreaves Lansdown.

How we are different

Hargreaves Lansdown has a strong culture focused around our clients. This is reflected in our values:

  • Put the client first
  • Do the right thing
  • Do it better
  • Make it easy
  • Go the extra mile

These days everyone talks about excellent service, but it takes experience and commitment to actually deliver. Our service is joined up – one website, one login, one conversation, one platform offering a huge range of investments – a “one stop shop”. We want to be the best place for savers and investors in the UK. When individuals want to save and invest they will think of Hargreaves Lansdown as the best place to go, to make it happen. There is more we can do to keep improving, but we are in a strong position when it comes to delivering great service as evidenced by recent awards from Which? and The Platforum.

A founding principle of our business is ‘simplicity’ – the financial services industry is weighed down with complexity, yet when we deal directly with self-directed investors we make it simple for them. We use our scale and position in the market to negotiate favourable discounts for our clients, we lobby for better savings products, and we put the client at the heart of everything that we do.

Most changes and opportunities within our business require an element of systems or web development. We own, control and develop our own IT systems. We have our own proprietary systems that are not sold to others in the industry, and we have in-house development knowledge and expertise. This makes us nimble and quick to respond to opportunities. Our business is not capital intensive, but we employ c. 280 IT staff to maintain, develop and operate our IT infrastructure, website and systems. The long-term sustainability of our IT platform continues to be a key strategic priority for us.

How our business is sustainable

The business operations are very scalable, so as we continue to grow we benefit from economies of scale and increasing cost efficiency. We utilise technology to ensure our service is efficient and as automated as possible, such that adding new clients and assets has only a marginal cost impact. We continually look at what our clients want, as well as the competitive landscape and industry developments in order to evolve our service with the aim of growing our market share. Communication with clients is conducted through regular client forums and targeted surveys. A key current project is how we can better service the asset class of cash on behalf of our clients and to that end we are developing a cash management portal.

The reinvestment of profits to provide improved services, better functionality and, over time, making the cost of investing cheaper for our clients all contribute to our sustainability.

How we create value (as at 31 December 2018)