UPDATE 1-Hargreaves Lansdown grows in UK retail finance shakeup


By Chris Vellacott

LONDON, Oct 12 (Reuters) - Britain's regulatory shakeup ofhow financial products are sold to small investors is boostingthe market dominance of investment manager Hargreaves Lansdown, which has seen assets grow to all-time highs in a softmarket.

Revenues in the three months to the end of September,traditionally the quietest season of the year, were up by afifth from a year earlier at 68.7 million pounds ($110.2million), a record for any quarter, the company said.

Assets under administration increased 2.2 billion pounds to28.5 billion pounds.

Under new rules to come into effect next year, a traditionalmodel of selling financial products for a commission is beingscrapped and replaced with a fee-based system, playing toHargreaves Lansdown's strengths of providing broad access to thefund management market.

Regulators argue these reforms will better ensure financialadvisers sell the most appropriate products for their clients'needs as the old system encouraged them to promote investmentsthat offered the juiciest commissions.

The new regime also imposes more rigorous complianceprocedures on practitioners, driving up costs and making manysmaller financial advisory businesses uneconomic.

And the requirement to charge fees rather than commissionwill mean financial advisers will either need to be offeringproducts on a huge scale - like Hargreaves Lansdown - orspecialise in richer, higher value clients.

"You need to be large and you need to have a decent brandname," Chief Executive Ian Gorham told Reuters.

The next quarter is likely to be stronger still, benefitingfrom clients prompted to invest by new fund launches andHargreaves Lansdown's role in giving individual investors accessto insurer Direct Line's initial public offer.

"The thing that makes people act is good offers andsomething new," Gorham said.

Investors cheered the numbers, driving the company's sharesup 2.5 percent by mid morning.

"Hargreaves Lansdown continues to gain market share and withthe prospect of IFA (independent financial adviser) costdisclosure from the start of next year, we expect HargreavesLansdown to win a significant number of former IFA customers,"Numis analysts said in a note to clients.

But the trading statement also revealed some of HargreavesLansdown's clients are feeling the pinch in hard economic times.

Net new business was 19 percent down on the previous year at550 million pounds. The firm attributed some of this drop toclients eating into their capital, cashing in investments suchas individual savings accounts (ISA) - a tax free investmentscheme - to cover living expenses.

"We have seen more part withdrawals from things like ISAs.If it's part withdrawal you know it's not losing the business toa competitor because they would take the whole ISA. What'shappening is people are eating into capital because they arestretched," Gorham said.

($1 = 0.6234 British pounds)(Editing by Mark Potter)


75423987)(Reuters Messaging:chris.vellacott.thomsonreuters.com@reuters.net))