Asset managers Hargreaves Lansdown PLC (LSE:HL.) and AJ Bell PLC (LSE:AJB) were slammed with 'sell' ratings this week, as UBS analysts reiterated that consumer duty headwinds are impacting British firms' margins.
Under new fair-value assessment rules announced in May, the likes of Hargreaves and AJ Bell face fee cuts associated with higher consumer duty and clearer standards of consumer protection.
These new regulations have already taken what Citi analysts back in August called a ”high-profile scalp” via mid-cap wealth manager St James’s Place.
Now Hargreaves and AJ Bell are in the firing line after UBS initiated coverage on the firms.
UBS analysts expect a 17% relative market underperformance to come for AJ Bell, though there are more than just consumer duty concerns.
“We expect cyclical challenges to net new business and market returns to weigh on revenue growth, but the biggest risk, in our view, is to interest earned on client cash,” said UBS, predicting total revenue margins will fall from 29.5 basis points to 25.7 basis points in the years ahead.
As for Hargreaves Lansdown, these regulatory challenges could see its interest spread of client cash falling from 200 basis points this year to 150 basis points in 2025.
Hargreaves’ “premium pricing looks increasingly unjustified versus similar product range, quality and customer service at lower-cost competitors”, said analysts.
AJ Bell was given a 'sell' rating with a 240p price target against a 274p publication price.
Hargreaves Lansdown was rated a 'sell' with a 650p price target against a 731 publication price.