So here we are, it’s nearly the end of February already and 2022 is shaping up to be really quite the year round the lang cat Port Authority. Hope it is for you too. Although I do appreciate that for many of us the month that contained the last palindromic date (yesterday, since you ask) until 2030 will mainly be remembered for being blown to kingdom come. The lang cat’s southern contingent even had to take a break from sunbathing in the #sunniestplaceinbritain to batten down the hatches.

Talking of storms, Bristol has had its fair share over the last couple of weeks – Dudley, Eunice, Franklin, perhaps Gladys to come, and yesterday a new area of very localised low pressure blew in right over the Brizzle harbourside. The Beast From Bristol announced its results, and despite some masterful pitch-rolling about how lockdown trading volumes wouldn’t repeat themselves in less feverish times, they didn’t go down well.

HL is, whether you adore it or hate it, a remarkable success story. It now houses £136bn, turns over £631m and makes profits before tax of £366m. To save you doing sums, that represents a yield on assets of 0.464%, which is a tidy clip on a tidy pile of assets. And yet yesterday, despite these results, HL shares took their biggest ever fall, down nearly 16% – an improvement from the 22% drop it had suffered earlier in the day. Taken over a longer time frame the shares are down 28% on a year ago and nearly 18% on five years ago.

Inside that little barrage of unwelcome stats are a whole bunch of issues at play. HL ripped the plaster off in terms of needing to upgrade its own technology – the platform equivalent of needing a new boiler. It’s good to get a new boiler because your house stays warm, but it’s expensive and at the end of a load of dirty work and a tonne of expense all you have is a warm house which is what you were meant to have before. See also: roof repairs. It’s hard to get folk excited about that; a finding that isn’t a surprise but is certainly something investors in other listed platforms should bear in mind.

HL also started in on the hybrid / digital advice journey. This is a double-edged sword; no-one doubts that HL can attract assets like…dunno, a thing that attracts assets. But at the same time it’s a clear nod to Vanguard, Bestinvest and others who are further ahead and who will happily undercut HL all day long. It’s worth noting that the FCA is all over this stuff too, allowing this document out and about for a walk yesterday on the very day HL announces: is life too weird or what?

Weird or not, I suspect, and by ‘suspect’ I mean ‘know’, that analysts covering the stock have been waiting for the first sign of galloping margin pressure, and this is it.

All interesting stuff, but that’s not the bit you really care about. If you listened to the capital markets day presentation, you’d have heard HL talking about generating something like £5bn AUA in ‘augmented advice’ by 2026. This may not sound like much compared to the scale of the rest of HL, but how many advice businesses do you know who generate £5bn in four years without being a consolidator?

And where do they plan to get it? When asked if they would be going after the vertical firms – SJP, Abrdn, Quilter – HL said ‘absolutely’, and then came a comment which really should make you prick up your ears:

“today, the advice market is currently suboptimal for clients…traditional advice is expensive and fragmented, with the initial fee and also ongoing advice, and many people are paying for this ongoing advice that they simply don’t need”.

(you can find this here: you have to register though. The advice quote is at 1:01.50.)

It strikes me that there’s a mood shift out there. When we look at where price compression has happened – as Dave Ferguson did in his #langcatlive session – you will see it all over the place in products, platforms and asset management, and not at all in advice. That’s a function of two things – firstly, advisers being closest to the client and so the last to feel that pressure, and secondly the fact that the whole rest of the industry is terrified of having a go at advisers as they’re still the gatekeepers to so much of retail wealth.

With HL’s pronouncement and Vanguard’s (quieter) foray into at-retirement advice I think we are seeing that reluctance to call out the IFA market and, crucially, to supply a lower-cost alternative, starting to fade. If you’re a lifestyle business with a limited number of clients to whom you’re so close that all this is laughable, then fine, go back to bed. But for those with aspirations to attract new clients from the open market, this is one to keep an eye on. Margin pressure is coming and although the advice sector will be last to feel it, feel it it will.

#LANGCATLINKS

  • Speaking of videos from #langcatlive, a full set is now available on the lang cat’s YouTube channel. We’ve created a playlist of them, and you may partake at your leisure. There is a lot to take in, so don’t try and do it all in one go…
  • We’re all set for the next HomeGames 2.0, ably chaired by our own Natalie Holt. This one is on consolidation in the advice sector – we’re joined by Fairstone, True Wealth, Kingmakers and Informed Financial Planning. I think this one could have sparks. Next Wednesday (2 March), 12.30pm, free. Reserve your spot here.
  • Product news: Nucleus has launched a flexi-ISA, which is less commonly available than you’d think. If you want to find out who does what at the touch of a button, we recommend a strong course of a premium lang cat Analyser subscription.
  • And your music choice this week celebrates and laments the passing of Mark Lanegan, late of Queens of the Stone Age and Screaming Trees amongst others. This is a guy who lived and his Covid story alone is enough to fill most folks’ book. Some of my favourite stuff of his wasn’t the grungy end of things, but his duets with Scottish singer Isobel Campbell. So here’s the quite outrageous Come On Over (Turn Me On) from Sunday At Devil Dirt with bucketloads of Nancy and Lee and Nick Cave and other good things. And if you like that, try the stripped-down live version which might be even better. A fine treat for all us auditory humans everywhere, no matter what kind of thing we normally favour.

See you next week.

Mark