Report and Financial Statements 2020
CLIENT
FOCUS
RESILIENT
GROWTH
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OUR CLIENT
FOCUS DRIVES
OUR GROWTH,
MAKING US
A STRONGER,
MORE RESILIENT
BUSINESS
Why us?
At Hargreaves Lansdown client experience
is our obsession. We want to build long-term
client relationships, helping people to secure
better financial futures for themselves and their
families. Our culture, values and governance
ensure we keep our clients at the heart of all
we do and this drives sustainable growth
which benefits all.
Our purpose
Our purpose is to empower people
to save and invest with confidence.
To achieve this we place the client at
the heart of what we do, becoming their
trusted partner and financial champion.
We listen and respond to their needs
to evolve our service and investment
solutions in order to bring greater
prosperity throughout every stage
of their life.
Who we are
We are the UK’s largest direct to investor
investment service. For nearly 40 years,
we have helped clients save time, tax and
money on their investments. Today we
are trusted with more than £104 billion by
1,412,000 clients. We are a secure, FTSE
100 company, headquartered in Bristol
employing over 1,600 people.
What we do
As a nation we need to build a
stronger culture of saving, which will
bring long-term benefits to individuals
and society as a whole. We seek to
break down barriers or misconceptions
that might prevent people saving and
investing their money with confidence.
We help clients make more of their
investments by giving them the tools
and information to make their own
informed decisions. We aim to simplify
their financial life by making it easy and
straightforward to manage their savings,
investments and pensions.
Strategic report
Investment proposition
Business model
Chair’s statement
Chief Executive Officer’s review
Market opportunities
Strategy and KPIs
Risk management and the principal risks
and uncertainties
Stakeholder engagement
Operating and financial review
Corporate social responsibility
Non-financial information statement
Governance
Chair’s introduction
Board of Directors
Corporate governance report
Audit Committee report
Directors’ Remuneration report
Nomination Committee report
Risk Committee report
Directors’ report
Section 172 statement
Statement of Directors’ responsibilities
02
04
06
08
12
18
22
30
32
38
52
54
56
59
67
73
99
105
109
113
116
Financial statements
Independent auditors’ report
118
Section 1: Results for the year
125
Section 2: Assets and liabilities
135
Section 3: Equity
145
Section 4: Consolidated statement of cash flows 147
Section 5: Other notes
149
Section 6: Company financial statements
159
Other information
Directors, company secretary, advisers
and shareholder information
Five-year summary
Glossary of alternative financial
performance measures
Glossary of terms
166
167
168
170
FIND OUT MORE
Pg 4: Our business model
How we’re driving value.
Pg 12: Our market opportunities
The opportunities and challenges presented
by our market environment
Pg 18: Our vision and strategy
Measuring our strategic progress.
Pg 32: Our financial performance
The results we’ve achieved this year.
Pg 38: Our corporate social responsibility
Our commitments and aspirations.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
1
INVESTMENT PROPOSITION
CLIENT EXPERIENCE
IS OUR OBSESSION...
We put our clients first and at the heart of everything we do, helping
them create better financial futures for themselves and their families,
by empowering them to save and invest with confidence.
Society’s
challenge
Large savings gap
and investment landscape
growing in complexity
Creating significant
opportunities in a growing
addressable market
Our aim
To deliver a market leading
proposition and service to fulfil
the long-term needs of clients
Attractive service-driven
offering across our
client segments
Our sustainable
business model
Execution through
compliant, controlled, secure
and efficient platform
Operational resilience, scale
and market position creating
long-term stakeholder value
Delivering
value to clients,
employees,
shareholders
and society
Our client focus
Improving client
experience, delivering value
and driving growth
Competitive advantages
in people, marketing
and technology
2
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Our strategy
Client focus supported by
our culture and values
Listening to clients, evolving
the proposition and deepening
client relationships
INVESTMENT PROPOSITION
...SUSTAINABLE GROWTH
IS THE RESULT
Our client focused strategy and culture enables us to build long-term
relationships and address the structural growth opportunities that
exist. Continued investment and innovation ensures we can enhance
our proposition, service and client engagement, which drives long-
term sustainable growth.
1Excellent market
2A strategy that
opportunities
We have a significant
addressable market undergoing
structural change driven by
people living longer, individual
responsibility, ongoing low asset
yields, a complex savings
environment, auto-enrolment
and market volatility. We deliver
a proposition and service to help
clients through these trends and
get to the right outcomes.
delivers success
A real client focus supported by
our values enabling us to deliver:
• a compelling proposition
with an increasing range of
services and solutions to
meet the needs of clients;
• an excellent client service
across all touchpoints making
clients’ lives easier; and
•
increasingly tailored content,
which all serve to deepen the
client relationship.
3Investment in
future growth
Outstanding client experience is
delivered through our continued
investment in people,
technology and marketing,
ensuring that we are always
improving and evolving the
service and maintaining our
competitive advantage.
4Attractive
returns
Our strategy and investment
drives our growth in clients and
assets. High levels of client and
asset retention combined with
significant recurring revenues
gives high quality earnings which
quickly turn to cash. This enables
us to pay significant dividends
whilst reinvesting to drive
further sustainable growth.
2020 highlights
£7.7BN
2019: £7.3BN
Net new business in the year
188,000
2019: 133,000
Net new active clients in the year
£378.3M
2019: £305.8M
Profit before tax
£104.0BN
2019: £99.3BN
Total assets under administration
1,412,000
2019: 1,224,000
Total active clients
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
3
Strategic reportGovernanceFinancial statementsOther information BUSINESS MODEL
CLIENT
FOCUS
AND
OPERATIONAL
RESILIENCE
DRIVE VALUE
Our client focused strategy and culture enables
us to build long-term relationships and address the
structural growth opportunities that exist. Continued
investment in our people, marketing, technology and
innovation ensures we can enhance our proposition,
service and client engagement, which drives
long-term sustainable growth.
FIND OUT MORE
Pg 18: Our strategy and KPIs
Measuring our strategic progress.
Pg 32: Our financial
performance
The results we’ve achieved this year.
Pg 38: Our corporate social
responsibility
Our commitments and aspirations
4
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Inputs
People
Our people are at the heart of
Hargreaves Lansdown, ensuring
we deliver on our core values. They
develop knowledge and expertise,
implement our strategy and deliver
our products and services.
Technology
Our platform uses our own
proprietary systems, allowing us to
develop our products and services in
a nimble, secure and efficient manner.
We embrace technological innovation
to improve the client experience now
and in the future through improved
architecture that could enable
collaborative opportunities.
We invest to ensure our systems are
safe and secure, giving peace of mind
to clients.
Marketing
We provide a multi-channel
marketing approach to engage with
new and existing clients, ensuring
they have high quality information
to empower them to save and invest
with confidence.
We seek to understand our
clients better, to tailor our
communications to their needs
and enhance a lifelong relationship.
Growth Cycle
Economics
Value
creation
Growth in clients
We have a market leading, client
focused, scalable platform and
through a combination of investment
and application of our core values,
we continually improve the client
experience, attracting new clients
across the lifecycle and retaining
our existing client base.
Growth in AUA
Growing the number of clients and
nurturing our relationships with
them over their lifetime drives the
long-term sustainable growth in
assets on our platform.
The more happy and engaged clients
we have, the greater is the flywheel
effect for increased new business
flows through transfers of
investments held elsewhere onto our
platform, new lump sum contributions
and regular savings, particularly with
regards to the tax allowances within
a SIPP and an ISA.
Growth in services
We talk and listen to our clients to
understand their needs along with
those of our wider addressable
market. This helps to focus our
reinvestment and the allocation of
resources to improve existing and
develop new services, which makes
us an ever more integral part of clients’
daily financial lives.
Revenue
We generate revenues based on
the value of assets managed on our
platform, activity levels of our clients
and a net interest margin on
uninvested cash.
73% of these revenues are recurring in
nature, providing a high degree of
profit resilience. By providing an
excellent service we attract new
clients and new assets, ensuring we
are well positioned to grow revenues
across the market cycle.
Costs
From our revenues, we fund the
administration of the platform, our
proposition and the business as a
whole. Key to our strategy is the
reinvestment back into people,
technology and marketing, ensuring
that we are always improving and
evolving the service and maintaining
our competitive advantage.
We deliver all this whilst maintaining
industry leading operating margins
of over 60%.
Profits and dividends
Our high quality revenues and
scalability deliver strong profits
which quickly convert into cash.
After ensuring we maintain a
surplus of capital over and above
our regulatory requirement, we
then pay significant dividends
to our shareholders.
Through placing clients at the heart
of all we do, we have already achieved
significant scale, but our continuing
investment and adherence to our
core values will enable further growth.
This will deliver long-term value
creation not only for clients but across
a range of stakeholders including:
Clients
We listen to clients and respond by
investing and championing their cause
to help them secure better financial
futures and to make their financial
lives easier.
Employees
We continue to increase the diversity
and inclusiveness of our workforce and
engage, motivate and inspire them
to deliver excellent client service.
Rewarding careers are delivered
through investment in professional
and personal development and a focus
on wellbeing and mental health.
Investors
We deliver long-term sustainable
returns through share price
appreciation and a progressive
dividend policy.
Society
We are a responsible corporate
citizen, playing a positive, supportive
and leading role in both our local
community and wider society.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
5
Strategic reportGovernanceFinancial statementsOther information CHAIR’S STATEMENT
DELIVERING FOR
STAKEHOLDERS
By way of introduction for our 2020 Report and
Financial Statements, what a year this has been.
Relentless, tough, unexpected, eventful are just
some of the words that spring to mind. A year
that saw global economic disruption and political
uncertainty, a general election, the UK depart the
EU and the unprecedented challenges of COVID-19.
HARGREAVES
LANSDOWN VALUES
1 We put the client first
2 We go the extra mile
3 We do the right thing
4 We make it easy
5 We do it better
These are the type of conditions that
distinguish winners from losers within
a competitive set. Those companies
that have the right business model and
strategy, guided by a sustainable purpose
and culture, are increasingly those that are
delivering outstanding outcomes for all
their stakeholders.
In 2020, Hargreaves Lansdown won on many
fronts. The results speak for themselves.
We delivered record growth and record
profits for shareholders whilst being there
for our clients through it all. We have not
had to seek government assistance, nor
have we had to furlough any employees
or enact any redundancies.
These results did not come by accident.
Hargreaves Lansdown’s strategy is focused
around the client. Over the last three years,
this has seen us extend our proposition,
deepen our marketing capabilities and
deliberately build greater operational
resilience and servicing capacity. These
were all key to our success in 2020.
Our colleagues stepped up, collaborated
and embraced new ways of working
regardless of their personal circumstances.
Colleague commitment, resilience and
dedication never cease to amaze me and
were integral to the results we delivered.
And for that effort, particularly in times
of challenge, the Board extends its
appreciation and admiration.
We have also worked hard to support our
local community in Bristol through a range
of programmes and charitable donations.
For example, we have seconded five of
our colleagues to the Local Enterprise
Partnership (LEP) to play a leading role
in their project aiming to drive economic
recovery in the region.
A long-term sustainable business must
engage and deliver for all of its diverse range
of stakeholders. I am proud to see how HL
responded in 2020 and what it achieved
for its clients, colleagues, community
and shareholders in these uncertain times.
I am sure we can and will build on these
foundations in the years to come.
Corporate Governance Code and
stakeholder engagement
This is the first year that the 2018 UK
Corporate Governance Code (the Code)
has applied to Hargreaves Lansdown.
Confirmation of how we have complied
with the Code for the year under review
is set out on page 54.
Constructive, transparent and open
engagement with our stakeholders outside
of the boardroom forms a critical aspect of
Board-level activity. On pages 113 to 115 we
present our first S172 statement which sets
out our consideration of our key stakeholders
in our decision making. In addition, on pages
30 to 31 you can see specific examples of how
we engaged with, the key topics raised and
how we responded with a range of our key
stakeholders across the year.
Board governance and changes
The Board is committed to delivering high
standards of corporate governance and
embedding the right culture and behaviour
throughout the business. We have
demonstrated our operational resilience
and our client obsession but we need to
ensure that this is retained as we grow so
that we can thrive at scale. Some of the
changes made this year are specifically
aimed to ensure we can deliver the best
outcomes for our clients as we continue
to grow, along with continued progress
on our client focused strategy.
Following on from the high profile Woodford
Equity Income Fund suspension in June 2019,
we said we would reflect and learn and
implement any necessary changes to
improve our governance and oversight. We
subsequently undertook a detailed external
review of our governance framework relating
to our investment processes. As a result we
have made changes such as establishing a
separate Executive Investment Committee
to oversee decision making at Hargreaves
Lansdown Fund Managers Limited;
separating out any potential for conflict
arising with respect to the selection of
funds on our Wealth Shortlist and those in
Hargreaves Lansdown Funds and establishing
or enhancing committees to deal with
potential Conflicts, Distribution of
Investments and Product Governance. These
changes were all in place prior to the launch of
our new Wealth Shortlist on 30 June 2020 and
we shall review how they are working and
make any necessary changes if required.
More on these governance changes and the
new structure can be found on page 55.
The Board’s composition and diversity is
regularly reviewed and we are committed to
ensuring we have the right balance of skills
and experience within the Board. In August,
6
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Governance
Financial statements
Other information
In 2020, Hargreaves
Lansdown won on many
fronts. The results speak
for themselves. We
delivered record growth
and record profits for
shareholders.
Deanna Oppenheimer
Chair
Jayne Styles informed us that she was going
to step down at the 2019 AGM to devote
more time to her executive career. Jayne
was on the Board for four years and we
thank her for her service over this period.
management and investment experience,
adding further breadth to the knowledge
base and skills of the Group Board, which
reflects the ongoing focus we have in
ensuring strong governance.
My thanks to both Stephen Robertson and
Fiona Clutterbuck who will be stepping down
from the Board at our upcoming AGM.
Stephen will have been on the Board for nine
years, as well as serving on many of our
Committees. He brought us considerable
client experience and I have always enjoyed
how he contributed to our discussions with
both good humour and sharp insight. As
Chair of our Remuneration Committee,
Fiona, who is leaving for other professional
commitments, has made an invaluable
contribution in overseeing improvements to
the process and structure for remuneration
at all levels throughout the organisation. It
has been a pleasure to work with Stephen
and Fiona and, on behalf of the Company,
I would like to express my sincere gratitude
to each of them for their dedication and
contribution to the Group.
During 2019, we commenced a search for a
new Non-Executive Director with expertise
in financial services and investments. A
rigorous selection process was undertaken
and with effect from 1 January 2020 I was
delighted to confirm the appointment of
John Troiano as an Independent Non-
Executive Director of Hargreaves Lansdown
plc. John also joined the Group Board Risk
Committee and the Hargreaves Lansdown
Fund Managers Board where he will provide
further independent challenge and
oversight. John brings global asset
As at the date of this report, we are in the
advanced stages of recruiting up to two
additional independent Non-Executive
Directors, with the aim of building resilience
into and aligning the Board’s skillset to the
future strategic needs of the Group’s
business. The recommendations of the
Hampton-Alexander and Parker reviews
are being closely considered as part of the
recruitment process, and we hope to be in a
position to announce the outcome early in
the new financial year.
Dividend
Hargreaves Lansdown is a financially strong
business as shown by our robust balance
sheet, surplus capital and highly cash-
generative business model. In line with
our stated dividend policy, the Board
recommends, subject to shareholder
approval at the AGM, payment of a final
dividend of 26.3p per share. In addition, the
Board has today declared a special dividend
of 17.4p per share.
An interim ordinary dividend of 11.2p per
share was paid on 9 March 2020. Taking this
into account, the total ordinary dividend for
the year will be 37.5p per share (2019: 33.7p),
an increase of 11% on last year. Adding the
special dividend gives a total dividend of
54.9p per share (2019: 42.0p), an increase
for 2020 of 31%.
Subject to shareholder approval of the final
dividend at the AGM to be held on Thursday
8 October 2020, the final and special
dividends will be paid on 16 October 2020 to
all shareholders on the register at the close
of business on 25 September 2020.
Looking forward
Many people spend a lot of time considering
the future and attempting to predict it. What
the impacts of COVID-19 on the UK economy
might be, or Brexit. When we can see family
and friends again. Or even colleagues.
The Board believes that whatever happens,
Hargreaves Lansdown is well positioned to
manage the short-term challenges that may
lie ahead and we face the long term-future
with confidence.
The need for individuals and families to save
and invest for their financial futures remains
as strong as ever. We have an already
significant addressable UK market
opportunity that will only grow further. Our
client focused strategy and drive to improve
operational resilience have been proven by
the events of 2020. We will continue to
pursue these and further improve the client
experience to deliver growth.
I am excited about the journey ahead and I
believe we have the right culture, values and
governance in place to meet the long-term
needs of our clients and create further value
for all our stakeholders.
Deanna Oppenheimer
Chair
6 August 2020
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
7
Strategic report CHIEF EXECUTIVE OFFICER’S REVIEW
GROWTH THROUGH
CHALLENGE
AND CHANGE
2020 has been a significant year for Hargreaves Lansdown and
I am pleased at how we have continued to execute our strategy
and provide support for our clients in an external environment
of persistent challenge.
In hard times there are challenges for all of us
as individuals, clients and colleagues. I would
like to take this opportunity to thank our
clients for their resilience and continued
support and my colleagues for their hard
work, commitment and ingenuity in managing
the tremendous change that COVID-19 has
brought in the midst of our busiest time of
year. Despite the personal upheaval we have
all experienced, it has been inspiring to see the
support we have provided to our clients and it
is through their performance that we have
been able to deliver strong outcomes for all
our stakeholders.
The first half of the year was characterised
by political uncertainty around Brexit and
trade wars. At the time, we were confident
that any certainty provided by the election
result would improve investor confidence
and lead to a strong performance through
the second half. Our thinking was confirmed
over the rest of the year where, despite the
unforeseen ongoing pandemic and the
significant challenge this has brought to the
world, HL has delivered a performance of
great strength.
The benefits of putting our clients at the
heart of everything we do combined with our
investment in the scalability, diversity and
resilience of HL’s business model, have been
demonstrated in its response to the
COVID-19 crisis. At the same time we have
completed significant strategic initiatives
including launching our new Wealth Shortlist,
delivering our first multi-channel advertising
campaign as well as completing further work
to enhance governance, scalability and
resilience in our service to clients.
Building resilience over the long term
I believe that the acute challenges of this
year have reinforced the importance of
resilience for us all. Clients must have
confidence in HL’s ability to remain secure
and provide the best service to them.
But clients must also build resilience into
their savings and investments to enable
themselves to be confident to manage
through difficult periods and events.
At Hargreaves Lansdown we have a very
strong purpose: to empower our clients to
save and invest with confidence over the
long-term; and this is supported by a culture
and values that are focused on helping our
clients in the right ways to deliver the best
outcomes for them. We recognise how
complex the UK wealth landscape has
become and the challenge this brings to
serve clients. Financial requirements are
becoming increasingly complicated: as
people live longer, as long-term saving
obligations move from companies to
individuals and the low interest rate
environment persists with added volatility
and uncertainty; people need support.
The tools, knowledge and insight that we
provide as part of our service, equip and
empower our clients to manage their
savings and investments. Diversification is a
key part of building resilience into a portfolio
and our proposition offers clients the
opportunity to save and invest across a
spectrum of asset classes, including in cash
with Active Savings.
HL’s role as a lifelong partner for clients is
growing and we will continue to develop our
proposition, capabilities and digital
technology to provide an experience for
clients that is appropriate to their evolving
lifetime savings and investment needs.
Our connectivity with our clients means
we can evolve to meet their needs,
especially as the external environment
continues to change rapidly.
Our response to COVID-19
This culture and focus on our clients guided
our swift response to the COVID-19
pandemic. Our immediate priorities were
ensuring the safety and well-being of
colleagues whilst maintaining the core
services that our clients rely on. This
included moving the majority of colleagues
to work from home whilst swiftly
implementing effective social distancing
across three sites for those colleagues
who needed to be in the office.
It is through the investment we have
made in our service and technology over
the past few years that we were able to
ensure both the resilience and scalability
of HL over this period and to react to the
situation with agility.
As a result we were able to continue to
deliver the service that our clients needed
during this time and manage the record
volumes of client activity. We also provided
critical insight and information on matters
that they were concerned about.
In keeping with our own expectations of our
role in the community in which we live we
also provided support to our local
8
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Governance
Financial statements
Other information
The benefits of our
investment in the
scalability, diversity and
resilience of HL’s business
model has been validated
by its response to the
COVID-19 crisis.
Chris Hill
Chief Executive Officer
community. More detail on our response to
COVID-19 for key stakeholders is outlined in
the CSR section of this report on page 49.
Keeping close to clients
Our client service and client outcome based
strategy is underpinned by an unrelenting
focus on understanding our clients’ needs, a
critical part of which comes from using the
insight that we get from their interactions
with us. As we act on this insight, and provide
a service that serves to retain clients, we
build a lifelong relationship that further
enhances our ability to tailor their
engagement and our service in the most
appropriate ways for them.
This focus was key to our service response
to COVID-19 as mentioned above. We used
the intelligence provided through our phone
and email contact together with observing
the activity on the mobile and web platforms
to study carefully what clients needed and
we reacted as a result. We maintained the
Helpdesk phone lines throughout and put
additional measures in place to increase our
email response rate in line with client
contact. We also introduced new measures
to support our vulnerable clients including
increased information on fraud risk and a
specific phone line to provide them with
further support.
We made proactive decisions to stop and
then swiftly to adjust our marketing to
ensure that the messages were appropriate,
and paused other initiatives such as the
Wealth Shortlist so that our clients were
getting the right focus and attention when
they needed it most. As the crisis developed
we concentrated on what content clients
were engaging with online and identified
where they needed insight. The top 10
articles our research team posted were read
up to three times as much as the top 10 last
year with over double the number of
non-client visitors to the website using
these resources.
We recognise that, through the intensive
scale of client interaction on our mobile and
online platforms, and through calls and
emails to the Helpdesk, we gain huge insight
and understanding. This allows us to focus
on what savers and investors specifically
need and then work to deliver this. Across
the year, digital visits increased by 41% from
177 million (FY19) to 249 million in FY20. We
received unprecedented volumes of emails
into the Helpdesk between April and June
alone and have continued to see
consistently high volumes of calls
throughout this time.
We have also developed our digital and
mobile capability in response to changes in
how clients want to interact with us. The
popularity of our mobile app continues to
significantly grow and represents an
increasingly important feature for our
clients. Of the 1.2 million clients who logged
in online, 43% did so through the app whilst
33% of online client initiated share trades
came via the apps, more than double last
year. Developing digital capabilities further
remains a priority for us and it is important
that we remain agile and are continually
anticipating and responding to changes.
Developing our proposition
We recognise the need to constantly
develop and improve our offering to ensure
we are delivering what our clients need. At
the same time, as a leading financial services
company we have a responsibility to play
a key part in setting industry standards.
As such it was essential that we learnt
from the experience surrounding the
Woodford issue last year.
We undertook significant work to review the
governance framework relating to the
investment processes across the business
and conducted extensive research with our
clients. Changes were implemented and
incorporated in the launch of the Wealth
Shortlist in June 2020. This new list
incorporates new functionality, search tools
and a more structured view of our research
to provide clients with all the key information
they need to make investment decisions, in
a transparent and easy to use format.
The extensive research included
interactions with over 8,000 clients, with
surveys, face to face interviews and a deep
dive into the additional insights we have
gained in how clients use our platform. The
end result directly reflects what our clients
told us about how they use the list and what
they wanted to see.
As part of this process, we also launched
new fund tools and updates which make
navigating the funds available through our
platform more transparent and easier than
ever before.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
9
Strategic report CHIEF EXECUTIVE OFFICER’S REVIEW
DELIVERING THROUGH CHALLENGE
These changes have been underpinned by
changes to governance processes to raise
the level of rigour and challenge to decisions
that we make. These developments will
ensure that not only our Wealth Shortlist
and Fund Finder tool, but also future
investment propositions and wider
developments, will also have a robust,
thorough and transparent governance
structure behind them. We recognise how
evolving the role of governance provides
additional rigour and challenge to our
decisions and results in better outcomes.
Executing our strategy
We welcomed a record 188,000 net new
clients during the year, bringing total active
clients to over 1.4 million and supported £7.7
billion of net new business, another record.
The importance of our own resilience and
diversification is demonstrated in our
growth with the volume of client driven
share deals up 96% and revenue from share
dealing up 94% and Active Savings now used
by 66,000 clients with £2.2 billion of AUA.
Through the market volatility of early 2020,
we have maintained our position as the
market leader with our share of the direct to
consumer platform market at 41.1%1, and
seen a significant increase in our share of
the execution only stockbroking market
rising to 39.5%2.
In the lead up to tax year end we delivered
our first multi-channel advertising campaign
‘Switch your Money ON’. This was an
opportunity to deliver a creative proposition
with both immediacy and the long-term
potential to deliver other HL messages,
whilst building the HL brand. Over 12 million
of our target audience viewed
advertisements in the period, including
adverts seen over 304 million times. We
focused on reinforcing our position as a
leading ISA provider as we approached tax
year end, highlighting our scale and service
credentials and this approach delivered
significant results with both brand
awareness and consideration.
Compared to a few years ago, we are now
seeing more clients who, on average, are
joining HL at younger ages and the way they
interact has shifted with more interest in
mobile and access to new asset classes
through our Active Savings products.
Client needs adapt and evolve over time
depending on knowledge, experience and
circumstances and our agility in adapting
and responding is driven by our proposition
and service.
In order to rise to this challenge, we recognise
the importance of continuing to develop
more digital and connected technology.
We continue to invest into our range of
capabilities because these are what enable
us to develop and deliver a broad proposition,
offering not only choice and flexibility but
solutions across a diverse range of asset
classes. These solutions are supported by
an evolving set of tools, expertise and service
that enable clients to engage giving them
confidence to take control and be resilient in
managing their savings and investments for
the long term. In return, these clients
concentrate their investments and cash
savings with us, and work to their financial
goals over their lifetimes, continuing to save
their annual allowances and investing for the
long term.
In February, we completed the sale of
FundsLibrary, our data management and
digital services business, to Broadridge
Financial Solutions Inc. The decision to sell
reflected our view that, as a business to
business service, it was no longer core to our
overall strategy, and the proceeds received
from this will be used to enhance the total
dividend payment for this year.
Conclusion and outlook
Over the next few years, the wealth industry
will continue to develop in response to the
changing requirements and challenges that
people have in saving and investing alongside
the pressing demands of everyday life. With
our scale, insight and deep understanding
of client needs we will continue to be at
the forefront of responding to change and
evolving our proposition to the benefit of
clients. We are already seeing an evolution of
our service supporting clients from younger
ages and across broader investment and
savings options. As we continue to evolve
our proposition to reflect changing client
needs, that trend will continue to grow
in importance.
The Financial Conduct Authority has
acknowledged the importance of people’s
engagement with managing their financial
futures and, after the past few years of
significant regulatory change, there has
been a growing focus on steering future
regulation to one based upon outcomes.
We are supportive of this regulatory
direction of travel and will continue to work
with the Financial Conduct Authority as the
industry evolves to design and deliver these
outcomes responsibly.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
The experience of this year has reinforced
the importance of our service-focused
strategy and demonstrated its
effectiveness with a very strong
performance delivered through a range of
difficult conditions. This gives us confidence
to look ahead and invest in addressing the
significant market opportunity. We will
maintain our focus on skills, capabilities and
technologies as this is critical in developing
the lifelong client relationships which help
drive future growth. Our scale and a strong
market position together with a robust
balance sheet and cash flows will enable us
to continue delivering value to all of our
stakeholders over the long term.
In the near term the UK economy faces a
period of uncertainty as we work through
the many issues arising from COVID-19.
Unemployment levels have increased
significantly whilst economic growth has
decreased. The government has borrowed
vast amounts to help the economy and
society but the road to recovery could be
a long one with various tax implications
along the way.
The impact on our clients and the wider
investment community as a result is difficult
to call. Interest rates are at all-time lows,
which makes cash savings unappealing, but
market uncertainty and volatility can equally
deter people from investing and access to
liquidity is a key part of building financial
resilience. However, our focus on clients, the
trusted relationships we have with them and
the investment we have made to broaden
and strengthen our proposition, means
Hargreaves Lansdown is strongly positioned
to help our clients navigate through these
difficult times. We are clear in the structural
growth opportunity, clear in our strategy
and business model and these provide us
with confidence in our ability to deliver
sustainable and attractive growth and
returns beyond the immediate
uncertainties.
Chris Hill
Chief Executive Officer
6 August 2020
1 Platforum UK D2C Market Update, July 2020
2 Compeer Limited XO Quarterly Benchmarking
Report Q1 2020
Governance
Financial statements
Other information
RESILIENT
IN TESTING
TIMES
Operational resilience – in testing times
COVID-19 presented
unprecedented challenges
and at our busiest time of the
year – tax year end. It tested
our culture, colleagues and
processes and our overall
operational resilience.
We promptly mobilised 85%
of our colleagues to work
from home and we supported
our clients throughout by
safeguarding the services that
were most important to them
across as many channels as
possible – online, telephone,
post or via the mobile app.
application was processed
at 11:59pm.
We increased the number of
colleagues on our phone lines
to assist those clients who can’t
self-serve online and needed
to speak to us. On the last day
of the tax year the longest wait
time to speak to someone on
our Helpdesk was 17 seconds.
In the last hour of the tax year,
a HL Stocks and Share ISA was
topped up or opened every
seven seconds. The last online
In times of challenge HL’s values
remain the same – we put the
client first and we go the extra mile.
“Great customer service, precise,
polite and extremely helpful in
extremely difficult circumstances
during COVID-19. I wish every
company I deal with would
have employees like yours.”
Mr Lelliott, Essex
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
11
Strategic report MARKET OPPORTUNITIES
SUPPORTING CLIENTS
THROUGHOUT
THEIR LIVES
Our proposition and service is designed to help clients of all
ages navigate the complexities of investing and saving and
to achieve their financial objectives.
Society’s challenge
The UK currently faces significant
challenges in terms of engagement with
saving and investing. As a nation, much
work needs to be done to address these
challenges and develop a stronger culture
and more confident attitude to saving and
investing, which will bring long-term benefits
to society as a whole.
The Savings Gap – the gap between
retirement expectations and the cost of
funding such expectations – is estimated at
£314 billion1. The level of funding necessary
to provide retirement income is increasing,
driven by longer life expectancies, less
generous company pensions and ambitious
retirement expectations. The burden of
responsibility for retirement is shifting
from government and corporates to the
individual. This gap cannot be closed
without individuals taking ownership
for self-provision and without the use
of long-term investments alongside cash
savings. Hargreaves Lansdown and the
rest of the UK Savings industry needs to
help bridge this gap.
The Advice Gap – post the Retail
Distribution Review (RDR) cost effective
advice has been increasingly difficult
to find. Most advisers concentrate on
wealthier clients to whom they are now
charging a direct fee, which has left a large
advice gap particularly at the mass affluent
end of the market.
Complexity – successive UK governments
implementing further changes to pension
savings, the introduction of various ISA
products and persistent low interest rates
have made finding the right solution
for individuals’ investment needs ever
more complex.
Within the UK, investors have a wide range
of financial awareness. Some are confident
but face ever increasing complexities from
regulation, choice and technology. Others
are less financially aware and need more
help in beginning their journey into savings
and investment. Hargreaves Lansdown is
well placed with its expertise and expanding
capabilities to help existing and new clients
navigate through this minefield of
complexity, providing appropriate products
and solutions for the young through to
those at and in retirement. Hargreaves
Lansdown firmly believes that the
government has a role to play through
improving financial education, addressing
the savings gap and by empowering
companies like us through proportionate
regulation to help provide the solutions
and education.
Client segmentation
Given wealth
Starting independent life Saving for the future
At retirement
In retirement
Later life
Junior ISA
Lifetime ISA
Drawdown Helping clients understand and manage income via new income tools
Pensions Helping clients save for their future retirement
Workplace Workplace Solutions for auto-enrolled and corporate investors
ISAs A tax efficient means of saving
Investment solutions
Simply Invest helps people get started / Portfolio+ for less confident investors / Wealth Shortlist selection for investors who wish to choose their own funds
General Investment Accounts Enabling investment outside of a pension or ISA tax wrapper
Active Savings Providing one-stop cash solutions via active savings
Advice
12
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
OPPORTUNITY
FOR GROWTH
Significant addressable market
undergoing structural change
• People are living longer
• Shift of wealth to older clients
• Complex savings environment
• Ongoing low asset yields
• Market volatility
• Political uncertainty
Clients need help…
• Help to understand
• Help to manage
• Just make it simple for them to do
…and want exceptional experience
• Compelling proposition
• Excellent service
• Tailored client engagement
£209.6BN
D2C Platform
HL has a 41.1%2 share
of this market
£104.0BN
Hargreaves
Lansdown
AUA as at 30 June 2020
2.4TN
ADDRESSABLE MARKET OF WEALTH + CASH3
1 Source: “Mind the Gap” (Aviva and Deloitte, September 2016)
2 Platforum UK D2C Market Update, July 2020
3 Oliver Wyman. Addressable wealth includes self-directed, financial adviser and independent
wealth manager segments mainly serving upper affluent.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Strategic reportGovernanceFinancial statementsOther information
MARKET OPPORTUNITIES
SUPPORTING CLIENTS THROUGHOUT THEIR LIVES
Industry expert, Platforum, also estimates
that £32.1 billion2 is held directly with asset
managers who are increasingly realising that
they are not set up to service direct retail
customers. This provides a source of
transfers or an opportunity to acquire the
entire direct books from fund management
groups. During the first part of the year, we
completed the acquisition of direct books
from J.P. Morgan Asset Management and
Baillie Gifford. This took the total number of
such acquisitions to nine having previously
completed deals with the likes of Jupiter,
Legg Mason and BlackRock. We continue
to pursue similar deals working with fund
groups and the FCA to ensure affected
clients can be transitioned effectively to
a superior and more engaging service
such as ours.
Although there is a significant addressable
market for execution only investing, financial
advice still has an important role to play as
people are often put off by the perceived
complexities of investing, have insufficient
time to devote to it or just want the comfort
that an expert is involved. Such advice can
be ongoing or one-off in nature to address
a certain issue or to ensure that investment
plans are on track. Hargreaves Lansdown,
with around 92 highly qualified advisers,
is well placed to service such needs.
We believe that investors
should have access to
appropriate cost effective
advice at the point they
actually need it.
Addressable market
The UK private wealth market is estimated
at c£1.6 trillion, of which we see c£1.0 trillion
as addressable, giving an implied market
share for Hargreaves Lansdown of about
10%. Outside the Direct-to-Consumer
(D2C) space, the bulk of this addressable
market is held through independent financial
advisers, independent wealth managers and
vertically integrated firms. A significant
amount of this investment pool will have
been initially advised upon, maybe many
years ago, but now receives no ongoing
advice and little support. This provides a rich
source of potential transfers to Hargreaves
Lansdown as clients look to consolidate
their investments onto our platform.
This £1.0 trillion is concentrated across
around 7 million people with £100,000 or
more of investments (source: ONS). Within
this population there are key segments for
us such as adult savers, Pre-retirement and
Retiring which alone hold c£900 billion.
Demographics and longevity alone will
provide growth drivers in these key
segments but, if the UK savings gap can
be better addressed, then further impetus
could be developed across these and other
segments. Although other segments are not
so key in terms of the opportunity, they still
need engagement and investment solutions
and Hargreaves Lansdown, through its
breadth of offering, can address them too.
Transfers in from across the wealth market
spectrum show our wide appeal to investors
who currently hold assets elsewhere.
Managing investments in one place with
a trusted company that makes things easy
is an ambition for many investors and this
consolidation process is a journey that
many of them go through with us. Such
consolidation of investments onto
platforms has helped drive the UK D2C
platform market of which Hargreaves
Lansdown has a 41.1%1 market share.
Significant other shares of the D2C market
include £313.82 billion held by pension and
insurance providers and £72.0 billion2 held by
wealth managers in execution only assets,
both of which provide a source of transfer
business to Hargreaves Lansdown.
Market development
ISAs
The markets for the Group’s products and
services continue to evolve as individuals’
savings and investment needs respond to
the changing regulatory and market
environment. With the lowest interest rates
on record, Stocks and Shares ISAs remain
attractive and we have seen significant
transfers in from cash ISAs held with banks.
The current ISA allowance of £20,000
provides additional scope for tax efficient
investing, particularly for higher earners who
stand to lose some of their annual pension
allowance and are impacted by the lower
lifetime allowances.
With the threat of further changes to the
pension rules, the ISA increasingly becomes
a long-term investment plan for many and
hence provides a significant opportunity for
new business flows. According to HMRC, as
at 5 April 2019, the Stocks and Shares ISA
market was estimated at £314 billion with an
additional £270 billion held in Cash ISAs and
£5 billion in Junior ISAs. Based on recent
HMRC data, the average annual amount
subscribed into ISAs over the past four
tax years has been c£69 billion. These
statistics clearly demonstrate a significant
opportunity to gather more assets into
our core ISA products.
Lifetime ISA
In April 2017, the Lifetime ISA (LISA) was
launched. This is open to UK citizens
between the ages of 18 and 40 and any
savings added to the LISA before their 50th
birthday will receive an added 25% bonus
from the government. The savings
allowance is capped at £4,000 per annum
and can be used towards a deposit on a first
home worth up to £450,000 or towards
saving for retirement, whereby, after their
60th birthday individuals can withdraw all
the savings free of tax.
Hargreaves Lansdown was one of only three
platforms that offered the LISA at its launch
and by 30 June 2020 we have over 66,000
accounts with £569 million of invested
assets, which makes us the largest provider
of LISAs. Many of our LISA clients are new
to Hargreaves Lansdown highlighting how
it serves as a way for attracting a younger
demographic to our platform. For those
who were already existing clients it helps
strengthen the client relationship and
enables us potentially to capture more
of their investment wealth over time.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Lifetime ISAs
66,000
accounts by 30 June 2020
£569M
of invested assets
Junior ISA market share
Hargreaves Lansdown 33%
67%
Competitors
Although it is relatively early days for this
new type of ISA, it could provide fresh
impetus for adults to boost their long-term
savings and for others to start saving for the
first time using risk-based investments
rather than cash.
Junior ISA
Since their introduction in November 2011,
Junior ISAs have proved popular and
Hargreaves Lansdown is now the largest
provider of Stocks and Shares Junior ISAs,
with an estimated 33% market share by
value as at 5 April 2019 (based on HMRC ISA
statistics). Engaging with investors at a
young age provides us with the opportunity
to build a relationship that will hopefully
transfer into their adult years and potentially
through their lifetime. Before the Junior ISA,
the Government between September 2002
and January 2011 operated a Child Trust
Fund scheme (CTF). Cash was given to each
child along with the opportunity for parents
or guardians to add to the investment
subject to an annual limit. Some six million
accounts were set up and are due to mature
between 2020 and 2029. Although many of
these CTFs will be small in value they
present an opportunity to engage with a
distinct segment of the population with a
view to them becoming adult savers and
investors on our platform.
Pensions
Pension auto-enrolment in the UK has
revolutionised saving, with over 1.6 million
employers and more than 10 million
employees now participating in the
programme. In 2019, £57.9 billion flowed into
private sector pension schemes. Minimum
contribution levels have now increased as
planned, with legislation to enrol employees
from age 18 and from the first pound they
earn expected in the middle of this decade.
The workplace will continue to play a pivotal
role in retirement saving and Hargreaves
Lansdown Workplace Solutions, which
already provides pension, investment and
annuity services for over 500 employers,
can really make a difference by improving
employee engagement with saving through
a range of high quality services.
Auto-enrolment has
delivered demonstrable
successes. However,
Hargreaves Lansdown
continues to lobby for
further reform.
There are still some nine million employees
who have not been auto-enrolled due to not
being eligible and many of these should be
enjoying the benefit of employer
contributions into a workplace pension.
Self-employment is more common than
it was when auto-enrolment was first
introduced; there are now nearly five million
self-employed workers in the UK and very
few of them are saving in a pension. The
majority pass through employment before
becoming self-employed. However, there
are few mechanisms in place to keep them
in the pension system as they move from
employed to self-employed. In addition,
every time someone changes their job, they
will be enrolled into a new pension, which
over time will lead to millions more pension
accounts than are necessary. This recurring
auto-enrolment process is highly disruptive
for an individual’s retirement saving journey.
Irrespective of how interested and engaged
they are with their pension, whenever they
change jobs, they are forced to suspend
their existing pension and start a new one if
they want to benefit from their employer’s
pension contributions. To avoid this we
believe that an individual who has an existing
auto-enrolment pension from a previous
employment or who wishes to make an
active choice regarding their pension
provider, should have a right to choose that
arrangement in preference to being forced
to join their new employer’s scheme.
They should have the right to have their
new employer’s contributions paid into
the pension of their choice, along with any
of their own contributions deducted from
their salary.
1 Platforum UK D2C Market Update, July 2020
2 Platforum UK D2C Market Overview, February 2020
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Strategic reportGovernanceFinancial statementsOther information
MARKET OPPORTUNITIES
SUPPORTING CLIENTS THROUGHOUT THEIR LIVES
New retirement regulation from the FCA is
being adopted into our processes. Changes
to illustrations, wake up packs and annuity
disclosures have all been delivered, with
work to provide nudges to those in cash and
simple investment pathways for those in
drawdown due in February 2021. Early
evidence from the measures we’ve
introduced has shown a boost in
engagement levels, signs of earlier
retirement planning and an increase in
annuity payouts as more clients have
qualified for an enhanced annuity.
Demographic pressures have not abated.
Notwithstanding the progress achieved
through auto-enrolment, the UK still faces a
significant retirement saving challenge. This
is likely to be exacerbated by the developing
financial challenge presented by the
increasing cost of providing social care.
There is continued government support
for retirement saving and an increased
emphasis on personal responsibility and
engagement. Hargreaves Lansdown is likely
to be a beneficiary from this trend as we are
a market leader in customer service,
simplifying pensions and making it easy for
people to save and invest with confidence.
Cash savings
Alongside risk-based investments, investors
continue to hold cash despite persistent low
interest rates on cash savings. Our research
shows that there is £1.4 trillion of cash held in
the UK including c£650 billion in easy access
type accounts and the remainder in term
deposit accounts. ‘Active Savings’, our digital
deposit service provides a simple digital
solution for managing cash savings. Since
its launch we have continued to refine the
proposition and in the coming months we
will be launching our initial cash ISA offering.
As at 30 June 2020, we had
over 66,000 clients using
the service with over
£2.2 billion AUA.
Clients holding risk based investments
invariably have cash held elsewhere so
utilising Active Savings becomes a natural
extension of their interaction with us and
enables us to become ever more part of
their financial lives.
The development of pension dashboards
continues and may in time provide
individuals with a comprehensive view of
all their pensions in one place. Whilst we
are actively supportive of this project, we
suspect the first iterations to provide basic
pension finder services only, lacking the
detail to revolutionise planning. In the
meantime we continue to collaborate
with other industry participants in the
development of systems to allow investors
to view through a single access point, all
their financial assets across a wide range
of financial institutions.
The impact of the introduction of Pension
Freedoms in 2015 has been immense and
whilst they have proved understandably
popular with investors, regulation continues
to evolve to protect investors from the
financial risks the freedoms present. The
free Pension Wise service is still not widely
used and the FCA is introducing stronger
prompts to encourage people to shop
around, as well as consulting on investment
pathways for non-advised drawdown
investors. Better investor engagement with
their retirement savings and the decisions
they can take to improve their financial
futures is a high priority. Hargreaves
Lansdown is committed to being at the
forefront in helping people meet this
challenge. We can provide bespoke ongoing
personal advice, but for many this is too
expensive and not appropriate, so we are
looking at more cost effective solutions
which will give guidance or advice at the
point clients really need it.
MAKING SAVINGS
FAIR AND SIMPLE
Savers need solutions
• Poor interest rate
information
• Difficult to manage
multiple accounts
• Hard to switch providers
• 40% of savers have
never switched
Active Savings marketplace
• More consistent returns
• Greater transparency – know
the rate and when it expires
• Simple switching: 12 banks,
with a range of easy access and term
deposit accounts, one easy log in
• Easy for clients to manage cash
alongside their investments
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
£650bn
1. Easy Access Savings
£270bn
2. Cash ISAs
3. Current Accounts
£270bn
4. Notice and Term Deposits £160bn
1.
4.
£1.4TN
HOUSEHOLD
CASH SAVINGS
MARKET
3.
2.
Active Savings remains a key part of our
growth strategy and through additional
functionality and more banking partners
we will widen the appeal to existing clients
and provide a significant marketing
opportunity to attract new clients,
particularly if we return to a more
normal interest rate environment.
Competition
Much is made of the increasingly competitive
landscape and indeed, new competitors
continue to enter the market with innovative
technology and new solutions. We are never
complacent and continue to watch the
competitive landscape closely. Where
competition raises the awareness of saving
and investing we see this as a good thing.
Financial education and awareness in the
UK is relatively low and hence high quality,
client focused companies like ours have a
key role in addressing these issues. Healthy
competition ultimately delivers better
outcomes for investors.
Achieving scale is key
to becoming successful
and this relies on a
deep understanding
of savers, investors and
their needs, which is
something we continue
to focus on.
Once scale is achieved, sustainable profits
rely on continued investment in technology,
people and a focus on how our clients’ needs
develop and how the regulatory landscape
evolves. Hargreaves Lansdown does not
rest up and is always looking to improve the
experience for our clients, ensuring value for
money is delivered.
Regulation
Regulation is an ever present theme
in financial services and absorbs a
considerable amount of time and resource.
Hargreaves Lansdown is well placed to
address the challenge this brings. Our
primary regulator is the FCA and it oversees
all aspects of our work, from how we
manage our platform, give advice and run
our fund management operations, to how
we communicate with our clients.
During the year to 30 June 2020, HL
delivered several major regulatory-driven
implementations. The Senior Managers and
Certification Regime took effect for HL in
December 2019, enhancing the clarity of
management responsibilities and improving
decision making. In accordance with the
Payment Services Directive 2 we introduced
enhanced security protocols for clients of
our Active Savings and Currency Services.
This involved some API infrastructure
development which will also help our
longer-term Open Finance capability.
In line with the recommendations from
the Asset Management Market Study, we
have implemented changes to our fund
management business, improving our
governance and oversight structure and
ensuring that all our funds are delivering
Value for Money. We continually strive
to improve our investment proposition,
including making changes where we
think this will improve client outcomes
and experience.
We successfully delivered the first two
phases of the FCA’s Retirement Outcome
Review remedies ahead of schedule, as
they align with our focus on driving client
engagement and improving clients’
outcomes leading up to, and in retirement.
Work continues on the final ‘Investment
Pathways’ element. However, the FCA’s
COVID-19 related deadline extension,
until February 2021, gives us additional
time to ensure our high standards for
user experience are retained and
enhanced as part of our client-focused
drawdown proposition.
The FCA has also moved out the deadline
for the ‘Making Transfers Simpler’ work
arising from the Platform Market Study to
February 2021. Our implementation and vital
industry collaboration via the STAR working
group is progressing. In last year’s Report we
highlighted the FCA’s discussion on banning
platform exit fees – we have continued to
engage on this policy although the FCA has
deferred consultation until 2021. We
nonetheless felt the time was right to
remove our own exit fees in September
2019, and look forward to others in our
wider market following suit.
HL strives to implement
regulatory-driven change
in a way that will deliver
benefits to clients.
A key part of this is engaging during the
policymaking phase. Our CEO is a member
of the FCA’s Practitioner Panel, an advisory
body drawn from the leadership of large
firms. This gives us insight into the FCA’s
strategic thinking and policy development,
and the opportunity to bring our expertise
and client insight gathered through our
interaction with 1.4 million clients to inform
and influence the debates. During the year
we have engaged with the FCA’s developing
approach on non-workplace pensions; on
their assessment of the Financial Advice
Market Review and Retail Distribution
Review a few years post implementation
and on the call for input on Open Finance.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
17
Strategic reportGovernanceFinancial statementsOther information STRATEGY AND KPIS
CLIENT FOCUS
DRIVES OUR
GROWTH
We aim to deliver a market leading proposition
and service to fulfil the long-term needs of clients.
We focus on providing an unrivalled and
evolving client experience, using it to
deepen client relationships so we become
an ever more integral part of their lives.
In turn this delivers high levels of client
retention, client satisfaction and increased
use of our services which drives net new
business flows from existing and new
clients. This provides the engine for financial
growth, enabling reinvestment into the
client experience whilst generating returns
for shareholders.
OUR STRATEGY
Client proposition
and engagement
To provide an increasing range of services
and solutions to meet the needs of clients
Financial growth
To deliver sustainable returns for
shareholders along with reinvestment for
future growth
Excellent client service
To efficiently provide a high quality
service, across all touchpoints with
clients, making their lives easier
OUR AIM
a market leading proposition
and service to fulfil the
long-term needs of clients.
WE MEASURE OUR SUCCESS
We track key performance indicators (KPIs) that
reflect our strategic, operational and financial
performance. These drive internal management
of the business and Executive remuneration.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Client proposition and engagement
Net new clients
Represents the change in
active clients between the
opening and closing position
for the year (unique number
of clients holding at least one
account with a value over
£100 at the year end).
Why
The greater the number of new
clients, the better the potential
for growing AUA.
Progress for the year
• A record year adding 188,000
net new clients.
• Significant marketing and
advertising in the second half
of the year including a brand
awareness campaign and our
first ever TV adverts.
• New clients added across
our range of accounts
and across all
demographic segments.
Principal risks
Strategic, operational, legal
and regulatory, conduct.
Result
188,000 (2019: 133,000)
Digital visits
Why
Provides a view of the
engagement and reach that
Hargreaves Lansdown has with
its digital footprint.
Principal risks
Strategic, operational, legal
and regulatory.
Progress for the year
• Significant uplift in
service, market reporting,
education and reassurance
communications
during COVID-19.
• Increased brand awareness
through first national TV,
press and digital campaign.
• Enhanced functionality of
the mobile app including
regular investing.
Result
249M (2019: 177m)
Financial growth
Profit before tax (PBT)
Why
Gathering and retaining assets
and clients drives revenue. This
is managed on a scalable
platform to deliver improved
operating profits.
Principal risks
Strategic, operational, legal
and regulatory, financial.
Progress for the year
• Investment in technology
and operations ensured we
were operationally resilient
enabling us to cope with
record client transactions
during the COVID-19 period.
• PBT grew 24% on the back
of growth in assets and
clients and record share
dealing volumes.
Result
£378.3M (2019: £305.8m)
Diluted earnings per share (EPS)
Why
Progress for the year
This is a measure of profit per
• The growth in diluted
share and is a metric used
EPS was driven by the
to determine value delivered
breadth and scalability
to shareholders.
of the business model
and continued
strategic execution.
Principal risks
Strategic, operational, legal
and regulatory, financial.
Result
65.9P (2019:52.0p)
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
19
Strategic reportGovernanceFinancial statementsOther information STRATEGY AND KPIS
DEEPENING CLIENT ENGAGEMENT DELIVERS GROWTH
Excellent client service
We have previously included Net Promoter ScoreSM (NPSSM) as a KPI, however, it is felt that the best measures for measuring “excellent
client service” are client retention rate and net new business. Both these measures are used in assessing the performance of our
Executive Directors and their overall remuneration whereas NPSSM is not. NPSSM is still monitored along with other client service
measures such as net ease scores and client satisfaction but given how it can be impacted by external factors beyond our control
it is no longer a KPI.
Net new business (NNB)
Represents subscriptions, cash
receipts, cash and stock
transfers in, less withdrawals
and assets transferred out.
for NNB
Progress for the year
• Best ever tax year-end
• Active Savings added
Why
NNB is an indicator of the trust
and security clients place in
Hargreaves Lansdown along
with the perceived value of the
client offering. The greater the
assets gathered, the greater
the revenue.
£1.2billion across the year
• Increased market share
and AUA grew by 5%
to £104 billion.
Result
£7.7BN (2019: £7.3bn)
Principal risks
Strategic, operational,
legal and regulatory.
Client retention rate
Based on the monthly lost
number of clients, as a
percentage of the opening
months’ clients and averaging
for the year.
Progress for the year
• Remained open throughout
COVID-19 ensuring all our
core services were available
to our clients.
Why
A high client retention rate is a
sign that clients are happy with
the service we provide and that
it fulfils their investment needs.
The longer a client is with
Hargreaves Lansdown, the
more assets they are likely to
accumulate. High retention
provides more certainty of
future earnings.
• Through increased use
of data analytics we have
increasingly tailored our
content for clients creating
a more engaged experience.
• Increased the penetration
of Active Savings to over
66,000 clients enabling
them to manage their cash
savings and investments all in
one place.
Principal risks
Strategic, operational, legal
and regulatory, conduct.
Result
92.8% (2019: 93.6%)
20
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Governance
Financial statements
Other information
WE
LISTEN
WE
IMPROVE
Active Savings – listening to clients and developing improvements
Since launching Active Savings,
our innovative way to manage
cash, we have continuously
looked for feedback from clients
and partner banks in order to
develop and improve the service.
In recent months we have:
• Applied for and received our
e-money licence meaning
clients can now hold money
for longer in their hub account
before deciding which banks
to deposit the money with;
• Launched a “default easy
access feature”, meaning
clients will always earn
some interest;
• Created an easier onboarding
journey helping clients to
open their first savings
product and
• Launched a”private offer”
feature which allows partner
banks to display products only
to logged in clients.
Looking forwards we will soon
be launching a cash ISA offering
and developing our mobile app
functionality. Over 66,000 clients
already use Active Savings
holding more than £2.2 billion.
Responding to the needs of our
clients and partner banks will help
drive our growth in the significant
UK cash savings market.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
21
Strategic report RISK MANAGEMENT AND THE PRINCIPAL RISKS UNCERTAINTIES
EVALUATING AND
MANAGING RISKS
1. Risk management
The Board has ultimate responsibility for the
Group’s risk management and determining
an appropriate risk appetite as well as setting
the tolerance levels within which the Group
must operate.
To assist the Board in discharging
its responsibilities, the Group has
implemented a comprehensive approach
to identifying, mitigating, managing and
monitoring risk which is described below.
Hargreaves Lansdown manages risk at
a consolidated level.
The Group includes four Legal Entities, each
of which is supported by a Legal Entity Board
and a Management Committee. This Legal
entity structure manages the normal course
of business, to agreed risk appetites, with
escalation on an agreed materiality basis to
the Group Executive Committee.
The Group’s Risk Management Framework
is designed to manage risk within agreed
appetite levels and is aligned to delivering
the Group’s strategy. It applies to all the
Legal Entities. The framework has been in
place throughout the period under review
and up to the date of approval of the Report
and Financial Statements and is line with the
UK Corporate Governance Code.
The Group aims for effective and proactive
risk management integrated into the culture
of the Group as demonstrated by the
Hargreaves Lansdown ‘values’.
Governance of the risk
and control framework
Risk management is acknowledged to
be a core responsibility of all colleagues
at Hargreaves Lansdown.
The oversight of risk and controls
management is provided by Board
committees and the Group Risk and
Compliance functions.
A risk policy suite is in place, with policies
reviewed on an annual basis.
Key governance committees relating
specifically to the maintenance and
oversight of the risk and control
environment include the plc Board
and the Board Risk Committee.
Fig 1 Our risk management framework and reporting schematic
Risk Universe
Risk Cycle
Risk Process
Strategic
Technology
Operational
Regulatory
Conduct
Financial
Assessment
Functional
Thematic
ICAAP
Capital
Liquidity
Risk Appetite
statements
Departmental
risks
Principal
risks
Identify
Assess
Mitigate
Manage & control
Monitor
Report
Group risk framework components
Risk Universe Risk Maturity Model
Risk Appetite
Risk Events
& Escalations
22
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
The plc Board is responsible for overseeing
the Audit, Risk, Remuneration and
Nomination Committees.
During the period, the governance structure
has evolved reflecting the continued growth
of the business. Existing Terms of Reference
have been amended, and where necessary,
additional Committees established, including
the Distribution Investment Oversight
Committee and the Executive Investment
Committee. Detail of the governance
structure is included in the Corporate
Governance section of the report.
In response to the COVID-19 pandemic,
an additional governance Committee
was constituted, the Crisis Management
Committee, to provide direction and
oversight to the HL response. This included
regular reporting on performance, risk and
assurance metrics, including key control
effectiveness reporting.
It is understood by the Chair of the plc Board
and Board Risk Committee that risk is a core
theme which is demonstrated in all
committee discussions.
The activities of the Board and Executive
Committees are detailed in the Corporate
Governance report, page 59-66.
The departmental risk materials are the
foundation of the Group’s risk framework.
Each functional business area completes a
risk assessment, which is maintained in the
MetricStream Governance, Risk &
Compliance tool.
This is reviewed alongside the periodic
control performance assessments and key
risk indicators (KRIs) to ensure emerging
risks are also captured and managed. Risk
owners give consideration to relevant risk
event and control assurance information.
Where controls are insufficient,
management defines improvements to
bring risks within agreed tolerance levels.
Risk materials are reviewed by the Board and
executive management teams on a rolling
basis with support from the second line
business functions.
Risk universe
The Group has an agreed and documented
risk universe, which sets out the high level
risk categories to which the business is
exposed and to which all risks are linked.
Risks are captured using both top-down and
bottom-up approaches and each risk is
assigned to an agreed risk owner.
The risk universe ensures that there is
completeness in the capture of risks and
that there is consistency of treatment
across all risk categories.
Risk appetite
The Group’s risk appetite is an articulation of
the nature and type of risks that the Group is
willing to accept, or wants to avoid, in order
to achieve its business objectives.
The risk appetite statements combine
qualitative statements and quantitative
measures expressed relative to metrics
such as operational process, capital, liquidity
and other relevant measures.
The Group’s risk appetite statements
are reviewed on at least an annual basis.
The Board has overall responsibility for
determining the nature and extent of the risk
it is willing to take and for ensuring that risks
are managed effectively across the Group.
The Board sets the Group’s risk appetite
and measures this across six risk categories,
with KRIs monitored against each. These
categories are strategic, technology,
operational, regulatory, conduct and
financial. All KRIs include materiality
thresholds for escalation and reporting.
The Risk Appetites link to Principal Risks,
capital scenarios and stress testing.
Risk reporting
Risk is formally reported to a number of
Committees by both the First and Second
Lines of Defence.
The First Line of Defence report to
operational committees, to the newly
established Legal Entity Management
Committees and the Executive Committee.
Reporting is driven by Risk Events and
material change to risk exposures.
Risk Governance
Fig 2 Risk appetite
Board
Risk
Committee
Risk Dashboard
Executive
Risk Committee
Team Risk MI
Team Management
Risk Universe Risk Maturity Model
Risk Acceptance
Risk Self
Assessment
Principal Risks
Risk Appetite
Statements
Key Risk
Indicators
(KRIs)
Principal Risks
22 Risks covering
all activity at HL
Risk Appetite
Statements
Strategic
Technology
Operational
Regulatory
Conduct
Financial
KRIs
Risk metrics
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
23
Strategic reportGovernanceFinancial statementsOther information RISK MANAGEMENT AND THE PRINCIPAL RISKS UNCERTAINTIES
EVALUATING AND MANAGING RISKS
The Second Line of Defence report to plc
committees, Legal Entity Boards and
Executive committees. The standard format
is a CRO Report covering trends, the Principal
Risk profile, risk appetite and risk event
breaches by materiality and emerging risks.
The First Line of Defence owns and is
responsible for managing risk. There are
also teams with areas of specific focus to
support the maintenance of a strong control
framework. Key examples of first line control
functions include:
• CASS Oversight team – provides
guidance to operational teams on CASS
and provides oversight of the CASS
control environment;
• Operations Oversight team – provides
risk and control support to Operations,
creates MI for the Operations
Management Team and manages the
Operations process framework; and
• A dedicated IT Security team, which
manages, tests and controls the cyber
control environment.
In the Second Line of Defence, the
Compliance and Risk function includes
teams focused on prevention of money
laundering, prevention and detection
of fraud and data protection.
Individual Capital Adequacy
Assessment Process
The primary purpose of the ICAAP is to
ensure that there is a clear, accurate and
transparent link between the risk profile of
the business and the capital held by the firm.
The ICAAP is overseen by the Board Risk
Committee, with facilitation provided by the
Risk function.
The Group has an established governance
framework that ensures all inputs, decisions,
assumptions, limitations and outputs are
reviewed, challenged and approved by key
governance forums including Executive and
Board Risk Committees. The Group’s annual
ICAAP report is reviewed and approved by
the Board. The Group’s ICAAP approach is
designed to be appropriate given the scale,
nature and complexity of its business model.
There is an established Model Governance
Committee (MGC) that provides oversight
to the application of a statistical modelling
approach when assessing the Group’s
Pillar II Operational Risk capital. Further
external validation of the approach is
commissioned through a third party .
Response to the COVID-19 pandemic
In March 2020, the Executive Committee
established formal governance to manage
the response to the COVID-19 pandemic.
The Crisis Management Committee (CMC)
included membership from the Executive
Committee and the wider Leadership Group,
including the Head of Internal Audit and the
CRO. The response had three objectives:
• Delivering good client outcomes;
• Maintaining our core services and
a robust control environment; and
• Safeguarding colleague wellbeing.
In managing the response, the Principal Risk
materials and departmental risk registers
were refreshed and monitored. The CMC
monitored risk appetite, risk events,
complaints, and financial crime data and
received reporting on enhanced Key
Control monitoring. Decisions were taken
by the CMC or escalated to the Executive
Committee on a materiality basis. To provide
further assurance on the resilience of the
business to the impacts of the pandemic on
markets, stress tests were run and the
outcomes discussed by management and
the Board Risk Committee in June.
Viability statement
The Board has considered the principal
risks, in arriving at the viability
statement below
The principal risks and uncertainties faced
by the Group are detailed below. The
principal risks are categorised into
strategic, technology, operational,
regulatory, conduct and financial in
accordance with our risk framework.
Management and the Board regularly
discuss emerging risks. Topics discussed
during the period included Brexit, the
marketplace, communications from the
FCA, the gender pay gap and the
COVID-19 pandemic.
Assessment process for the
viability statement
In accordance with provision C.2.2 of
the UK Corporate Governance Code,
the Directors have assessed the viability
of the Group over the three-year period
to June 2023 and confirm that they have a
reasonable expectation that the Group will
continue to operate and meet its liabilities
up to this date. The Directors’ assessment
has been made with reference to the
Group’s current position and strategy, the
Board’s risk appetite, the Group’s financial
forecasts and the Group’s principal risks
and uncertainties.
The Directors’ assessment has also been
made after careful consideration of the
impact that the COVID-19 pandemic has
had, and continues to have, on the UK and
global economy. Planning and scenario
testing has examined the company’s
resilience to worst case scenarios
resulting from the impact of the pandemic.
The range of testing results over three
potential future outcomes, each with a
different expectation of the timing of a
return to market normality, saw at worst a
28% fall in the Group’s financial outcome.
The Directors conclude that their
expectation of the Group’s viability does
not change as a result of this.
The Board considers that a time horizon
of three years is an appropriate period over
which to assess its viability and prospects,
and to plan the execution of its strategy.
This assessment period is consistent with
the Group’s current strategic forecast and
ICAAP and it also matches the timescale
over which most changes to major
regulations and the external landscape
that affect our business typically take
place. The Board has informally considered
the viability of the business beyond the
assessment period and believe that the
requirement for clients, current and future,
to have access to a secure and efficient
savings and investment platform will
continue to increase.
The strategic forecast is approved annually
by the Board and regularly updated as
appropriate. It considers the Group’s
profitability, cash flows, dividend
payments, capital requirements and other
key variables such as exposure to principal
risks. It is also subjected to stress tests and
scenario analysis, such as fluctuations in
markets, increased competition and
disruption to business, to ensure the
business has sufficient flexibility to
withstand these impacts by making
adjustments to its plans within the
normal course of business .
24
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
The principal risks and uncertainties faced by
the Group are detailed below. The principal
risks are categorised in line with the risk
management framework; strategic
technology, operational, regulatory, conduct
and financial risks. Principal risks reported
here are those attracting the greatest focus,
and to which the organisation has the largest
exposure. The principal risks are linked to risk
appetite and KRI measures for reporting.
In assessing the 2019-2020 changes,
consideration was given to the impact of
COVID-19 on the Group’s inherent risks after
considering mitigating actions and controls.
As a result of this, an increasing likelihood has
been reported against the Performance of
markets, people and financial crime principal
risks. Operational delivery was considered to
be stable after assessing the performance
of existing, additional and revised processes
and controls.
Management and the Board regularly discuss
emerging risks. Topics discussed during the
period included Brexit, the HL response to
the suspension of the Woodford Equity
Income Fund, communications from the
regulator, third party services and solutions,
cybercrime and the COVID-19 pandemic.
2. Principal risks
and uncertainties
The Board has carried out a robust
assessment of the emerging risks and
principal risks facing the Group, including
those that would threaten its business
model, future performance, solvency
or liquidity.
In making its assessment, the Board
considered the likelihood of each risk
materialising in the short and longer term.
The Board considered the principal risks in
arriving at its viability statement.
Strategic risks
Proposition and services
Owner:
Chief Executive Officer
Link to strategy:
Link to HL values:
Put the client first, do the right
thing, make it easy
2019-2020 Change
STABLE
Risk
Risk that HL does not provide
the proposition and services
required to achieve HL’s strategy
and purpose.
Potential impact
• Erosion of shareholder value
• Negative impact on
achievement of AUA and client
number strategic targets
• Negative impact on our
reputation as an innovative
market leader
Mitigation and controls
• The Executive team and
Board discuss strategy in the
context of propositional
design and service
enhancement on a
regular basis
• Dedicated proposition/client
experience team
• Client testing workshops
• Product governance process
• An operational plan is in place
prioritising development
Key risk indicators
• NNB v forecast
• Net Promoter Score (NPS)
• Net Ease Scores
• Client retention
• Service rating
• Complaints
• Risk events
2019/20 activity
• Launched additional
Segregated Mandates
in HL Fund Managers
• Continued development of
Active Savings proposition
• Launch of Wealth Shortlist
• Governance improvements
Performance of markets
Owner:
Chief Executive Officer
Link to strategy:
Link to HL values:
N/A
2019-2020 Change
INCREASING
Risk
Risk that HL fails to respond
effectively to relevant market or
environmental changes leading
to the inability to attract or retain
clients in line with strategic
expectations, or a negative
impact on revenue, resulting in
erosion of shareholder value.
Potential impact
• Reduced AUA and AUM
• Negative impact on
HL revenue
Mitigation and controls
• The Group’s business model
comprises both recurring
platform revenue and
transaction-based revenue
• A high proportion of the AUA
are held within tax-advantaged
wrappers, meaning there is a
lower risk of withdrawal.
• Finance Executive Committee,
Treasury Committee and
Finance Reporting
• The Group has established
a COVID-19 working group
focused on mitigating
business and client impacts
from the pandemic.
• Liquidity policy and associated
controls oversight
Key risk indicators
• Interest rates
• FTSE 100
• Daily management
information
2019/20 activity
• Ongoing discussion in the
Executive Committee
• Work for the Brexit-
preparation work stream
has continued throughout
the year.
• Established Crisis
Management Committee to
focus on mitigating business
and client impacts from
COVID-19 pandemic.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
25
Strategic reportGovernanceFinancial statementsOther information RISK MANAGEMENT AND THE PRINCIPAL RISKS UNCERTAINTIES
EVALUATING AND MANAGING RISKS
Technology
Owner:
Chief Information Officer
Link to strategy:
Risk
Risk that HL fails to manage and
maintain existing technological
architecture, environment or
components effectively.
Mitigation and controls
• IT Architecture plan
• Rolling internal and external
monitoring of IT environment
• Operational Plan, including
Link to HL values:
Do the right thing, do it better
2019-2020 Change
STABLE
Potential impact
• Inability to maintain
operational efficiency
• Increased costs
• Poor client outcomes
• Reputational damage
prioritisation of IT
development
• Integration of development
capacity from HL Tech
in Poland
• Identification of contingency
providers for technology
Reputational
Owner:
Executive Committee
Link to strategy:
Link to HL values:
Put the client first, go the extra
mile, do the right thing, make it
easy, do it better
2019-2020 Change
DECREASING
Risk
The risk that negative
publicity, public perception
or uncontrollable events
have an adverse impact
on HL’s reputation.
Potential impact
• Reduced AUA and AUM
• Negative impact on
HL revenue
• Erosion of shareholder value
Mitigation and controls
• Reputational risk is embedded
within all the principal risks and
uncertainties, and is
considered within the relevant
mitigations and controls
• PR function, including access
to external advisors
Key risk indicators
• Unplanned downtime of client
facing applications
• Status of critical projects
• Core system monitoring
• System patching status
• Technology risk events
2019/20 activity
• Continued development
and evolution of our
core architecture
• Platform security
improvements
• Technology solutions to
support COVID-19 response
• Enhanced monitoring of
technology environments
• Refresh of technology strategy
Key risk indicators
• NNB
• Client retention
• NPS
2019/20 activity
• Management of the Woodford
Equity Income Fund
suspension, engagement
with clients and
external stakeholders
• Response to the
COVID-19 pandemic
26
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Legal and regulatory risks
Regulatory change
Owner:
Risk and Compliance Director
Link to strategy:
Link to HL values:
Put the client first, do the right
thing, make it easy, do it better
2019-2020 Change
INCREASING
Risk
Risk that required regulatory
change is not implemented to
regulatory expectations
or requirements.
Potential impact
• Regulatory breaches
• Increased regulatory scrutiny,
censure or fines
• Missed opportunities
to achieve
competitive advantage
Mitigation and controls
• Compliance Plan
• Group Operating Plan
• Change Committee meets
monthly to review and
challenge progress of
regulatory change projects
designed to ensure
business readiness
• The Compliance function
performs horizon checking
to ensure the Group has
timely visibility of future
regulatory change
• Dialogue with the FCA,
including increased
engagement in response
to COVID-19
Key risk indicators
• Volume of new outputs
from regulatory bodies
• Number of regulatory
change projects
• Number of
regulatory breaches
2019/20 activity
• Ongoing CASS
environment review and
improvement activities
• Projects completed:
SMCR and PSD2
• Reprioritisation of
change portfolio within
Operating Plan
• Set up of combined
assurance framework
• Established Crisis
Management Committee
to oversee response
to COVID-19
Conduct Risks
Client outcomes
Owner:
Chief People Officer
Link to strategy:
Link to HL values:
Put the client first, go the extra
mile, do the right thing, make it
easy, do it better
2019-2020 Change
STABLE
Risk
Risk that HL’s culture and the
HL values fail to support and
encourage appropriate
client focused conduct by
all colleagues, leading to
poor client outcomes.
Potential impact
• Erosion of shareholder value
• Negative impact on
achievement of AUA
and client number
strategic targets
• Negative impact on our
reputation as an innovative
market leader
Mitigation and controls
• Business plans linked to
colleague surveys
• Senior management meet
monthly to oversee and drive
client experience, people and
culture related activity
• Regular Conduct Risk
MI, discussed in
Governance Committees
• Product Governance
Key risk indicators
• Glassdoor rating
• Employee surveys
• Client survey results
• Colleague retention
• Complaints
• Clients cancelling a new
product or service
• Proportion of
clients demonstrating
poor outcomes
Committee
• Corporate and social
responsibility programme
• Business-led diversity,
inclusion and wellbeing
programme of activity
• Colleague Performance
Development model
2019/20 activity
• CEO Communications
• Leadership group
restructured and developed
• Improvements to Product
Governance agenda
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
27
Strategic reportGovernanceFinancial statementsOther information RISK MANAGEMENT AND THE PRINCIPAL RISKS UNCERTAINTIES
EVALUATING AND MANAGING RISKS
Operational risks
Operational delivery
Owner:
Chief Financial Officer
Link to strategy:
Risk
Risk that HL fails to design or
implement appropriate policies,
processes or technology.
Mitigation and controls
• Group Risk Management
Framework
• Ongoing First Line of Defence
Link to HL values:
Put the client first, do the right
thing, make it easy, do it better
2019-2020 Change
STABLE
Potential impact
• Incorrect or inefficient
delivery of activities
• Regulatory or policy breaches
• Poor client outcomes
• Financial losses
including compensation
• Reputational damage
monitoring of controls,
control testing and self-
assessment
• Process manuals and
process mapping
• Operational MI
• Control focus at key
governance forums, including:
CASS Committee, Executive
Risk Committee, and
Risk Committee
People
Owner:
Chief People Officer
Link to strategy:
Link to HL values:
Put the client first, do the right
thing, make it easy, do it better
2019-2020 Change
INCREASING
Risk
Risk that HL fails to attract,
retain, develop and motivate
great people who are aligned to
HL Values.
Potential impact
• Operational inefficiency or
poor conduct
• Poor client outcomes
• Reputational damage
Mitigation and controls
• Performance and Reward
Committee
• FCA Conduct rules (SMCR)
• Code of conduct
• Senior management meet
monthly to oversee and drive
client experience, people and
culture related activity
28
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Key risk indicators
• Risk events
• Best execution monitoring
• Third party breaches
• Complaints
• Helpdesk call quality
• Employee retention rates
• Operational processing
transaction errors
2019/20 activity
• Embedding of process
improvements across
operational functions leading
to reduced errors, complaints
and breaches (excluding
exceptional events).
• Set up of combined
assurance framework
• Temporary suspension of
some peripheral client
services in response to
COVID-19, to focus on key
deliverables and protect
against client harm
• Crisis Management
Committee established to
focus on managing the
response to COVID-19 and to
mitigate negative business
and client impacts
Key risk indicators
• Employee retention rates
• Employee absence
monitoring
2019/20 activity
• Updated contingency
planning for key roles
• Implementation of new
internal communication plan
• Review and update of key HR
policies in light of COVID-19
• Development of Leadership
group and capabilities
Financial crime and data protection
Owner:
Chief Information Officer and
the Risk and Compliance
Director
Link to strategy:
Link to HL values:
Put the client first, go the extra
mile, do the right thing, make it
easy, do it better
2019-2020 Change
INCREASING
Risk
Risk that HL fails to design or
implement appropriate
frameworks, including policies,
processes or technology, to
counter HL being used to
further financial crime.
Potential impact
• Loss of data
• Poor client outcomes
(including fraud)
• Negative impact on
confidence in HL
• Diminish the integrity of the
financial system
• Regulatory censure
Mitigation and controls
• Dedicated Chief Information
Security Officer and team,
and a Security Operations
Centre focused on the
detection, containment and
remediation of information
security threats
• Dedicated Information
Security, Anti Money
laundering and Client
Protection teams in place
• Formal policies and
procedures and a robust,
rolling risk-based programme
of penetration and
vulnerability testing in place
• Horizon scanning of peer
group to understand
industry trends
Key risk indicators
• Fraud monitoring
• Cyber threat assessment
• Time taken to address
security vulnerabilities
• Number of Information
Commissioners Office (ICO)
notifiable data protection
breaches
2019/20 activity
• A programme of training and
awareness for all employees
• Continuous cycle of cyber
control improvements
• Improvements to fraud
monitoring
• Phase 1 implementation
of a third party fraud
monitoring tool
• Programme of Market
abuse and Client Protection
risk reviews
• Restructure of first and
second line teams to support
specialist monitoring
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
29
Strategic reportGovernanceFinancial statementsOther information STAKEHOLDER ENGAGEMENT
CREATING
OUR
FUTURE
TOGETHER
Engaging with stakeholders
is fundamental to the way we
do business at Hargreaves
Lansdown and ensures
responsible and balanced
decisions are made across
both the short and long-term.
We have invested in the development and
involvement of our stakeholder communities as
we believe it is the right thing to do. These pages
provide a snapshot of just some of the ways in
which we do this.
How did we
engage with
them?
What were
the key
topics raised?
How did
we respond?
FIND OUT MORE
Pg 38: Our corporate
social responsibility
Our commitments and aspirations.
Pg 113: Section 172 Statement
You can read about how the Board
considers the interests of our
stakeholders when complying with
its obligations under Section 172
Companies Act 2006 in our
Section 172 Statement.
30
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Clients
Empowered to save and invest with
confidence. Making their financial
lives easy.
Our client focus includes aiming to
understand the issues in their financial
lives so we can develop services and
solutions to help. This year, more than
ever, we have:
• Conducted client surveys and
• Held focus groups and client panels
to get a deeper insight of our
clients’ needs.
Feedback is used to continually
improve the choice, quality and
convenience of our service.
• A desire for greater transparency
of our investment research and
improved usability of the Wealth 50
• More help with pension, drawdown
and annuity choices
• Easier ways to find funds and
access research
• We launched our Wealth Shortlist
with improved transparency and
usability, which will help clients build
a portfolio from funds our analysts
have selected for their long-term
performance potential.
• We improved our SIPP and Drawdown
proposition, which included regulatory
changes ahead of schedule, plus
improvements to our annuity service
leading to more clients receiving
enhanced annuity rates.
• We launched our Fund Finder as
an enhancement to our current
fund search tool to better meet
clients’ needs.
Employees
Shareholders
Society
An increasingly diverse and inclusive
workforce, motivated and enabled to
Enjoying long-term sustainable returns
We aim to be a responsible corporate
through share price appreciation and a
citizen, positively influencing society
achieve greatness by strong leadership.
progressive dividend policy.
and encouraging people to save and
make more of their money.
Engaging colleagues is key to creating
a healthy culture at HL. We’ve taken
a number of actions to develop
this including:
We engaged with our shareholders through:
We actively seek to lobby via public
• Our senior management team who met
with shareholders and potential
investors across the year via a
consultation and with policymakers
where we believe that investors in the
UK will benefit.
• Embedding an always listening, always
programme of results presentations,
We have explored citizenship and
adapting approach through the HL
Colleague Forum, annual colleague
survey and regular pulse surveys.
• Taking a multi-channel, digital led
approach to communications.
• Launching wisdom councils and
manager circles to foster collaboration
providing opportunity for interaction
and knowledge sharing.
and shareholder voting on resolutions.
Board providing a review of
performance of the Group and
individual and group meetings and
sustainability agendas through a number
attendance at conferences both in the
of partnerships and relationships with
UK and abroad.
community partners, charities and the
• Our AGM in October 2019 with the
Bristol One City Plan.
• Recognition of the complexity
of communication and decision
making during a challenging year
across the business
• Managing costs and increasing
• How we have dealt with COVID-19
• Making improvements to the transfer
process, in addition to promoting the
importance of people actively engaging
with their workplace pension.
• A need to adapt our processes and
operational efficiency
policies to better support wellbeing
• What lessons have we learnt from the
• Supporting the communities in
and flexibility during COVID-19.
Woodford issue and what changes have
which we operate to thrive.
• Transparency and fairness around pay.
been made to prevent a reoccurrence.
• To reduce the environmental
• Competitive threats including the
threat of free trading platforms
impact of our operations.
• Increased the transparency,
• Key topics for investors are
• Lobbying to give employees more
frequency and tone of communication
around decisions and business activity
incorporated into presentations
control over their workplace pensions
which we use in meetings throughout
and improved access to pensions
guides, tools and webinar training to
• Regular reports and feedback to
• Updated policies and process to
support increased flexibility and
better work-life balance
• Launched ‘Wellbeing Wednesdays’,
support managers and colleagues
• Delivered a review of contractual
hours to ensure fairness and
consistency across the business
the year including Interim and
for the self-employed.
Full-year results announcements and
• Lobbied to reduce government
separate governance meetings held
by the Chair with key shareholders.
the executive team and the Board
on key market issues and concerns
are provided.
• Our corporate brokers deliver
updates on market dynamics and
corporate perception helping us
to shape our strategic priorities.
penalty on LISA.
• Heavily involved in the industry
drive to improve transfers.
• Promoted our volunteering
scheme and supported more
charitable causes in our community.
• 100% of the general waste and
mixed packaging disposed of in
our head office is recycled.
How did we
engage with
them?
What were
the key
topics raised?
How did
we respond?
Clients
Empowered to save and invest with
confidence. Making their financial
lives easy.
Our client focus includes aiming to
understand the issues in their financial
lives so we can develop services and
solutions to help. This year, more than
ever, we have:
• Conducted client surveys and
• Held focus groups and client panels
to get a deeper insight of our
clients’ needs.
Feedback is used to continually
improve the choice, quality and
convenience of our service.
• A desire for greater transparency
of our investment research and
improved usability of the Wealth 50
• More help with pension, drawdown
and annuity choices
• Easier ways to find funds and
access research
• We launched our Wealth Shortlist
with improved transparency and
usability, which will help clients build
a portfolio from funds our analysts
have selected for their long-term
performance potential.
• We improved our SIPP and Drawdown
proposition, which included regulatory
changes ahead of schedule, plus
improvements to our annuity service
leading to more clients receiving
enhanced annuity rates.
• We launched our Fund Finder as
an enhancement to our current
fund search tool to better meet
clients’ needs.
Employees
An increasingly diverse and inclusive
workforce, motivated and enabled to
achieve greatness by strong leadership.
Shareholders
Enjoying long-term sustainable returns
through share price appreciation and a
progressive dividend policy.
Engaging colleagues is key to creating
a healthy culture at HL. We’ve taken
a number of actions to develop
this including:
• Embedding an always listening, always
adapting approach through the HL
Colleague Forum, annual colleague
survey and regular pulse surveys.
• Taking a multi-channel, digital led
approach to communications.
• Launching wisdom councils and
manager circles to foster collaboration
and knowledge sharing.
• Recognition of the complexity
of communication and decision
making during a challenging year
• A need to adapt our processes and
policies to better support wellbeing
and flexibility during COVID-19.
• Transparency and fairness around pay.
We engaged with our shareholders through:
• Our senior management team who met
with shareholders and potential
investors across the year via a
programme of results presentations,
individual and group meetings and
attendance at conferences both in the
UK and abroad.
• Our AGM in October 2019 with the
Board providing a review of
performance of the Group and
providing opportunity for interaction
and shareholder voting on resolutions.
• How we have dealt with COVID-19
across the business
• Managing costs and increasing
operational efficiency
• What lessons have we learnt from the
Woodford issue and what changes have
been made to prevent a reoccurrence.
• Competitive threats including the
threat of free trading platforms
Society
We aim to be a responsible corporate
citizen, positively influencing society
and encouraging people to save and
make more of their money.
We actively seek to lobby via public
consultation and with policymakers
where we believe that investors in the
UK will benefit.
We have explored citizenship and
sustainability agendas through a number
of partnerships and relationships with
community partners, charities and the
Bristol One City Plan.
• Making improvements to the transfer
process, in addition to promoting the
importance of people actively engaging
with their workplace pension.
• Supporting the communities in
which we operate to thrive.
• To reduce the environmental
impact of our operations.
• Increased the transparency,
• Key topics for investors are
• Lobbying to give employees more
frequency and tone of communication
around decisions and business activity
• Updated policies and process to
support increased flexibility and
better work-life balance
• Launched ‘Wellbeing Wednesdays’,
guides, tools and webinar training to
support managers and colleagues
• Delivered a review of contractual
hours to ensure fairness and
consistency across the business
incorporated into presentations
which we use in meetings throughout
the year including Interim and
Full-year results announcements and
separate governance meetings held
by the Chair with key shareholders.
• Regular reports and feedback to
the executive team and the Board
on key market issues and concerns
are provided.
• Our corporate brokers deliver
updates on market dynamics and
corporate perception helping us
to shape our strategic priorities.
control over their workplace pensions
and improved access to pensions
for the self-employed.
• Lobbied to reduce government
penalty on LISA.
• Heavily involved in the industry
drive to improve transfers.
• Promoted our volunteering
scheme and supported more
charitable causes in our community.
• 100% of the general waste and
mixed packaging disposed of in
our head office is recycled.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
31
Strategic reportGovernanceFinancial statementsOther information OPERATING AND FINANCIAL REVIEW
DIVERSIFIED
REVENUES AND
RESILIENT GROWTH
Delivering a robust year of NNB inflows and double digit profit
growth during difficult market conditions.
Assets Under Administration (AUA) and Net New Business (NNB)
Opening AUA
Underlying NNB
Market movement and other
Closing AUA
Year ended
30 June 2020
£bn
Year ended
30 June 2019
£bn
99.3
7.7
(3.0)
104.0
91.6
7.3
0.4
99.3
The diversified nature of Hargreaves Lansdown, the breadth of our
product offering and provision of high quality services tailored to the
needs of our clients has allowed us to deliver a record year for NNB
inflows. This has been achieved against a backdrop of uncertainty
around UK politics and Brexit in the first half and the unprecedented
issues relating to the COVID-19 in the second half. The Group’s
relentless focus on client service has been core to our success as a
business and positions us well for the structural growth opportunity
in the UK savings and investments market.
NNB for the year totalled £7.7 billion (2019: £7.3bn) driven by
increased client numbers, continued wealth consolidation onto our
platform and strong trading through the COVID-19 period. The first
half of the year saw difficult external market conditions, with
concerns over global trade wars, Brexit and the UK general election
all weighing on investor confidence. The first half benefited from
new business from direct books totalling £0.9 billion.
Following the general election, we saw an increase in client
confidence, engagement and activity levels. As the world became
disrupted by COVID-19, the benefits of our investments over the
past few years became clear. Whilst being focused on colleague
welfare throughout, we remained open for business through the
crucial tax year end period. We were able to cope with a surge in
net new clients, NNB and record activity levels. An ISA focused
advertising campaign helped drive significant new ISA clients and
our stockbroking capabilities helped attract many new younger
clients who were particularly engaged with share dealing.
During the year to 30 June 2020, we introduced 188,000 (2019: 133,000)
net new clients to our services and grew our active client base by 15%
to 1,412,000.
32
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
This increased client population underpins future growth as clients
add new money to their accounts, particularly through the use of
annual tax free allowances in the SIPP and ISA products. Over a
period of time, clients also typically consolidate their investments
through transfers onto our platform. This growth was supported by
our continued high retention rates.
Our focus on service and the value our clients place on our offering
is evidenced by client and asset retention rates remaining strong at
92.8% and 92.1% respectively. The client retention rate is quoted on
our historic measure where we define active clients as those with
over £100 on the platform. We note that other providers quote this
measure with active clients defined as those with over 1 pence on
their platform. For comparative purposes, the HL client retention
rate on this basis would have been 95.7% (2019: 96.1%, 2018: 95.8%).
Our increased focus on digital marketing has been key in winning
new and engaging with existing clients, ensuring we become
integral to their lives in terms of saving and investing for the future.
Total AUA increased by 5% to £104.0 billion as at 30 June 2020
(£99.3 bn as at 30 June 2019). This was driven by £7.7 billion of NNB
offset by negative market movement of £3.0 billion.
Financial performance
Income statement
Revenue
Operating costs
Fair value gains on derivatives
Finance income
Finance costs
Underlying profit before tax
Gain on disposal (see Note 4.1)
Profit before tax
Tax
Profit after tax
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
550.9
(214.9)
1.7
2.8
(1.0)
339.5
38.8
378.3
(65.1)
313.2
480.5
(179.4)
2.2
2.8
(0.3)
305.8
–
305.8
(58.2)
247.6
Governance
Financial statements
Other information
Higher asset levels and
record share dealing
volumes driving double
digit profit growth.
Philip Johnson
Chief Financial Officer
2020 profit before tax grew by 24% to £378.3 million. This included
a gain on disposal of £38.8 million relating to FundsLibrary Limited,
which, if removed, would give an 11% increase in underlying profit
before tax. The increase was driven by continued NNB-driven
revenue growth and strong share dealing volumes in the second
half of the year.
Revenue
Revenue for the year was £550.9 million, up 15% (2019: £480.5m),
driven by higher asset levels and record share dealing volumes seen
in the second half of the year. This more than offset a fall in annual
management charges on the HL Funds which fell in line with their
lower average asset values seen this year. This strong revenue
result in a period of difficult external conditions clearly shows the
benefit of the Group’s diversified market-leading presence across
our range of chosen asset classes. Our market share of the UK
execution only market continued to grow, hitting a new high of
39.5% (as measured by Compeer’s XO Quarterly Benchmarking
Report Q1 2020).
The table below breaks down revenue, average AUA and margins
earned across the main asset classes which our clients hold with us.
Revenue on Funds increased by 2% to £210.6 million (2019: £206.2m)
due to AUA growth primarily from net new business. Funds remain
our largest client asset class at 52% of average AUA (2019: 55%), and
the revenue margin earned on these this year was 40bps (2019:
41bps). As anticipated the fund margin was slightly impacted as we
waived the platform fee throughout the period on holdings in the
Woodford Equity Income Fund and on the Woodford Income Focus
Fund during its suspension from October 2019 to February 2020.
The revenue impact from the waivers is estimated at £2.6 million
and had it not been incurred the margin would have been 41bps.
Revenue margins on Funds have been broadly stable following the
completion of RDR in 2014 and we expect them to remain at similar
levels over the next 12 months. Funds AUA at the end of 2020 was
£51.7 billion (2019: £53.8bn).
Funds1
Shares2
Cash3
HL Funds4
Other5
Double–count7
Total
Year ended
30 June 2020
Year ended
30 June 2019
Revenue
£m
210.6
148.5
91.1
63.6
37.1
–
550.9
Average
AUA
£bn
52.37
34.3
12.3
8.77
1.76
(8.6)7
100.67
Revenue
margin
bps
40
43
74
73
–
–
–
Revenue
£m
206.2
86.2
73.2
68.3
46.6
–
480.5
Average
AUA
£bn
50.67
31.4
10.2
9.27
0.56
(9.1)7
92.87
Revenue
margin
bps
41
27
72
74
–
–
–
1 Platform fees and renewal commission.
2 Stockbroking commission and equity holding charges.
3 Net interest earned on client money.
4 Annual management charge on HL Funds, i.e. excluding the platform fee, which is included in revenue on funds.
5 Advisory fees, FundsLibrary revenues, Active Savings and ancillary services (e.g. annuity broking, distribution of VCTs and Hargreaves Lansdown Currency and Market Services).
6 Average cash held via Active Savings.
7 HL Funds AUM included in Funds AUA for platform fee and in HL Funds for annual management charge. Total average AUA excludes HL Fund AUM to avoid double–counting.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
33
Strategic report OPERATING AND FINANCIAL REVIEW
DIVERSIFIED REVENUES AND RESILIENT GROWTH
Other revenues are made up of advisory fees, our Funds Library
data services, Active Savings and ancillary services such as annuity
broking, distribution of Venture Capital Trusts and the Hargreaves
Lansdown Currency and Market Services. These revenues are
primarily transactional and not impacted by market growth. They
declined by 20% in the year mainly because of the disposal of our
subsidiary business, FundsLibrary Limited, on 28 February 2020, the
removal of various fees such as exit charges and a fall in advisor fees
as a result of COVID-19.
Assets held within Active Savings on the platform and the related
revenue are not broken out into a separate category in the previous
table. As highlighted before, we believe it is strategically imperative
to capture the scale advantage of being a first mover. Consequently
our focus remains on growing AUA at present. Our chosen route for
achieving this in the current low interest rate environment is via
reducing our revenue margins to ensure the rates offered on Active
Savings are highly competitive. This will attract new clients and
assets into the service that we need to capitalise on the
opportunity. In addition we have been developing the proposition
further and we will be launching a Cash ISA offering soon. This will
initially be made available to existing Active Savings clients before
we market it more widely. In the coming months we will also add the
ability for clients to transfer existing Cash ISAs that they hold
elsewhere into Active Savings, which provides a significant
opportunity given that UK Cash ISAs total approximately £270
billion. As at 30 June 2020, Active Savings AUA was £2.2 billion.
The associated revenue is included in the category “Other”, such
that the total revenue reconciles back to the income statement.
Recurring revenue
Transactional revenue
Other revenue
Total revenue
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
404.3
140.1
6.5
550.9
387.3
84.3
8.9
480.5
The Group’s revenues are largely recurring in nature, as shown in the
table above. The proportion of recurring revenue has decreased to
73% (2019: 81%) as the transactional stockbroking commission
increased significantly in the second half of the year, whilst at the
same time lower market values and a reduction in the base rate of
interest impacted recurring revenue streams.
Recurring revenue is primarily comprised of platform fees,
Hargreaves Lansdown fund management fees, interest on client
money, equity holding charges and ongoing advisory fees. It grew by
4% to £404.3 million (2019: £387.3m) due to increased average AUA
from continued net new business and higher interest rates earned
on client money. Recurring revenues provide greater profit
resilience and hence we believe they are of higher quality than
non-recurring revenues.
Revenue on Shares increased by 72% to £148.5 million (2019:
£86.2m) and the revenue margin was 43bps (2019: 27bps), ahead of
our expected range of 35bps to 40 bps given at the trading update
on 14 May 2020. This margin is primarily a result of the ratio of
dealing volumes to average AUA, and whilst the first half saw AUA
increase faster than dealing volumes and the subsequent revenues,
the situation in the second half changed dramatically. Post the
General Election result in December 2019 and into the COVID-19
period, dealing volumes increased to record levels on our platform
at a time when the average AUA was impacted by significant market
falls. This resulted in the second half margin being unusually high at
61bps compared to 26bps in the first half, giving an overall margin of
43bps. Total client driven deal volumes increased 95% to 8.2 million
(2019: 4.2m). March to June recorded volumes of 1.1 million to 1.3
million deals per month compared to a monthly average of 0.37
million for the same months in the past three years.
Management fees for shares charged in the SIPP and Stocks and
Share ISA accounts are capped once holdings are above £44,444 in
a SIPP and £10,000 in an ISA. This causes some dilution to the
margin over time as clients grow their portfolio of shares. Shares
account for 34% of the average AUA (2019: 34%). Given recent
experience, it is difficult to know what the margin of Shares might be
over the next 12 months given it is primarily driven by actual dealing
volume levels. However, our current expectation is that it will be in
the range of 30 to 50bps. Shares AUA at the end of 2020 was £36.4
billion (2019: £33.7bn).
Revenue on Cash increased by 24% to £91.1 million (2019: £73.2m) as
a result of increased cash levels combined with a slight increase in
the interest margin to 74bps (2019: 72bps). This is in line with our
communicated expectations of between 70bps and 75bps given at
the trading update announced on 14 May 2020. Cash accounts for
12% of the average AUA (2019: 11%). At the start of the year the
Bank of England base rate was 0.75% but then emergency rate cuts
of 0.50% and then a further 0.15% in March 2020 took us to an
all-time low of 0.10%. With the majority of clients’ SIPP money
placed on rolling 13 month term deposits, and non-SIPP money on
terms of up to 95 days, the full impact of the rate rise takes over a
year to flow through. We anticipate the cash interest margin for the
2021 financial year will be in the range of 40bps to 50bps, although
given how the yield curve took a couple of months to reflect the
cuts in base rate we expect margins in the first half of the year to be
higher than the second half as higher rate deposits roll off and are
replaced at a lower rate. Cash AUA at the end of 2020 was £13.6
billion (2019: £10.7bn).
HL Funds consist of 10 Multi-Manager funds, on which the
management fee is 75bps per annum, and three Select equity
funds, on which the management fee is 60bps. Revenue from these
funds has fallen by 7% this year to £63.6 million (2019: £68.3m) due to
modest net outflows as we have not actively marketed the
Multi-Manager funds whilst the Woodford Equity Income Fund has
been suspended combined with their lower market valuations
resulting from COVID-19. These fees are collected on a daily basis
whereas the Group calculates average AUM on a month end basis,
resulting in a headline margin for the period of 73bps (2019: 74bps).
Note that the platform fees on these assets are included in the
Funds line and hence total average AUA of £100.6 billion (2019:
£92.8bn) excludes HL Funds AUM to avoid double-counting.
HL Funds AUM at the end of 2020 was £8.0 billion (2019: £9.4bn).
34
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Transactional revenue is primarily made up of stockbroking
commission and advisory event-driven fees. This increased by 66%
to £140.1 million (2019: £84.3m) with a 95% increase in client driven
equity deal volumes being the key driver.
Other revenue is derived from the provision of funds data services
and research to external parties through Funds Library. This was
down 27% from £8.9 million to £6.5 million as the subsidiary
company FundsLibrary Limited was sold on 28 February 2020.
Operating costs
Staff costs
Marketing and distribution costs
Depreciation, amortisation and
financial costs
Other costs
Total FSCS levy
Total operating costs
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
101.2
23.9
17.6
58.5
201.2
13.7
214.9
97.2
12.7
12.4
50.3
172.6
6.8
179.4
Operating costs increased by 20% to £214.9 million (2019: £179.4m)
to support higher client activity levels, maintain client service and
invest in the significant growth opportunities we see ahead for
Hargreaves Lansdown. In addition there was a significant increase
in regulatory fees relating to the Financial Services Compensation
Scheme (FSCS). The growth rate in costs, excluding the FSCS levy,
was 17% for the year
Over the past three years we have deliberately invested into our
service, marketing capabilities technology, scalability and efficiency
as the Group’s focus on client service is core to our success and
necessary to capture the structural growth opportunity in the UK
savings and investments market. This investment has been
validated in 2020 by record NNB, record levels of net new clients,
increased market shares, attractive client retention rates, the
continued development of our product set and growth capabilities
and the resilience of our platform through COVID-19.
Key drivers of the cost growth were marketing and distribution,
particularly in the second half. These rose by £11.2 million this year
as we capitalised on the opportunity to accelerate new client
acquisition and invested in our brand awareness campaign. At
current revenue margins and activity levels, the £7.7 billion of NNB
this generated is equivalent to c£40 million of future annual
revenues. Activity based costs also rose by £6.9 million. These are
primarily dealing costs linked to the additional £60 million of Shares
revenue and debit card fees linked to elevated levels of cash paid
onto the platform.
Looking forward we would anticipate that costs will grow broadly
in line with the growth of client numbers. Cost growth in 2020 was
marginally ahead of this due to the unusual marketing opportunity
to acquire new clients and exceptional dealing volume costs.
Staff costs remain our largest expense and rose by 4% to
£101.2 million (2019: £97.2m). Average staff numbers increased by
2% from 1,574 in 2019 to 1,599 in 2020 with the key increases being
on the Helpdesk and in Operations, in line with higher client activity
levels. Hargreaves Lansdown is a growing business and higher client
numbers and associated activity levels will continue to require
investment in our servicing functions as we look forward.
Technology and efficiency programmes improve our scalability,
thereby allowing us to invest productivity gains into extending
our proposition and our platform functionality. We believe this
reinvestment cycle underpins our future growth.
Marketing and distribution costs increased by 88% to £23.9 million
(2019: £12.7m). In the first half of the year, spend focused on
targeted marketing campaigns for the likes of Active Savings and
engagement with existing and target clients around Brexit and the
general election. Investor confidence and engagement, however,
were low and hence spend was largely held back until the second
half when there was a significant increase in client engagement
post the general election and the decision on Brexit. This provided
a better backdrop for marketing spend and also coincided with the
build up to the all-important tax year end period where the UK tends
to see significant activity amongst retail investors. In addition,
February saw the launch of a brand marketing campaign centred
on London and the South-East. The campaign, “Switch your money
on”, was particularly aimed at the ISA market along with overall
brand awareness. This together with our digital marketing expertise,
resulted in substantial net new clients of 138,000 for the second half
and a total for the year of 188,000.
Depreciation, amortisation and financial costs increased by £5.2
million to £17.6 million. The adoption of IFRS 16 “Leases” meant
operating leases relating to the offices of Group companies were
brought on to the balance sheet as right of use assets which are
now depreciated. The impact of this accounting change was an
additional £3.0 million of depreciation in the year. In addition, bank
charges increased by £1.5 million as there were significantly more
debit card transactions as clients added money to their accounts.
Total capitalised expenditure was £15.9 million this year (2019:
£17.1m). This expenditure was from cyclical replacement of IT
hardware, the continuing project to enhance the capacity and
capability of our key administration systems and the ongoing
development of the Active Savings platform.
Other costs rose by £8.2 million to £58.5 million (2019: £50.3m).
The key drivers of this were increased computer maintenance
and office costs driven by higher employee numbers and additional
office space, increased professional fees and irrecoverable VAT
on non-staff expenses.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
35
Strategic reportGovernanceFinancial statementsOther information OPERATING AND FINANCIAL REVIEW
DIVERSIFIED REVENUES AND RESILIENT GROWTH
Liquidity and capital management
Hargreaves Lansdown looks to create long-term value for
shareholders by balancing our desire to deliver profit growth, capital
appreciation and an attractive dividend stream to shareholders with
the need to maintain a market-leading offering and high service
standards for our clients.
The Group seeks to maintain a strong net cash position and a
robust balance sheet with sufficient capital and liquidity to fund
ongoing trading and future growth, in line with our strategy of
offering a lifelong, secure home for people’s savings and
investments. The Group has a high conversion rate of operating
profits to cash and its net cash position at 30 June 2020 was
£462.8 million (2019: £394.0m). Cash generated through trading
and the disposal of FundsLibrary Limited more than offset the
payments of the 2019 final dividend and the 2020 interim dividend.
This includes cash on longer-term deposit and is before funding the
2020 final dividend of £125 million and special dividend of £82 million.
The Group has a Revolving Credit Facility agreement with Barclays
Bank to provide access to a further £75 million of liquidity. This is
currently undrawn and was put in place to further strengthen the
Group’s liquidity position and increase our cash management
flexibility. The Group also funds a share purchase programme to
ensure we avoid any dilution from operating our share-based
compensation schemes.
The healthy net cash position provides both a source of competitive
advantage and support to our client offering. It provides security to
our clients, giving them confidence to manage their money through
us over many years, and allows us to provide them with an excellent
service, for example through using surplus liquidity to allow same
day switching between products that have mismatched
settlement dates.
Capital
30 June 2020
£m
30 June 2019
£m
Shareholder funds
Less: goodwill, intangibles and
other deductions
Tangible capital
Less: provision for dividend
Qualifying regulatory capital
Less: estimated capital
requirement
Surplus capital
558
(32)
526
(207)
319
(180)
139
458
(24)
434
(150)
284
(186)
98
Total attributable shareholders’ equity, as at 30 June 2020, made
up of share capital, share premium, retained earnings and other
reserves increased to £558.3 million (2019: £457.8m) as continued
profitability more than offset payment of the 2019 final and special
dividends and the 2020 interim dividend. Having made appropriate
deductions as shown in the table above, surplus capital amounts
to £139 million.
The Financial Services Compensation Scheme (FSCS) levy rebased
upwards by £6.9 million or 101% to £13.7 million. This was caused by
a combination of a £1.5 million interim levy relating to last year, which
was only raised in December 2019, plus a significant increase in the
amounts being raised in both the life distribution and investment
intermediation categories. Much of our revenue falls into these
two categories and with our revenue growth being above the wider
market we bear a higher proportion of the amounts being raised.
The FSCS is the compensation fund of last resort for customers of
authorised financial services firms. All authorised firms are required
to contribute to the running of the scheme and the levy reflects the
cost of compensation payments paid by the industry in proportion
to the amount of each participant’s relevant eligible income. At
present we anticipate that this levy will continue at a similar level.
Profit before tax
Operating profit
Finance income
Finance costs
Underlying profit before tax
Gain on disposal
Profit before tax
Tax
Profit after tax
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
337.7
2.8
(1.0)
339.5
38.8
378.3
(65.1)
313.2
303.3
2.8
(0.3)
305.8
–
305.8
(58.2)
247.6
The Group’s profit before tax grew by 24% to £378.4 million (2019:
£305.8m) due to strong trading and a £38.8 million gain from the
disposal of FundsLibrary. The Board believes it is important to
present an underlying result excluding this disposal gain to
assist investors with their understanding of the Group’s trading
performance. On this basis, underlying profit before tax grew
11% to £339.5 million. Profits after tax grew by 26% to £313.2 million
as the effective rate of corporation tax rate decreased to 17.2%
(2019: 19.0%).
Tax
The effective tax rate for the year was 17.2% (2019: 19.0%). This
was below the standard rate of UK corporation tax as the gain on
disposal of FundsLibrary was exempt as it met the conditions of
the Substantial Shareholder Exemption. The Group’s tax strategy
is published on our website at www.hl.co.uk
EPS
Profit after tax
Diluted share capital (million)
Diluted EPS (pence per share)
Underlying diluted EPS (per share)
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
313.2
474.8
65.9
57.8
247.6
475.8
52.0
52.0
Diluted EPS increased by 27% from 52.0 pence to 65.9 pence,
reflecting the Group’s growth in profit after tax. The Group’s Basic
EPS was 66.1 pence compared with 52.1 pence in 2019. By removing
the profit on disposal of FundsLibrary we arrive at an underlying
diluted EPS which has increased by 11% from 52.0 pence to
57.8 pence.
36
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
This results in a total special dividend of 17.4 pence per share and a
total 2020 dividend for the year of 54.9 pence per share (2019: 42.0p).
Subject to shareholder approval of the final dividend at the 2020
AGM, the final and special dividends will be paid on 16 October
2020 to all shareholders on the register at the close of business
on 25 September 2020.
The Board is confident that Hargreaves Lansdown has sufficiently
strong financial, liquidity and capital positions to execute its strategy
without constraints and can operate a sustainable and progressive
ordinary dividend policy going forward. The Board remains
committed to paying special dividends in future years should
sufficient excess cash and capital exist after taking account of
market conditions and the Group’s growth, investment and
regulatory capital requirements at the time.
Philip Johnson
Chief Financial Officer
6 August 2020
The Group has three subsidiary companies authorised and
regulated by the FCA and one subsidiary authorised by the FCA
under the Payment Services Regulations 2017. These firms have
capital resources at a level which satisfies both their regulatory
capital requirements and their working capital requirements and, as
a Group, we maintain a robust balance sheet retaining a capital base
over and above regulatory capital requirements. Further disclosures
are published in the Pillar 3 document on the Group’s website at
www.hl.co.uk
Dividend policy and 2020 declarations
Hargreaves Lansdown has a progressive ordinary dividend policy.
The Board considers the dividend on a total basis, with the intention
of maintaining the ordinary dividend payout ratio at around 65%
across the market cycle and looking to return excess cash to
shareholders in the form of a special dividend after the year end.
Any such return will be determined according to market conditions
and after taking account of the Group’s growth, investment and
regulatory capital requirements at the time.
Dividend (pence per share)
Interim dividend paid
Final dividend declared
Total ordinary dividend
Special dividend
Total dividend
2020
11.2p
26.3p
37.5p
17.4p
54.9p
2019
10.3p
23.4p
33.7p
8.3p
42.0p
When applying this policy in 2020, the Board has chosen to
treat the gain on disposal as distinct from the underlying trading
performance of the Group. The Group’s total dividend of 54.9 pence
per share is therefore made up of the following components:
• A total ordinary dividend of 37.5 pence per share (2019: 33.7p),
11% ahead of last year. This is in line with underlying EPS growth
and maintains the ordinary dividend payout ratio at 65% of
underlying EPS.
• A special dividend of 17.4 pence per share (2019: 8.3p) made
up of two parts.
Firstly, the Board has considered the Group’s capital and cash
position in light of its stated dividend policy and is recommending
9.2 pence of the special dividend is paid from the underlying
earnings of the Group. In effect, this results in 46.7 pence of the total
dividend per share being generated from underlying earnings and
results in a total dividend payout ratio from underlying earnings of
81%, in line with previous periods.
Secondly, the Board consider the Group to have a robust capital and
liquidity position with sufficient resources to fund its current growth
and investment requirements. As a result, it has concluded that
the gain on disposal of FundsLibrary should be distributed to
shareholders and this makes up 8.2 pence of the special dividend.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
37
Strategic reportGovernanceFinancial statementsOther information CORPORATE SOCIAL RESPONSIBILITY
BUILDING A LIFELONG
SUSTAINABLE AND
RESPONSIBLE
BUSINESS
OUR STRATEGY COVERS
FOUR PILLARS
OUR SUCCESS IS FOUNDED
ON 5 KEY PRINCIPLES
Clients
We put our clients first with positive
client outcomes central to our
sustainable busuiness. We listen to
them and empower them to save and
invest with confidence.
People
We are committed to attracting,
developing and retaining talented
people who put our clients at the heart
of everything we do.
Community
We strive to play a positive, supportive
and leading role in our local community.
Environment
We take our responsibilities toward the
environment and climate change
seriously and look to promote energy
efficiency and the avoidance of waste
throughout our operations.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
From the day-to-day exceptional client
experience, to the constant improvement of our
services, we use client feedback to shape future
development. It’s their future in our hands.
For our clients and for each other. We focus
on what we need to do, then do it well,
taking every opportunity to delight, inspire
and reassure.
1 We put the client first
2 We go the extra mile
3 We do the right thing
4 We make it easy
5 We do it better
We’re fair, honest and upfront and do
the best for our clients. We focus on the
long-term. It’s why they trust us, and how
we earn their loyalty.
Savings and investments should be easy to
access, understand and do. We make things
simple which gives our clients confidence to
make important decisions at the right time.
Energetically innovating and improving.
When things aren’t working well, we fix them.
From supporting the local
community to minimising
our environmental impact,
our aim is to ensure our
actions have a positive
impact on society.
We are committed to Corporate Social
Responsibility (CSR) and it is embedded into
our policies and practices to the benefit of
stakeholders and the wider community with
long-term sustainable outcomes for all.
As a leading FTSE 100 financial services
company, HL is committed to setting
a positive example for clients and the
community by integrating sustainable social,
ethical and environmental considerations
into our operations with a long term view
of managing the wider environment and
social footprint.
Values
Our success is founded on delivering great
client service through the skills and passion
of our people who bring our values to life
across the business. We take the
responsibility of looking after client
outcomes and investments extremely
seriously. Only from creating trust and true
client focus, through our embedded values,
can we build long-term relationships and
deliver on our strategy to the benefit of both
clients and shareholders.
Our success is founded
on delivering incredible
client service through
the skills and passion of
our people who bring
our values to life across
the business.
Going the extra mile
We understand that clients have differing
financial needs and goals. Ensuring that we
can service these different needs and
exceed expectations wherever we can is
important to us. Our broad offering means
we can assist clients throughout their
financial lifetime. Listening, finding solutions
and treating our clients as individuals
ensures we provide them with an
exceptional personal experience.
We believe that when clients are faced with
an exceptional experience, they will have the
trust and confidence to engage with their
finances. To help, over the year we’ve kept
our Helpdesk open on Sundays and late into
the night during the ever busy tax year end.
Ensuring clients feel their savings and
investments are secure with HL is
paramount. We have increased the number
of client communications with regards to
educating and informing clients on fraud
and scam awareness.
Doing the right thing
We pride ourselves on our integrity in all our
dealings and decisions as a business with
the aim of being clear, fair and transparent.
We want to do the right thing by our clients
and we are committed to providing an
exceptional service to all of our clients and
offering the support they need. Our clients
cover a diverse range of backgrounds and
we want to ensure that all clients are treated
fairly, regardless of their circumstances.
We deliver our service in a way that is
accessible to all clients. To better support
our vulnerable clients we have worked with
the Alzheimer’s Society and have over 1,600
trained Dementia Friends at HL. Additionally,
we have developed our communication to
help make it more inclusive and to support
initiatives to get more women investing.
We recognise that the views and experience
of our colleagues are important and through
our Whistleblowing Policy we encourage our
people to raise any concerns about
malpractice or wrongdoing within the
workplace. All concerns are treated with the
utmost confidence and in full compliance
with the Public Interest Disclosure Act 1998.
All colleagues undergo annual training
which includes anti-money laundering,
protecting client money, spotting market
abuse, data protection, information security
and fraud prevention.
Clients
Looking after clients
to ensure they are
empowered financially.
Putting clients first
Positive client outcomes are central to our
business. Ensuring that our clients are happy
with our products and services, trusting us
to keep their interests at heart, and listening
to their concerns is paramount to
empowering people financially. To achieve
this, we actively seek our clients’ views and
feedback through surveys and focus groups
and use this insight to shape our services,
products and features.
We recognise that sometimes we make
mistakes. If clients ever feel the need to
complain, our client services team carefully
investigate our client’s complaint and
endeavours to provide them with a fair
outcome and timely resolution. We learn
from these experiences.
We benchmark our performance in treating
clients fairly against statistics published
annually by the Financial Ombudsman
Service for the industry. The results for the
2020 financial year compared to the last
figures published by the Ombudsman show
that Hargreaves Lansdown is both fair and
responsive in such circumstances.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
39
Strategic reportGovernanceFinancial statementsOther information CORPORATE SOCIAL RESPONSIBILITY
BUILDING A LIFELONG SUSTAINABLE AND RESPONSIBLE BUSINESS
We are committed to
attracting, developing
and retaining talented
people who put our
clients at the heart
of everything we do.
Making it easy
To empower more people to engage with
their finances and make good long-term
decisions, we aim to make dealing with us
as easy and efficient as possible. We aim to
educate and empower people to make the
right choices for them through the tools,
guides and research we provide.
Our clients range from first time investors,
to the highly experienced, with different
levels of confidence, time and willingness
to engage with their finances. The ongoing
challenge is to create an experience that
will suit these individual needs and maintain
a broad appeal to anyone who wants to
engage in saving and investing.
Our client experience team is dedicated
to making things easier for people.
We monitor feedback, frequent problems
and pinch-points on client journeys
and use these insights to streamline
client interactions.
We undertook an audit to assess the
accessibility of the HL website and literature.
We work hard to build our websites so that
they are accessible and easy to use, by
designing them with reference to guidelines
laid down by the Web Accessibility Initiative
(WAI). For more information please see our
Accessibility webpage:
www.hl.co.uk/accessibility
The outcome is that clients are able to
conduct their business with as little hassle
as possible. Information on our website is
easy to find and targeted for different needs;
application processes are streamlined and
only ask for the information we really need;
and if a client contacts us by telephone
they will be put through directly to a
knowledgeable person rather than an
automated telephone system.
Doing it better
We continually challenge ourselves to
deliver a better, more innovative service for
our clients. Our Active Savings service
provides clients with the same experience
with their cash savings as they have with
their investments – making it simple and
easy to move money from one account to
another to get better rates on their cash.
We have also launched a new Wealth Short
List and Fund Finder. New additions include
greater transparency of the fund selection
process and criteria, with more detail
available to those that want it, in addition to
revamped research notes and greater detail
of how a fund could fit into a wider portfolio.
Our Workplace Solutions team deliver
financial education to our corporate clients
helping people to understand and engage
with their finances.
Campaigning on behalf of UK investors
We always endeavour to do the right thing
for our clients and other stakeholders. We
actively seek to lobby via public consultation
and with policymakers where we believe
that investors in the UK will benefit.
Examples include:
• Lobbying the DWP to give employees
more control over their workplace
pensions and improved access to
pensions for the self-employed;
• Lobbying industry and the DWP on the
importance of engaging people with their
workplace pension;
• Lobbied with the industry to reduce
government penalty on LISA;
• We’ve been heavily involved in the
Industry drive to improve transfers; and
• Actively involved with Industry trade
bodies to champion client interests.
40
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
2020 Colleague Survey:
Does HL value and promote
employee diversity?
Agree
Neutral
Disagree
74%
17%
9%
Groups have been active
in promoting the importance
of diversity and inclusion
400+
colleagues are
members of one
or more of the networks
20
events delivered
through the year
Building diversity and inclusion
Our objective is simple – to build a diverse
workforce at all levels and create an inclusive
culture for all. We want a culture that
attracts, values and retains people from all
backgrounds, life experiences, preferences
and beliefs and to ensure they are
recognised and valued for the different
perspectives they bring.
At Hargreaves Lansdown, we believe in
building a diverse and inclusive workforce
not just because it is the right thing to do but
because it is good for our clients, our
business and our people.
Our clients:
Our purpose is to empower people to save
and invest with confidence. The more
diverse our workforce, the more easily we
can understand and meet the needs of our
growing and increasingly diverse client base.
Our business:
Greater organisational diversity correlates
strongly with better organisational
performance. We believe that diversity of
thought enables us to make better business
decisions, manage risk more effectively and
drive innovation.
Our people:
We are committed to hiring and retaining
the very best and, to do so, we must draw
from the broadest pool of applicants. Our
commitment to an inclusive culture where
people treat each other with dignity and are
able to bring their whole selves to work is key
to allowing our staff to realise their potential.
To support our drive for diversity and
inclusion, we launched our Diversity and
Inclusion Policy to all UK colleagues this
year, making clear our organisational
commitment, principles, roles and
responsibilities for everyone, from the
Executives to all colleagues. For 2020,
we are putting in place annual strategic
priorities that help streamline our focus
for maximum impact. These are agreed at
Board level, driven forward by the Executive
Committee and supported by our Diversity
and Inclusion Squad.
Whilst we know there is always more
we can do, we feel proud that our 2020
Colleague Survey results showed that
74% of colleagues feel that HL values
and promotes employee diversity.
People
Engaging our people
by creating an inclusive,
diverse and healthy
workforce with equal
opportunities for all.
We are committed to attracting, developing
and retaining talented people who put our
clients at the heart of everything we do.
Our people are proud of what they achieve
together, and have a strong sense of
belonging to Hargreaves Lansdown and
everyone recognises the crucial role that
they play.
Our people strategy
The strength of our people is pivotal to our
business and we aim to motivate and inspire
them to reach their full potential through:
• Attracting, developing and retaining
outstanding people;
• Embedding a client centric culture where
we live our values;
• Building a strong talent pipeline to enable
the long-term success of the Group; and
• Enabling our people to deliver our
strategic goals and lead change at pace.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
41
Strategic reportGovernanceFinancial statementsOther information
CORPORATE SOCIAL RESPONSIBILITY
BUILDING A LIFELONG SUSTAINABLE AND RESPONSIBLE BUSINESS
We know that tone from the top and
executive buy-in and accountability are key
to achieving sustainable change. Chris Hill,
CEO, remains a passionate advocate for
diversity and inclusion and is the Executive
Committee member responsible for our
strategy and action plan. We are further
strengthening commitment to progress by
ensuring Executive Committee members
have a specific personal objective to develop
a diverse, inclusive and innovative culture
which is measured in part against our
Women in Finance target.
Our award winning HL colleague networks
play a critical role in fostering inclusion and
belonging, and are each supported by an
Executive sponsor to ensure their activities
get the visibility and support they need to
have impact. These networks continue to
grow their membership, activities and
influence and include:
• Gender diversity group;
• Cultural diversity group, including our
Languages group;
• Kaleidoscope (LGBT+);
• Mental fitness group;
• Sports and social group;
• Environment, sustainability and climate
change group; and
• Financial Inclusion.
Over the year, the groups have been active
in promoting the importance of diversity
and inclusion and engaging colleagues. Over
400 colleagues are members of one or more
of the networks, and the networks have
delivered over 20 events across the year,
marking key dates and campaigns, with both
external speakers and internal panels. This
includes celebrating black history month,
LGBT history month, a mental health
awareness talk, sessions on the menopause
and celebrating International Women’s Day.
We recognise that our Diversity and
Inclusion policy cannot stand in isolation.
We’ve taken action to review our People
policies which support an environment that
is not only free from discrimination and
harassment, but one that encourages all
colleagues to bring their authentic selves
to work, to progress their careers and to
balance their career and personal life.
In 2019, we launched our Fostering policy and
we’re proud to say that we’ve been approved
as a Fostering Friendly organisation that can
offer support to our colleagues who are, or
intend to be, foster carers.
Our People policies are in place to attract
a diverse workforce. We have published an
outline of our family friendly policies on the
HL careers site to be transparent about
our parental leave and pay and demonstrate
our commitment to attracting a wide base
of talent.
We have recently published our third gender
pay gap report relating to 2019. These
figures paint a mixed picture. We have more
than halved our mean Gender Pay Gap,
down from 28.8% in April 2017 to 12.9% in
April 2019. We have also significantly
narrowed the median bonus gap since 2017
from 71.4% to 49.5%. However, we have
seen marginal increases in our median
Gender Pay Gap from 18.3% to 19.9% and
mean bonus gap from 71.8% to 73.0%.
Whilst we are pleased to have made some
progress, we are in no doubt that there is still
work to be done.
Our gender pay gap action plan was put in
place in 2017 and focuses on initiatives that
sought to eliminate bias from pay processes,
remove barriers to progression for women,
attract more female talent and create an
inclusive culture.
We worked hard to complete the actions
outlined in last year’s plan. These included
rolling out unconscious bias training for all
leaders and hiring managers to support the
reduction of bias in the interview and
selection process, continuing to expand our
Career Confidence Mentoring Scheme,
making it easier for candidates to learn
about our family-friendly policies by
publishing them on our career site and a
range of initiatives to increase the fairness
and consistency of pay.
One of our strategic priorities for diversity
and inclusion in 2020 is to hire more,
promote more and lose less women,
recognising that there is more we must do
to increase the proportion of senior women
at HL. Whilst we know that addressing
female representation across HL will take
time, we have initiatives in place to
accelerate change. To support us in hiring
more women, we have introduced a
requirement, where possible, for a gender
diverse slate of candidates for all senior roles
at final stage, and we review all job adverts
for gendered language prior to posting.
To promote more women, this year we have
standardised the promotion process deeper
OUR WORKFORCE
Total workforce 2020: 1,610
Total workforce 2019: 1,586
As at 30 June 2020
Female
Male
Board of
directors
Other senior
management1
Total employees
(FTE)
3 (33%)
6 (67%)
7 (19%)
543 (34%)
29 (81%)
1,067 (66%)
1 Other senior management is defined as an employee who has responsibility for planning, direction
or controlling the activities of the Group, or a strategically significant part of the Group, other than
the Board of Directors.
42
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
34%
Female
33%
Female
67%
Male
66%
Male
in the organisation to increase rigour and
reduce bias and are identifying top talent
deeper in the organisation to be able to
support pull through of diverse talent into
more senior roles. We are also focusing on
the areas that we know are challenging to
hire women into, including technology.
We have run sessions focusing on tackling
imposter syndrome and are advertising on
women’s tech sites.
We remain proud to be exceeding the 33%
target set by the Hampton-Alexander
Review for women on boards, to have met
our target for the Women in Finance Charter
and to have a female Chair.
Full details of our Gender Pay Gap report
can be found at
www.hl.co.uk/about-us/gender-pay-gap
Attracting and retaining
outstanding people
Hargreaves Lansdown is an employer of
choice for talented people. We use our
Talent Acquisition Strategy and our Reward
Strategy to ensure we attract and retain the
right people to meet our short, medium and
long-term business needs. Our Talent
Acquisition strategy aims to:
• Bring new talent and ideas to the
business to increase equality, diversity
and inclusion;
• Support parents with flexible working
options, part-time opportunities and
returning to work programmes;
• Create stronger links with local
schools, colleges, universities and
our local communities;
• Expand our apprenticeship schemes;
and all colleagues are eligible to sign up to
our Save as You Earn (SAYE) scheme. As at
30 June 2019 , 62% of eligible colleagues
participated in our Sharesave Scheme.
To complement our direct financial rewards,
we provide Company matched pension
contributions (which includes a double
matching scheme to encourage our
colleagues to save for their retirement)
and extended life insurance protection.
HL Rewards, our flexible benefits scheme,
offers a great range of protection, health,
financial and lifestyle benefits to ensure we
provide a benefits package that our
colleagues value. This includes the
introduction of double matched giving on
any payroll giving that colleagues undertake.
We have human resource policies in place to
attract a diverse workforce and our people
can expect to develop in an environment that
is free from discrimination and harassment.
We are an equal opportunities employer.
We give full consideration to all applications
If colleagues become disabled, the Group
always strives to continue employment,
either in the same or an alternative position,
with appropriate retraining being given if
necessary. A full assessment of any disabled
employee’s needs is undertaken and
reasonable adjustments are made to the
work environment or practices in order to
assist them.
Developing people and building
a talent pipeline
We have developed a range of schemes
to widen our recruitment pool, improve
diversity, and grow the skills and capabilities
of our people including:
• Improve brand awareness amongst young
• Apprenticeships – 29;
talent and millennials; and
• Support future recruitment needs.
Key to attracting and retaining the best
people is our approach to reward. We use
independently benchmarked pay and benefits
data to ensure we pay our colleagues fairly for
the work they do. To complement our pay,
we include the majority of our colleagues in a
bonus scheme linked to the success of
Hargreaves Lansdown and individual
performance. The ‘how’ is just as important to
us as the ‘what’ and colleagues are assessed
on the delivery of their objectives, the
behaviours they display and how they’ve
demonstrated our values.
We believe that our colleagues should be
able to share in the success of our business
• Placements – 8;
• Graduate scheme – 7;
• Mentoring – 76 mentors, 90 mentees; and
• Secondments.
We offer two types of apprenticeship:
Our New Specialist Apprenticeships (NSA)
offer the opportunity for new colleagues,
without previous experience, to develop
skills and experience within a particular
profession. The Apprentice’s ‘classroom
learning’ is delivered by an education
provider of HL’s choice, and is often
delivered remotely. The Apprentice puts this
learning into practice and develops their
specialism within their role at HL, with the
support of their manager and ‘buddy’.
Colleagues signed up to our
Save as You Earn (SAYE)
scheme
Signed up
Not signed up
62%
38%
Take-up across our
apprenticeship schemes
29
In total, in 2020, we have
29 people across our
apprenticeships schemes.
Hargreaves
Lansdown is
an employer of
choice for talented
people. We use our
Talent Acquisition
Strategy and our
Reward Strategy
to ensure we
attract and retain
the right people.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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BUILDING A LIFELONG SUSTAINABLE AND RESPONSIBLE BUSINESS
Response rate to the annual
colleague engagement survey
Response
No response
68%
32%
Annual colleague
engagement survey
82%
of colleagues agreed
that HL provides good
volunteering options
90%
of colleagues believed that
HL supports the local
community directly
An NSA is usually someone who has recently
completed school or college. However, this
is an inclusive opportunity and we consider
applicants of any age.
Our Career Development Apprenticeship
(CDA) is an opportunity for colleagues who
are already working at HL in a specialist role,
to develop their skills through completing
a recognised qualification. This opportunity
is open to everyone at HL, and we have a
selection of qualifications to consider.
Past courses completed through the CDA
scheme vary from A Level equivalent
qualifications, right the way through to
Masters Degrees.
In total, in 2020, we have 29 people across
our apprenticeships schemes.
Our Placement Scheme has eight
colleagues and is designed to give eight
students a preview of working life over
a 12-month period and gain hands on
experience of our working and social life.
Doing everything in-house plays to their
advantage, as we offer placements in a
variety of business areas as well as plenty of
additional projects in which to get involved.
As part of the programme, placement
students work on a live client focused
project which is presented back to our CEO.
Our graduate training scheme looks to
develop future leaders on our bespoke
two-year programme with rotations across
key departments before choosing a
specialism. Graduates are coached by senior
managers and directors, and mentored by
previous graduates, giving the programme a
nurturing and supportive feel. At the end of
the programme, the graduates find a role at
HL that matches their personal skills and
ambitions. We had four new graduates start
the scheme in 2019 and expect a further
three to start in September 2020. We
welcome applicants from a broad range of
backgrounds and see the programme as a
great source of diversity of thought for HL.
Learning and development is a key
component of our People Strategy, and it’s
important to us that all colleagues have the
opportunity to develop their skills regardless
of experience, age, background, or role. We
have high quality development programmes
in place to cater for colleagues at different
stages of their career and are increasingly
offering bite-sized, digital learning offerings
to support the ongoing engagement and
development of colleagues. We recognise
the importance of building a pipeline of skilled
and motivated talent for future leadership
roles and have developed a robust talent
framework to ensure we deliver this pipeline
and retain those in business critical roles. We
also believe in the need to encourage and
support diversity through the pipeline and are
committed to ensuring all colleagues are
provided with equal opportunities for
development and feel confident about
progressing their careers.
We have career development paths for both
specialist and managerial career streams,
recognising the differences in skills required.
We use this to help colleagues understand
where they can develop. We use the 70:20:10
model to support our colleagues in their
continuing personal and professional
learning and development. Colleagues
obtain 70% of their knowledge and
development from job-related experiences,
20% from interactions with others, and 10%
from formal educational events or exams.
Following research into diversity and
inclusion at Hargreaves Lansdown showing
that mentoring can improve confidence and
support diverse talent, we launched the HL
Career Confidence mentoring scheme in
2019. The purpose of the scheme is to build
confidence and support people from all
backgrounds to achieve their career
aspirations. The scheme has gained
momentum since then and we now have 92
mentoring relationships in place and positive
feedback to show that the scheme is making
a tangible difference to the engagement,
development and growth of participants.
We also host the South West Mentoring
Awards to recognise people for their
contribution to supporting diversity through
mentoring and have developed the South
West Mentoring Network to ensure that
best practice is developed across
organisations in the South West.
Employee engagement
It is widely recognised that an organisation
whose employees are engaged with its
purpose, values and culture will perform
better than others, and create value for
clients and shareholders. This is because
engaged employees feel a strong connection
with their employer and believe their work
is important. It is crucial therefore that we
communicate with our people ensuring they
understand our purpose, vision and priorities
and how they each play their part in the
development of our business.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
We all have a responsibility to be alert to the
risks of modern slavery. We continue to take
further steps to ensure we have the right
training and controls in place to combat
slavery and human trafficking, and in our
statement we explain how we are doing this.
Please visit our website –
www.hl.co.uk/__data/assets/pdf_file/
0009/11399832/Modern-Slavery-Act.pdf
Anti-bribery and corruption
Hargreaves Lansdown maintains a full suite
of policies and procedures to guard against
bribery and corruption. This includes an
Anti-Bribery Policy , outlining the offences,
responsibilities of all staff members and clear
reporting procedures; a Whistleblowing
policy and process; Fraud, Anti-money
laundering and Market Abuse policies and
procedures for dealing with making and
accepting gifts and hospitality. Colleagues
undertake bespoke training programmes for
all these areas, in addition to having access
to online guidance and procedures aiding
staff awareness. Colleagues can access
policy and guidance statements via the
Group intranet and these procedures are
reviewed and updated on a periodic basis by
the Senior Managers responsible for them.
Please visit our website –
www.hl.co.uk/corporate-social-
responsibility/our-policies
We do this via a coordinated internal
communications programme which includes
presentations by the CEO, senior
management insight talks, monthly CEO
updates, weekly and monthly newsletters for
all colleagues. Celebrating success and our
achievements, also serve as a great means
of engagement.
We believe it is important to listen and
understand our colleagues’ views and
motivation; their honest feedback is crucial in
evolving our colleague engagement
programme. Our most recent annual
colleague engagement survey received a
strong response rate of 68% and our overall
engagement score remained stable at 63%.
For 2020, we also included questions on our
CSR work, which received an 86% favourable
response. 82% of colleagues agreed that HL
provides good volunteering options that add
value to colleagues, the community and the
environment, and 90% of colleagues believed
that HL supports the local community
directly and via the HL Foundation.
We are always listening, and alongside pulse
surveys we also have our workforce advisory
panel, the HL Colleague Forum. The Forum
was set up in January 2019 in line with the UK
Corporate Governance Code to make sure
that the ‘voice of the workforce’ is
considered in the decision making process
of the Board. It meets periodically
throughout the year and is an important
forum for obtaining and discussing
colleagues’ views on key matters affecting
the Group. Key topics discussed in the
period under review have included Executive
Director and senior management pay, and
the Group’s culture and engagement with
colleagues during the COVID-19 pandemic.
Supporting wellbeing
Our people are central to delivering our
vision and strategy; ensuring their wellbeing
is of key importance to us. We do this
through our excellent rewards package and
a wider curriculum of activities and support,
ensuring there is something for everybody.
As part of our colleague wellbeing
programme, colleagues have access to our
Employee Assistance Programme,
Lifeworks, a mental health app. We also
introduced our wellbeing policy across the
business. Managers have undergone mental
health training and we have increased the
numbers of qualified first aiders and
Wellbeing Champions within the Company.
This work has been supported by our HL
Mental Fitness network group. As a result of
COVID-19 we also introduced a dedicated
‘wellbeing’ hub which contains wellbeing
resources and guidance for all colleagues.
The resources cover mental, social, physical
and financial wellbeing.
Sport is an important part of daily life and
a way of engaging and evolving different
community groups. HL has various colleague
sports teams, and runs mixed sports and
social events on a regular basis, and our HL
Sports and Social network helps to
coordinate events. Many colleagues also do
a variety of sporting activities to raise money
for our HL Foundation. Other initiatives
include Personal Development, Community
Matters and Healthy Mind weeks where a
range of workshops and classes are run to
raise awareness and promote a healthy
working environment for colleagues.
Human rights
Hargreaves Lansdown has a zero tolerance
approach to slavery and human trafficking of
any kind within our business operations and
supply chains. We are committed to acting
ethically and with integrity in all our business
dealings and relationships and to
implementing and enforcing effective
systems and controls to ensure slavery is
not taking place anywhere in our business,
or in any of our supply chains. We recognise
this is a serious global issue and are
committed to improving our practices and
playing our part in combatting slavery and
human trafficking.
We adhere to our Human Rights policy at all
times and we are fully compliant with our
obligations under the Modern Slavery Act
2015. One of our core values is to do the
right thing, which includes treating
people fairly whether they are our clients,
colleagues, contractors or people working
in our supply chain.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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BUILDING A LIFELONG SUSTAINABLE AND RESPONSIBLE BUSINESS
children, providing volunteers to read to
primary school children as part of the Bristol
as a Learning City project and supporting
the Healthy Holiday’s appeal to help feed
children over the summer holidays. We also
participate in the ‘Envision’ School
Mentoring scheme helping students at risk
of disengaging with school systems to build
confidence and aspirations. We want to
ensure that we support children to ensure
they have the best start in life to enable
them to set a strong foundation for later
years. Colleagues also have the opportunity
to volunteer at causes, or charities of their
choice. This year, we have seen team
volunteering away days including renovating
a primary school playground and building a
new classroom, in addition to litter picking
along the popular Bath to Bristol cycle path.
Our volunteering scheme exceeded 2,500
hours volunteered in the first year.
One City Approach:
We were a founding signatory of the Bristol
Equality Charter – a pledge by the
signatories to take actions relevant to them,
to improve equality and diversity across the
city. We are a founder member of the Bristol
Equality Network, and we have signed the
Women in Business Charter.
We continue to be active participants,
through our involvement with the Bristol
City Office, in the ongoing development
of the Bristol One City Plan, an initiative to
develop a shared vision for Bristol which
brings together participants from business,
public sector, voluntary organisations and
local communities to help identify and
address key challenges facing the city.
We were sponsoring partners of Bristol Pride
and St Paul’s Carnival. We frequently host
collections, both food and clothing
donations for the Easton Food Bank, East
Bristol Foodbank, Fareshare, and St Mungo’s
Charity. Additionally, we want to ensure
women and girls don’t have barriers to
access education, helping to achieve greater
economic equality, and are sponsors of the
city wide initiative to end period poverty in
Bristol, Period Friendly Places.
We have continued to support the Stepping
Up mentoring scheme, a region wide
positive action leadership programme
aimed at changing the diversity leadership
landscape across the public, voluntary and
commercial sector.
We take our responsibility to deliver financial
inclusion and education seriously. We want
to continue raising awareness about the
importance of investing for your future,
and saving from an early age.
Our service educates other organisations
on investing and pensions and this is
something we want to do more with schools
and universities. We have an internal
Financial Inclusion Group who are a group of
volunteers dedicated to supporting financial
education and inclusion initiatives in the
community. Our financial inclusion group
educates school and university students
because it is important to build good
financial habits early. Topics include:
budgeting, savings and their future options.
We are looking to extend this further to
community groups.
The HL Charitable Foundation
The HL Charitable Foundation is the
charitable arm of Hargreaves Lansdown.
The Foundation’s mission is to utilise the
skills and time of our workforce and partners
to make a positive, sustainable difference in
the world around us.
At Hargreaves Lansdown we want to do
more than empower people to save and
invest. We want to help the next generation,
we want to support local communities,
improve people’s health and wellbeing and
change people’s lives for the better. The HL
Foundation enables us to raise money for
charities who do all these things and more.
The charities supported are nominated and
selected by employees and shown below.
In its third full year, the Foundation
distributed £110,000 between the five
charities. Fundraising activities by
colleagues include the ever-popular payday
lottery, bike rides, cake and other food sales,
and sports tournaments.
From January 2020, the HL Foundation has
supported Help Bristol’s Homeless as its
main Foundation charity. Through the year
long partnership, the HL Foundation is
funding a new wellbeing centre, located at
Help Bristol’s Homeless centre.
As well as support to fundraising, we
now offer colleagues double matched
payroll giving. This has trebled the
numbers of colleagues donating via
Give As You Earn (GAYE).
All of the legal and administration costs of
the Foundation are met by the Group so
100% of the money raised goes to the
employee nominated charities.
More details can be found on the website
www.hl.co.uk/about-us/hl-foundation
Community
Playing a positive,
supportive and leading role
in our local community.
We work to support our local
schools, colleges, universities and
communities through:
• Our volunteering scheme;
• Actively engaging with Bristol City Council
to support our community;
• Fundraising for charitable causes; and
• Promoting financial inclusion.
Bristol and the local community
We want to support Bristol as a city where
everyone can thrive. To achieve this we
support local projects and plans which aim
to improve the lives of the people who live
and work in the city.
Our colleagues are dedicated to doing the
right thing and giving up their time to help
charities and good causes.
Volunteering:
The HL Volunteering Scheme gives people a
chance to volunteer by having two days (or
16 hours) of the calendar year to offer their
time, skills and experience to good causes.
Initiatives run as part of our volunteering
scheme include working with Bristol Sport
Foundation to support disadvantaged
2,500 hours
Our volunteering scheme exceeded
2,500 hours volunteered in the first year.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Our business is fundamentally based on
intellectual capital and conducts the
majority of client transactions online and
undertakes no industrial activities. Our
environmental impacts as a business are
primarily through the consumption of
resources, emissions generated from our
premises and employee business travel.
We continually take action to reduce waste
to landfill and energy consumption in order
to reduce our impact on the environment.
Running and maintaining our IT
infrastructure at our offices and data
centres comprises the main source of our
environmental impact. This supports our
award winning platform which is
fundamental to the success of our business.
Our programme of cyclical replacement of
hardware and software aims to reduce
energy usage and cost.
HL Tech, our Warsaw technology hub,
operates in a similar way, in a new,
environmentally friendly building, where
the impact is also low.
Doing it better for our clients:
Our objective of reducing waste and
minimising the environmental impact of our
business is aligned with our objectives of
protecting client data, reducing costs and
improving efficiency. It is our aim to deal with
clients and other businesses electronically
wherever possible, not only to speed up
information transfer, but also to reduce the
amount of paper we use.
We have invested heavily in providing a
user-friendly, comprehensive website, a
mobile app and automated links to banks
and fund providers. As a result, 81% of our
clients now use our paperless service.
Where we do send out paper, such as our
flagship magazine the “Investment Times”,
we try to use sustainable resources and
minimise our use of plastic. The Investment
Times is now sent in recyclable paper
envelopes rather than degradable plastic.
We have saved the equivalent of 2.45 million
plastic bags through changing our
Investment Times packaging.
We recognise that sustainability and ethical
behaviour is increasingly important to our
clients and we provide investment
information, research and guides on ethical
investing to support our clients, in addition
to the inclusion of an ethical fund in our
Wealth Shortlist. There are more than 150
socially responsible investments on the
platform (including funds, ETFs and
Investment Trusts).
We recognise that climate changes poses a
risk to our business and to client outcomes.
We are currently in the process of aligning to
the Taskforce for Climate-related Financial
Disclosures (TCFD). By mapping our
activities against the TCFD framework
we are ensuring we implement activities
against strong governance, strategy,
risk management and their targets and
metrics frameworks.
We believe in the transparency of data
and actions towards a climate resilient
management of our business. In part,
this is to continually plan and take action
as a business by working with changing
regulatory policy. As such, we have been
disclosing to the Carbon Disclosure Project
(CDP) since 2018 and will be disclosing
to the TCFD in 2022. We aim to continue
to go the extra mile in this area and
increase our participation in forums
and industry collaboration.
The importance of climate change at HL
has led to the development of our internal
Environment, Social and Governance (ESG)
committee this year, which continually
drives our ESG practices. The committee,
which includes Investment managers and
senior leaders, provides oversight and
governance of our broader internal and
external plans which is driven by the Board.
Doing it better for our colleagues:
• Reduced waste by 12%;
• Improved recycling initiatives – 100% of
the general waste and mixed recycled
packaging disposed of in our head office
is recycled;
We take our responsibilities
toward the environment
and climate change
seriously and continue to
promote energy efficiency
and the avoidance of waste
throughout our operations,
in accordance with our
environmental policy.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
47
The environment,
sustainability and
climate change
Building a lifelong,
sustainable and
responsible business.
HL acknowledges the impact it has on the
environment and climate change, and is
committed to:
• Identifying and assessing environmental
aspects to determine those that are
significant;
• Providing all employees with relevant
education and information to encourage
them to live and work in an
environmentally responsible manner;
• Focusing on continual improvements in
environmental performance and activity
by means of a proactive Environmental,
Sustainability and Climate Change Group;
and
• Aligning the Company strategy to support
the delivery of the United Nations
Sustainable Development Goals.
We take our responsibilities toward the
environment and climate change seriously
and continue to promote energy efficiency
and the avoidance of waste throughout our
operations, in accordance to our
environmental policy .
Strategic reportGovernanceFinancial statementsOther information CORPORATE SOCIAL RESPONSIBILITY
BUILDING A LIFELONG SUSTAINABLE AND RESPONSIBLE BUSINESS
Environment
100%
of the general waste and
mixed recycled packaging
disposed of in our head
office is recycled
100%
We source 100% of our energy
from renewable sources
12%
We reduced waste by 12%
10%
For the year ending 30 June
2020 our emissions per
employee decreased by 10%
• Improved integration of sustainable
procurement processes;
• Set our Environmental Policy and
considerations; and
• Newly formed ESG working group as part
of Corporate Affairs Group.
We shred and recycle confidential waste,
recycle 100% of our general waste and have
even set up a crisp packet recycling scheme
to ensure that we can recycle as much waste
as possible. This is supported by running
educational talks to promote recycling, from
external speakers such as Bristol Waste, City
to Sea and Geneco. We donate old office
and IT equipment to schools and charities
where appropriate or dispose of via
specialist third parties.
We provide the facilities within our office to
allow employees to engage in sustainable
behaviours such as through bicycle storage,
free bicycle maintenance checks and
amenities such as changing rooms to
support more sustainable travel to work.
This year, we have increased the allowance
available for the Cycle to Work Scheme
which we are part of, and offer season ticket
loans for employees to use public transport.
Our Financial Advisers are spread
throughout the UK which minimises travel
time and carbon emissions. We do not
provide company cars to managers or to our
network of advisers. We provide a telephone
advice service where a face-to-face
meeting is not required. More colleagues are
now able to work from home using laptops,
which, as well as consuming less power than
desktop computers, reduces the need for
work related travel . As a result of the
COVID-19 lockdown period, we moved the
majority of our colleagues to working from
home. This has demonstrated how we can
remain operationally resilient whilst
maintaining a high quality client service.
This allows us to explore further options of
implementing colleague and
environmentally friendly work patterns.
Colleagues are passionate about working
together to do it better and our
environmental, sustainability and climate
change networking group, aims to educate
and promote initiatives to reduce our carbon
footprint through talks, events and written
articles for staff. Our highly effective staff
driven Environmental Working Group has
adopted a number of recycling initiatives for
waste reduction, climate-change awareness,
plastic reduction and engaging with
communities on sustainability-related issues
through volunteering. The Group are also
working on initiatives to reduce our
consumption of greenhouse gas emissions,
improve waste management and recycling,
promote efficient use of resources and
ethical sourcing where practical. Our future
aims, for our environmental impact as a
business, are focused on a fourfold approach:
• Science-based – results and
decisions based on science based
climate change targets;
• Reporting and monitoring –
to increase reduction;
• Transparent – clear data recording,
standards and process in preparation
for external certification; and
• Continual improvement – adapting
as a business.
Doing it better for the wider community:
HL is listed on the FTSE4Good index series,
demonstrating our strong environmental,
social and governance principles, having
been independently assessed according to
the FTSE4Good criteria. The FTSE4Good
index measures the performance of
companies that meet globally recognised
standards on corporate social responsibility.
To be included, companies must support
human rights, have good relationships with
various stakeholders, be making progress
to become environmentally sustainable,
ensure good labour standards (not only for
their own company but for companies that
supply them) and seek to address bribery
and corruption.
HL is part of a network of organisations that
has pledged to work towards a sustainable
city with a high quality of life for all, by signing
up to the Bristol Green Capital Partnership.
To support creating a sustainable city, we
source 100% of our energy from renewable
sources. HL colleagues have the
opportunity to volunteer in projects which
have a positive impact on the environment,
such as “One Tree Per Child” and the
“Incredible Edible” project.
United Nation Sustainable
Development Goals
The UN Sustainable Development Goals
(SDGs) provide a focus for how businesses,
governments and civil society can tackle
these challenges in order to promote a more
sustainable future for all. They have helped
to inform our thinking about where we can
play a role and we contribute in different
ways to 12 out of the 17 goals.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Why have we aligned ourselves to the
Sustainable development goals?
• It’s the right thing to do, both for our
clients and our colleagues;
• It means our work in the community will
have a greater impact; and
• We are a part of a network of companies
working together to do better and share
best practice.
Find out more about how we align to the UN
sustainability development goals on the
CSR section of the HL website.
Greenhouse gas emissions
Since 1 October 2013, the Companies Act
2006 (Strategic Report and Directors’
Report) Regulations 2013 has required all UK
quoted companies to report on their
greenhouse gas emissions as part of their
annual Directors’ Report. We have reported
on all of the emission sources required
under the Companies Act 2006 (Strategic
Report and Directors’ Report) Regulations
2013. We also support the Carbon
Disclosure project by reporting our
CO2 emissions.
We do not have responsibility for any
emission sources that are not included in
our consolidated statement. Our emissions
are calculated in line with the Greenhouse
Gas Protocol using the 2018 emission
factors provided by DEFRA. The Group’s
Scope 1 and 2 emissions for the year to 30
June 2020 are set out in the table below (as
per 2019 ARA). Scope 1 emissions relate to
the Group’s fugitive emissions from the
combustion of fuel and operating activities
and Scope 2 emissions relate to the Group’s
electricity usage. The table also shows the
Group’s energy usage arising from the gas
and electricity purchased for and used in
operating its premises.
In order to provide an intensity ratio for our
emissions disclosure, we have calculated our
greenhouse emissions per employee.
The Directors believe that the number of
employees is the best indicator for a Group
of this size and nature for the purposes of
this disclosure. The number of employees
used is the average number of full-time
equivalent employees over the
measurement period. For the year ending 30
June 2020 our emissions per employee
decreased by 10%.
Tax strategy
Integrity and good conduct are central to
our culture and this means we aim to comply
with both the spirit and the letter of the law
and are committed to conducting our tax
affairs in a clear, fair and transparent way.
Taxes provide public revenues for
government to meet economic and social
objectives. Paying and collecting taxes is an
important part of our role as a business
responsibly operating within and
contributing to society.
We aim to comply with all our tax filing, tax
reporting and tax payment obligations.
We seek to maintain an open, honest and
positive working relationship with tax
authorities and we do not undertake
aggressive tax planning. Our corporation tax
and employer’s National Insurance paid in
respect of the year ended 30 June 2020 was
£99.5 million (2019: £59.5 million). In addition,
we pay other taxes such as VAT, stamp duty
and business rates.
Our full tax strategy is available at
www.hl.co.uk/about-us/taxstrategy.
COVID-19 response
This year, on a previously unprecedented
scale, the world has had to deal with the
issues from the COVID-19 crisis. Like so
many others we have felt the need and a
real desire from within the business to help
where we can. Our response to the crisis
has focused on three areas: our colleagues,
our clients, and our community.
Emissions from:
Scope 1 – Combustion of fuel
and operation of facilities
Scope 2 – Purchased energy
for own use
Tonnes of CO2e per average
full-time equivalent employee
Energy used (MWh)
Tonnes of CO2e
Current
reporting
year
2019-2020
Comparison
year
2018-2019
1001.7
992.1
827.7
1.14
4,985
1,009.6
1.27
4,948
Change
+1%
-18%
-10%
+1%
Our colleagues
Our colleagues provide essential services
to over 1.4 million clients. We look after their
investments, pensions, and savings. At times
like these, clients need our support to be able
to access our service, to move money in and
out of their account, and to manage the
investments they hold with us. In line with
government guidance, we’ve had to make
some big changes to the way we deliver those
services. A working from home initiative has
been rolled out, allowing us to best protect
the health of our colleagues and their families.
We’ve also introduced a number of other
initiatives to support our colleagues in looking
after their families’ physical, mental, financial,
and social well-being.
HL has not sought any government
assistance, nor have we furloughed any
employees or enacted any redundancy
programmes. Such schemes and government
assistance we believe should be reserved for
those businesses in genuine need.
We believe that continuing to provide our
colleagues with a stable job and secure
source of income is one of the best ways
that we can help them and their families at
this difficult time and in turn that will help in
delivering a continued excellent service for
our clients.
Our clients
Whilst we’ve had to adapt to a new way
of working, some things haven’t changed.
The security of our service and protecting
our clients’ assets and data is our top priority.
We have the right people, technology, and
control framework in place to ensure that this
continues in spite of the shift to our new
configuration of working. Actions include:
• Made managing accounts online easier,
by improving how clients add/withdraw
money from their accounts;
• Produced more research updates to
support investors, including an in-depth
analysis of each major investment sector
and our experts’ research and guidance
on what to do during periods of market
volatility;
• Updated our guidance and emailed all
clients to make them aware of the
heightened risk of scams;
• Posted our most helpful reads to clients
that don’t have online access;
• Increased the number of people on our
phone lines for those that can’t self-serve
online and need to speak to us; and
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
49
Strategic reportGovernanceFinancial statementsOther information CORPORATE SOCIAL RESPONSIBILITY
BUILDING A LIFELONG SUSTAINABLE AND RESPONSIBLE BUSINESS
• Prioritised our services in line with what’s
most important to our clients.
Our community
Whilst the business has focused on
providing the help and support our clients
and colleagues need through this period of
extended uncertainty, our charitable arm,
The Hargreaves Lansdown Charitable
Foundation, has also stepped up its support
through the crisis.
This has included maintaining our support
for our existing partner charity, Help
Bristol’s Homeless, whilst also setting up a
COVID-19 relief appeal to support our local
NHS charities.
What have we done so far?
• Re-directed the office fruit delivery to
Feed Bristol’s Homeless, via the Bristol
Sport Foundation, to support their
community efforts;
• Made a donation to the NHS Nightingale
Hospital Bristol, to help build a canteen
and rest area for staff;
• Made a donation to FareShare to ensure
vulnerable people still have access to
food and that children continue to receive
their free school meals; and
• Offered volunteering and funding
support for Bristol Learning City’s
‘Doorstep Library’ initiative which
provides books, pens and paper to
disadvantaged families.
Our colleagues have supported these
initiatives through various fundraising
activities, donating via JustGiving, and
through Payroll Giving. To boost our
colleagues’ fundraising efforts, HL has
committed to double match donations
colleagues make directly from their salary.
This has been popular and is a testament to
the HL culture.
Money raised will be split between Above
and Beyond, the charity behind Bristol’s City
hospitals, and Southmead Hospital, which
has one of the busiest ICUs in the country.
We have also seconded five HL colleagues
to the Local Enterprise Partnership to aid in
the Regional Recovery Taskforce. The
purpose of the West of England Regional
Recovery Taskforce is to support the
recovery of the communities, businesses
and public services of the West of England
following COVID-19 by addressing adverse
impacts and to drive economic recovery
that reflects our priorities of clean and
inclusive growth.
Sustainable development goals
At times like these,
clients need our
support to be able
to access our
service, to move
money in and out of
their account, and
to manage the
investments they
hold with us.
1.4M
Our colleagues provide
essential services to over
1.4 million clients.
50
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Governance
Financial statements
Other information
PUTTING
CLIENTS
FIRST
Client focus
We wanted to better understand
how people find investments
and make investment decisions.
We turned to our clients and
listened to over 8,000 through
focus groups, surveys, and
telephone interviews.
Clients were unsure how
certain funds made it onto our
fund list. So we improved the
transparency of our research
and fund selection process.
Clients wanted to ensure
their portfolios were diverse,
so we have offered additional
guidance on how a fund can fit
into a portfolio.
Clients told us they wanted a
wider range of ethical funds, so
we broadened our range and
introduced more passive and
ESG options.
Clients expressed that charges
were a key part of their search
criteria, so we have made it easy
to compare a fund’s charges
against its peers.
The Wealth Shortlist and
Fund Finder tools have been
developed through listening to
our clients. We put the clients
first, we do it better, and we
make it easy.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
51
Strategic report
NON-FINANCIAL INFORMATION STATEMENT
A WIDE RANGE OF
STAKEHOLDERS
As a FTSE 100-listed business, we have an important responsibility to contribute to the communities around us and the wider economy.
We focus on driving high levels of corporate responsibility, governance and sustainability and look to engage with a wide range of
stakeholders in order to help create value for all. This section of the Strategic Report constitutes the Group’s Non-Financial Information
Statement for the purposes of sections 414CA and 414CB of the Companies Act 2006. The information listed is incorporated by reference.
Reporting requirement Policies and standards which govern our approach
Environmental
matters
Employees
Social
Respect for
human rights
Anti-corruption
and anti-bribery
Our report on Corporate Social Responsibility sets out our approach and policy
in respect of the environment, sustainability and climate change and provides
examples of the action we are taking to promote energy efficiency and reduce
waste. It also provides details of our energy consumption and greenhouse gas
emissions.
Our people strategy aims to motivate and inspire colleagues to reach their full
potential and our people policies are in place to attract and promote an inclusive,
diverse and healthy workforce.
Our report on Corporate Social Responsibility sets out our approach and the
policies that support it. This includes how we aim to attract and retain
outstanding people, our commitment to personal development of colleagues
to expand our talent pipeline, and how we engage with colleagues and support
their wellbeing.
We are committed to building a diverse workforce at all levels and creating an
inclusive culture for all. Our report on Corporate Social Responsibility sets out
how we are doing this, and further information on our policies to promote
diversity and inclusion can be found in the Nomination Committee Report.
Our report on Corporate Social Responsibility provides details of our approach
to supporting our community. There you can read more on our approach and
the policies, schemes and initiatives that support it. You can also find
information on how our tax strategy supports our role as a business responsibly
operating in and contributing to society.
We are committed to supporting the rights of individuals and our people policies
promote and support the protection of the rights of our colleagues. We have a
zero tolerance approach to slavery and human trafficking of any kind within our
business operations and supply chain. You can read more on our approach and the
policies in place to support it in our report on Corporate Social Responsibility.
We have a full suite of policies and procedures in place to guard against financial
crime, including bribery and corruption, money laundering and terrorist financing,
market abuse and fraud. You can read more about our approach and the policies in
place to support it in our report on Corporate Social Responsibility.
Where you can find out more
The environment,
sustainability and climate
change and Greenhouse gas
emissions pages 47 to 49.
Employees and COVID-19
Response pages 41 to 45
and 49.
Nomination Committee
Report page 101.
Community, Tax Strategy and
COVID-19 Response pages 46
and 49 to 50.
Employees and Human Rights
pages 41 to 45.
Anti-bribery and corruption
page 45.
Additional information
Description of principal risks and impact of
business activity
Description of the business model
Non-financial key performance indicators
Principal risks and uncertainties, conduct risk (client outcomes) and
operational risk (financial crime)
Business model
Strategy and KPIs
Page
25 to 29
4 to 5
18 to 20
The Strategic report was approved by the Board of Directors and signed on its behalf by:
Chris Hill
Chief Executive Officer
52
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Strategic report
Governance
Financial statements
Other information
GOVERNANCE
Chair’s Introduction
Board of Directors
Corporate Governance Report
Audit Committee Report
Directors’ Remuneration Report
Nomination Committee Report
Risk Committee Report
Directors’ Report
Section 172 Statement
Statement of Directors’ Responsibilities
54
56
59
67
73
99
105
109
113
116
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
53
CHAIR’S INTRODUCTION TO CORPORATE GOVERNANCE
RETAINING FOCUS
ON OUR VALUES
We are committed to delivering
strong corporate governance and
creating sustainable value for our
stakeholders.
Deanna Oppenheimer
Chair
As at the date of this report, the Board’s Nomination Committee
is in the advanced stages of recruiting up to two additional
independent Non-Executive Directors, with the aim of building
resilience into and aligning the Board’s skillset to the future
strategic needs of the Group’s business. The recommendations
of the Hampton-Alexander and Parker reviews are being closely
considered as part of the recruitment process, and we hope to
be in a position to announce the outcome early in the new financial
year. You can read more in the Nomination Committee Report
on pages 99 to 104.
As announced in August 2019, Jayne Styles stepped down
from the Board on 10 October 2019, having spent four years as
a Non-Executive Director of the Company. I would like to reiterate,
on behalf of the Board, our gratitude to Jayne for her dedication
and contribution to the Group during her tenure with us.
The Code lists service on the Board of more than nine years as being
a factor to take into account when assessing the independence of
Non-Executive Directors. Having first been appointed to the Board
in October 2011, Stephen Robertson has therefore decided that he
will not be seeking re-election at this year’s AGM. Stephen has made
an enormous contribution to the Group during his time with us,
bringing considerable client experience as well as good humour and
sharp insights to Board discussions. He leaves with our thanks and
best wishes for the future.
Fiona Clutterbuck has also decided to step down from the Board
and will not be seeking re-election at this year’s AGM. As Chair of
the Remuneration Committee, Fiona has made an invaluable
contribution in overseeing improvements in the process and
structure for remuneration at all levels throughout the organisation.
I would like to thank her for her hard work and dedication and wish
her well for the future.
I am pleased to introduce our Corporate Governance Report,
which sets out how the Group’s governance framework supports
and promotes its long-term success, and provides an overview of
the activities of the Board and its Committees during the period
under review.
This year is the first in which we have been required to apply and
report on the 2018 UK Corporate Governance Code (the Code).
We support the changes introduced by the new Code, in particular
the increased focus on our culture and strengthening the voice
and engagement of our people.
The output of our recent internal culture audit combined with
increased engagement with colleagues has identified opportunities
for future development as we continue our work on embedding our
core values and culture. You can read more about the evolution of
our culture on page 59 of the Corporate Governance Report and
on pages 38 to 51 of the Strategic Report.
Our Compliance Statement confirms our compliance with the
Code during the period under review. You can read more about
how we have applied its principles throughout our Corporate
Governance Report.
Board changes
The Board welcomed John Troiano as a new independent Non-
Executive Director during the period under review. John was
formally appointed on 1 January 2020 and brings significant
experience in investment and asset management having spent
38 years with Schroders, including roles in investment research and
analysis, as well as fund management and distribution. In addition
to his appointment to the Board, John was also appointed as a
member of the Board’s Risk Committee, and as an independent
Non-Executive director of Hargreaves Lansdown Fund Managers
Ltd, a principal operating subsidiary of the Group that manages
the HL Multi-Manager and Select fund ranges. We are delighted to
have John working with us. The expertise he brings to each of his
appointments reflects the Group’s ongoing focus on ensuring
strong governance and he has already made valuable contributions
to the development of the Group’s approach to investment
oversight and strategy.
54
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
COMPLIANCE STATEMENT
A revised version of the UK Corporate Governance Code (the
Code) was published by the FRC in July 2018, and has been
applied by the Company for the first time during the period
under review. The Code sets out the standards of good
practice in relation to how the Company should be governed,
and can be found on the FRC’s website at www.frc.org.uk.
The Board is satisfied that the Company has complied in
full with the provisions of the Code throughout the period
under review.
The Corporate Governance Report provides details of the
Company’s corporate governance framework and how it has
applied the principles set out in the Code.
Stakeholder engagement
We continue to recognise the importance of engaging with and
considering the interests of our stakeholders in promoting the
Group’s long-term success.
In the period under review we have continued to engage
with and listen to our colleagues through a series of initiatives
including our workforce advisory panel, the HL Colleague
Forum, regular colleague surveys and a coordinated internal
communications programme.
You can read more about how the Directors have had regard to the
interests of our colleagues and our other key stakeholders within
the context of promoting the success of the Company in our
Section 172 Statement on pages 113 to 115.
Deanna Oppenheimer
Chair
6 August 2020
Diversity
It is widely accepted that greater diversity within a business drives
better business performance and we strongly believe that building
a diverse and inclusive workforce is good for the Group’s clients,
its business and its people.
You can read more about our approach to building diversity and
inclusion across our workforce and the initiatives that support it
on pages 41 to 43 of the Strategic Report.
The Group’s diversity policy for Board appointments supports
the recommendations of the Hampton-Alexander Review for 33%
female representation on the Board by the end of 2020, and of the
Parker Review for at least one Director from an ethnic minority
background by the end of 2021. You can read more about the policy
and the importance we place on diversity in the recruitment of
Non-Executive Directors on page 102 of the Nomination
Committee Report.
In relation to gender diversity, 33% of our Board are currently women.
Governance framework
Following an in-depth review of the Group’s governance framework
last year, the Group has implemented a number of improvements
to better define responsibilities, improve executive challenge and
oversight, and ensure that decisions and oversight take place at
an appropriate level.
During the period under review, this has included:
• An increased emphasis on the roles of the boards of the
Group’s principal operating subsidiaries and the framework
that supports them;
• The reassignment of the responsibilities of the old Board
Investment Committee to the boards of the Group’s regulated
operating subsidiaries to promote the focused oversight
of investment decision making within their respective
businesses; and
• The establishment of a Conflicts Committee to provide
focused oversight of improvements to the Group’s framework
for identifying and managing conflicts of interest.
In response to the COVID-19 pandemic, the Board has also
supported the establishment of a dedicated Crisis Management
Committee with delegated responsibility to ensure action can
be taken quickly and effectively in response to the operational
challenges posed. The Board also supported consequential
changes to the operation of governance forums elsewhere in
the Group’s framework to promote efficiency and flexibility whilst
ensuring continued adherence to good governance practices.
Senior Managers & Certification Regime (SMCR)
We support the objectives of SMCR to clarify senior manager
responsibility and accountability and improve the culture across
the financial services industry.
The changes to our governance framework have been made in
conjunction with, and complement, the implementation of SMCR
in our principal operating subsidiaries. The focus of the regime in
driving better conduct aligns with our continued work on culture and
embedding our values throughout our business. You can read more
on page 62 of the Corporate Governance Report.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
55
Financial statementsOther informationGovernanceStrategic report BOARD OF DIRECTORS
Chair
Executive Directors
Deanna Oppenheimer
Chair and Non-Executive
Director
Appointed to the board
February 2018
Skills and experience
Deanna has extensive board level
governance and leadership experience in
both public and private financial services
business having worked in the industry for
over 35 years at executive and non-executive
level. Her rich executive experience includes,
amongst other things, the transformation of
the retail banking division at Barclays. She
has also served as a Non-Executive Director
at AXA Group, Worldpay, NCR Corporation
and Tesco Bank. Deanna is founder of
CameoWorks, a consumer focused boutique
advisory firm which works with fintech
businesses and other technology disrupters.
Deanna is a member of the 30% Club.
Committee membership
Nomination Committee (Chair)
Remuneration Committee
Chris Hill
Chief Executive Officer
Philip Johnson
Chief Financial Officer
Appointed to the board
February 2016 (Chief Financial Officer from
February 2016 to September 2016, Deputy
Chief Executive Officer from October 2016
to April 2017 and Chief Executive Officer
since April 2017)
Skills and experience
Chris has considerable strategic, leadership
and operational skills and experience from
a number of business sectors. He has
extensive finance and accounting
experience having joined the Group initially
as Chief Financial Officer and then moving
in quick succession to the position of Chief
Executive Officer. Prior to joining Hargreaves
Lansdown he was Chief Financial Officer at
IG Group Holdings plc and prior to that Chief
Financial Officer at Travelex. Chris qualified
as a chartered accountant at Arthur
Andersen and is an associate member
of the Association of Corporate Treasurers.
He is a member of the 30% Club.
Appointed to the board
April 2017
Skills and experience
Philip is an experienced financial services
Chief Financial Officer. He has a wealth of
experience in capital management, risk and
controls and has a good track record in
strategic operational execution. Philip was
previously Chief Financial Officer of Jupiter
Fund Management plc for seven years and
prior to that Group Finance Director of M&G
Limited for over five years. Philip qualified
as a chartered accountant with Coopers
and Lybrand.
Committee membership
None
Other current appointments
None
Other current appointments
Senior Independent Director of Tesco plc
Committee membership
None
Non-Executive Director of Whitbread plc
Other current appointments
Member of the FCA Practitioner Panel
56
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Senior Independent
Director
Non-Executive Directors
Shirley Garrood
Senior Independent
Director
Fiona Clutterbuck
Independent
Non-Executive Director
Dan Olley
Independent
Non-Executive Director
Appointed to the board
October 2013
Appointed to the board
September 2017
Appointed to the board
June 2019
Skills and experience
Shirley has extensive and relevant
Executive and Non-Executive financial
services experience. A chartered
accountant, she served as Chief Financial
Officer and Chief Operating Officer at
Henderson Group plc and as an Executive
Director at Morley Fund Management
(Aviva). She also has broad experience
as a Non-Executive Director, chairing
committees of esure Group plc and the
Peabody Trust, a G15 housing association.
Committee membership
Risk Committee (Chair)
Nomination Committee
Remuneration Committee
Other current appointments
Non-Executive Director and Chair of the
Audit and Risk Committee of the BBC Board
Independent Non-Executive Member
of the Deloitte UK Oversight Board,
with responsibility for external audit only
Skills and experience
Fiona is a qualified barrister with extensive
corporate finance experience. During her
career, Fiona has held the positions of Head
of Strategy and Corporate Development
at Phoenix Group, Managing Director and
Head of Financial Institutions Advisory at
ABN AMRO Investment Bank, Managing
Director and Global Co-Head of Financial
Institutions Group at HSBC Investment
Bank and was a Director at Hill Samuel Bank
Limited. She was also a Non-Executive
Director at W.S. Atkins until its acquisition
in July 2017.
Committee membership
Remuneration Committee (Chair)
Audit Committee
Risk Committee
Nomination Committee
Other current appointments
Non-Executive Chair of the Board and
Nomination Committee of Paragon Banking
Group plc
Non-Executive Director of Sampo plc
Skills and experience
Dan is a seasoned senior technology
leader with a track record of driving digital
transformations in established businesses,
including financial services, insurance,
business information solutions, research
and healthcare. He has a strong digital
technology background and brings a
problem solving and analytical skillset,
along with experience of successfully
implementing advanced technologies to
drive both revenue growth and operational
process efficiency and optimisation.
Committee membership
Risk Committee
Remuneration Committee
Other current appointments
Executive Vice President and CTO at
Elsevier, a division of RELX, the FTSE 100
information-based analytics company
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57
Financial statementsOther informationGovernanceStrategic report BOARD OF DIRECTORS
Non-Executive Directors
Roger Perkin
Independent
Non-Executive Director
Stephen Robertson
Independent
Non-Executive Director
John Troiano
Independent
Non-Executive Director
Appointed to the board
September 2017
Appointed to the board
October 2011
Appointed to the board
January 2020
Skills and experience
Stephen has broad marketing and digital
skills and experience derived from a career
in the retail sector, serving 15 years on the
boards of major UK retailers and then as
Director General of the British Retail
Consortium. Stephen has a keen interest
in the client experience and has well-honed
people skills.
Committee membership
Audit Committee
Risk Committee
Remuneration Committee
Other current appointments
Non-Executive Director of
Timpson Group plc
Chair of Bristol Energy Ltd
Skills and experience
John has significant investment and asset
management experience. John has spent
38 years at Schroders in a wide range of
roles including investment research and
analysis, fund management, and has worked
across both retail and institutional channels.
Most recently, as Head of Distribution, he
was responsible for the design and
implementation of business strategy
globally and the oversight of sales and
client service activities.
Committee membership
Risk Committee
Other current appointments
Independent Non-Executive Director of
Hargreaves Lansdown Fund Managers Ltd,
the Group’s fund management arm
Skills and experience
Roger is a qualified accountant with recent
and relevant financial experience and
competence in accounting and audit, as well
as extensive financial services experience.
He is a former partner of Ernst & Young,
and has previously been a Non-Executive
Director at Evolution Group plc, Friends Life
Ltd, Nationwide Building Society and Electra
Private Equity plc. Roger has served on
a number of different boards and their
committees, including chairing the Audit
Committee at Evolution Group plc and
Nationwide Building Society, where he also
served as the Senior Independent Director.
Committee membership
Audit Committee (Chair)
Risk Committee
Nomination Committee
Other current appointments
Non-Executive Director and Chair of
the Audit Committee at TP ICAP plc
Non-Executive Director and Chair of the
Audit Committee at AIB Group (UK) plc
58
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
CORPORATE GOVERNANCE REPORT
PROMOTING THE SUSTAINABLE
SUCCESS OF THE GROUP
The Board is responsible for promoting the sustainable success of
the Group, generating value for the Company’s shareholders over
the long-term, and contributing to wider society by building strong
and lasting relationships with its other stakeholders.
Board Leadership and Company Purpose
The Board sets the Group’s purpose, values and strategy, and
is responsible for developing and overseeing its framework of
governance, risk management and internal controls to ensure
that its business is managed effectively in an environment that
promotes and safeguards its future success.
You can read more about the Board’s role in setting and monitoring
the Group’s strategic priorities on page 62 of this report and in
the Group’s Section 172 Statement on pages 113 to 115. You
can read more about how the Board has considered the Group’s
opportunities and risks, the sustainability of its business model,
and how governance around the Group’s risk management
framework contributes to the delivery of its strategic objectives,
on pages 22 to 29 of the Strategic Report.
The Board also plays a key role in setting the Group’s culture and
monitoring how it is being embedded to ensure alignment with
the Group’s business priorities. During the period under review the
Board approved an action plan to capitalise on the opportunities to
develop the Group’s culture identified following an internal culture
audit and feedback from colleagues. Key initiatives include the
development of a code of conduct setting out behavioural
expectations for colleagues that align to the SMCR conduct
rules, more accessible and effective communication of the
Group’s strategy and vision to create a clearer sense of purpose
and common goals, improvements to the KPIs used to oversee
culture and leadership capabilities, and reviewing and updating
colleague development programmes and performance
management frameworks.
The recent implementation of SMCR and improvements to the
Group’s governance framework also contribute to developing the
Group’s culture by promoting greater clarity on responsibilities
and accountability and better decision making processes within
the organisation.
You can read more about the Group’s values and how the Group’s
approach to investing in and rewarding its workforce aligns to those
values on pages 38 to 51 of the Strategic Report.
Engagement with stakeholders
The Board recognises that active engagement with the
Company’s key stakeholders is fundamental to promoting
the Group’s long-term success.
Details of how the Group engages with its key stakeholders can be
found on pages 30 to 31 of the Strategic Report, and information
on how stakeholder interests have been considered in Board
discussions and decision making can be found in the Group’s
Section 172 Statement on pages 113 to 115.
Investor relations
The Board recognises the importance of maintaining good
communication with the Company’s shareholders and there
is a comprehensive investor relations programme in place to
ensure effective engagement.
The Chief Executive Officer, Chief Financial Officer and Head
of Investor Relations regularly meet with the Company’s major
shareholders to discuss performance and strategy. This includes
a series of investor roadshows following the release of the Group’s
interim and full year results, and meetings throughout the year with
existing and prospective investors both one-on-one and in groups
at investor conferences.
The Chair meets with the Company’s major shareholders
throughout the year to discuss governance matters and the
Senior Independent Director, Head of Investor Relations and Group
Company Secretary are also available to major shareholders who
wish to raise questions, queries or concerns. The Committee Chairs
are available to meet with shareholders to discuss matters relevant
to their roles.
The outcome of interactions with the Company’s shareholders are
regularly fed back to the Board to ensure that, as a whole, it has a
clear understanding of shareholder views. To provide further
perspective, analyst and broker briefings are regularly provided to
the Board. This includes insights into investor sentiment following
the release of the Group’s interim and final results.
The Group has a programme of communication to the Company’s
wider shareholder base and the market centred around its financial
reporting calendar. The Investor Relations pages of the Group’s
website at www.hl.co.uk/investor-relations contain a variety
of online content for shareholders, including presentations, key
financial data and other shareholder news and business insights.
The Board also considers the Report and Financial Statements to
be an important medium for communicating with the Company’s
shareholders. The Board aims to use the narrative sections to
provide detailed reviews of the Group’s business and its future
development in an engaging way that is accessible to all. Similarly,
the Company’s AGM is usually used as an opportunity to engage
directly with shareholders and share with them the Board’s review
of performance and its vision for the future. Given the challenges
posed by the ongoing COVID-19 pandemic and the restrictions
on public gatherings, as at the date of this report the Board is
considering all options as to what format this year’s AGM will take.
Further details will be set out in the Notice of AGM that will be
circulated ahead of the meeting.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
59
Financial statementsOther informationGovernanceStrategic report CORPORATE GOVERNANCE REPORT
Withdrawal of resolution at AGM
Following engagement with a significant shareholder leading up
to last year’s AGM, the Board took the decision to withdraw the
proposed resolution to obtain precautionary approval from
shareholders to make political donations and incur political
expenditure, within defined minimal limits, should any such
expenditure (as defined by the Companies Act 2006) be made in
the normal course of business. At the time, the Board noted that
seeking this approval is standard for FTSE 100 companies, and there
was and remains no intention for the Company to make any political
donations or incur political expenditure.
However, the Board recognises that the withdrawal of a resolution
is rare and has continued to consider the position and engage
with shareholders on this matter as part of wider conversations
around governance.
Colleagues
The Board believes that the Group’s people are key to its long-term
success. It ensures that the Group’s people policies and practices
promote its values to support that success. Further information
on the Group’s people strategy and the policies and procedures
in place to achieve its aims, including the Group’s approach
to investing in and rewarding its workforce, can be found on
pages 41 to 45 of the Strategic Report.
The Board also recognises the importance of engaging with the
Group’s workforce for the long-term success of the business.
The HL Colleague Forum was set up in January 2019 as a formal
workforce advisory panel to create a direct link between colleagues
and the Board on matters of strategic importance. You can read
more on pages 75 and 87.
Further insight is obtained on colleague views through the Group’s
annual colleague survey, and half yearly pulse surveys. In response
to the challenges of the COVID-19 pandemic, the views of
colleagues have been sought on a more regular basis via additional
pulse surveys, in order to ensure the Board and senior management
are aware of the challenges colleagues are facing and how working
practices can be improved.
Further information on how the Group engages with and considers
the views of colleagues can be found on pages 31 and 44 to 45
of the Strategic Report and in the Section 172 Statement on
pages 113 to 115.
The Board believes in creating a culture of openness and colleagues
are encouraged to share their views, ideas and work experiences.
Similarly, colleagues are encouraged to raise any concerns in
confidence, and the Group has a formal policy on whistleblowing
to ensure colleagues who do speak out are protected. Further
information can be found on page 71 of the Audit Committee Report.
Conflicts of interest
The Board takes action to identify and manage any conflicts of
interest that arise to ensure that the interests of the Company’s
shareholders as a whole are protected.
All Directors have a duty to avoid situations that may give rise to
conflicts of interest. Directors are responsible for notifying the
Chair and the Group Company Secretary as soon as they become
aware of any actual or potential conflict. The Company’s Articles
of Association permit the Board to consider and authorise any
situations where a Director has an actual or potential conflict,
and a formal procedure is in place for considering, recording and, if
appropriate, authorising conflict situations. Conflicts of interest are
included as a standing agenda item at each Board and Committee
meeting, and in determining whether to authorise an actual or
potential conflict, the Board will take into account the specific
circumstances and whether to impose conditions on the Director
in the interests of the Company.
Governance framework
The Board operates within a formal schedule of matters reserved,
with certain responsibilities being delegated to its permanent
Committees. Details of matters reserved for the Board can be
found on page 61. The detailed responsibilities of the Board’s
Nomination, Audit, Risk and Remuneration Committees, along with
an overview of how they have discharged those responsibilities in
the period under review, can be found in the Committee reports
on pages 67 to 108. The Chair of each of the Committees reports
to the Board at each meeting on its activities since the previous
meeting, and the Board keeps under review the terms of reference
of each to ensure it is continuing to operate effectively.
Responsibility for matters that are not specifically reserved to
the Board is delegated to the Chief Executive Officer. This
includes oversight of the Group’s performance, delivery against
the strategy approved by the Board, and the effective management
of day-to-day operations within the governance, risk and internal
control frameworks it has developed. The Chief Executive Officer
has established the Group Executive Committee to assist him in
discharging these responsibilities. During the period under review,
the Chief Executive Officer has also established the Conflicts
Committee to oversee improvements to the Group’s framework
for identifying, mitigating and protecting against conflicts of
interest, and to ensure appropriate measures are in place to
mitigate conflicts of interests between the Group’s principal
operating subsidiaries and between the Group and its clients.
Details of the roles and responsibilities of the participants in the
Company’s governance framework can be found on page 61.
The Group’s principal operating subsidiaries carry out its business
of providing regulated financial products and services. The boards
of the principal operating subsidiaries are predominantly comprised
of various members of the Group Executive Committee, with
independent Non-Executive directors also sitting on the board of
Hargreaves Lansdown Fund Managers Ltd in line with regulatory
requirements. Each board is responsible for ensuring that its
business is operated in accordance with relevant legal and
regulatory requirements, within the framework of the strategy,
culture and policies determined by the Board. The subsidiary boards
are assisted by committees constituted to assist in the day-to-day
management and oversight of their businesses, including a CASS
Committee to oversee the protection of client assets, and
investment committees to oversee investment decision making
and compliance with internal investment-related processes.
60
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Governance framework
Hargreaves Lansdown plc Board
Schedule of matters reserved:
• Approval of the Group’s strategic aims and objectives
• Setting the Group’s values and standards
• Approval of the Group’s purpose and ensuring that its
purpose, values and strategy are aligned with its culture
• Approval of annual operating and capital expenditure budgets
• Overseeing the Group’s operations and management
• Ensuring the maintenance of a sound system of internal
controls and risk management
• Approval of the Group’s annual report and accounts and
interim financial statements
• Approval of the Company’s dividend policy and payments
• Approval of major capital projects
• Approval of communications to the Company’s shareholders
• Ensuring adequate succession planning, agreeing Board
appointments and the appointment or removal of the
Company Secretary
• Reviewing performance in light of strategic aims and objectives
• Determining remuneration policy for Executive Directors
Audit
Committee
• Monitors the integrity
of the Group’s
financial reporting
• Monitors the adequacy
and effectiveness of the
Group’s internal controls
• Oversees the Group’s
relationship with its
external auditor and the
effectiveness of the
Internal Audit function
Nomination
Committee
• Monitors the
composition of the
Board to ensure it
remains appropriate
• Recommends
appointments to
the Board and
its Committees
• Conducts succession
planning for the Board
and senior management
• Oversees the annual
evaluation of the
Board’s effectiveness
Remuneration
Committee
• Oversees and keeps
under review the
remuneration policies
for Executive Directors,
Material Risk Takers and
colleagues generally
• Determines total
remuneration for
Executive Directors,
senior management and
Material Risk Takers, and
associated targets for
performance related pay
Risk
Committee
• Reviews and advises
the Board on changes
to the Group’s risk
appetite, risk profile
and future risk strategy
• Monitors the
effectiveness and
improvements being
made to the Group’s risk
management framework
• Oversees the delivery of
the Group’s ICAAP
Chief Executive Officer
Responsible for executive leadership of the Group in accordance with Board-approved strategic objectives
Group Executive Committee
Established by the Chief Executive Officer to help him discharge his duties
Product Governance
Committee
• Oversees product
governance
arrangements for
products and services
manufactured or
distributed by the Group
• Oversees the Group’s
client proposition
• Oversees the policy
for admitting financial
instruments to
the Group’s
investment platform
Executive Risk
Committee
• Oversees and advises
on the Group’s risk
profile and changes to it
by reference to the
principal risks
• Advises on the Group’s
current risk exposures,
future risk strategy and
operational resilience
• Oversees capital
adequacy activity under
the ICAAP regime
Reward Governance
Committee
• Oversees and reviews
proposals for and
changes to the Group’s
incentive schemes for
individuals below
director role level
• Reviews and oversees
the list of Material
Risk Takers
• Assists with the risk
adjustment process for
the Group’s variable
incentive schemes
Conflicts Committee
• Maintains and oversees
the Group’s policy and
framework for the
identification and
management of
conflicts of interest
within the Group
• Reviews subsisting
conflicts of interest
within the Group and
the sufficiency of
mitigating measures
• Determines appropriate
action where material
conflicts arise
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
61
Financial statementsOther informationGovernanceStrategic report CORPORATE GOVERNANCE REPORT
Senior Managers & Certification Regime (SMCR)
During the period under review, the Group’s principal
operating subsidiaries that are subject to the SMCR regime
took the action necessary to implement and meet their respective
regulatory obligations ahead of the regime coming into force on
9 December 2019.
Under the regime, Hargreaves Lansdown Asset Management
Limited is an ‘enhanced’ firm, with Hargreaves Lansdown Fund
Managers Ltd and Hargreaves Lansdown Advisory Services
Limited being ‘core’ firms.
As part of the implementation, the colleague population subject
to the regime was identified and reviewed. Those falling within
the senior managers regime were formally allocated prescribed
responsibilities, and their roles and responsibilities clearly
documented in statements of responsibility. A reasonable steps
framework has also been developed for all senior managers to
document the measures taken to manage their responsibilities
effectively. Colleagues within the scope of the certification regime
were identified, and assessments carried out to certify that they
are fit and proper to perform their roles.
The Group will continue to embed the regime within its culture
and governance framework, including the conduct rules that will
apply to the majority of remaining colleagues when they come
into force in the next financial year.
Board allocation of time and key Board activities
The Board devoted a significant amount of time during the period
under review to overseeing the Group’s business performance and
the action being taken in pursuit of its strategic objectives. This
has included regular updates from the Chief Executive Officer on
business performance and progress of strategic initiatives, deep
dives into areas of strategic importance, and the review and
approval of the Group’s annual operating plan.
The COVID-19 pandemic has naturally had a significant impact
on the Group’s operations in the latter part of the period under
review, and the Board has overseen and supported the action
taken by the Group’s Executive management in response to the
pandemic, as well as receiving updates on the resilience of the
business to continue to operate and service the Group’s clients
in extraordinary times.
The Board also received regular updates on the Group’s continued
response to the suspension of, and subsequent decision by Link
Asset Services to wind up, the LF Equity Income Fund (formerly
Woodford Equity Income Fund). The Group’s priority continues to
be ensuring that clients affected are supported and kept informed
of developments. In response to this event, the Board has overseen
and supported the review and implementation of improvements to
the governance framework around the Group’s investment-related
decision making, as well as improvements to policies and processes
in support of the launch of the Group’s updated fund best buy list,
the Wealth Shortlist, in June 2020.
The following chart illustrates the time spent by the Board on
matters within the categories stated.
62
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Overview of activities during the financial year
9%
Risk, incl COVID-19
and ICAAP
16%
Standard items
incl. updates from
Remuneration
and Nomination
Committees
19%
Finance, reporting
and audit
36%
Business
performance
and strategy
20%
Governance and regulatory
Other key matters considered by the Board during the period under
review include:
• Business performance, through regular updates from the
Chief Executive Officer;
• Progress against strategic initiatives, via the Chief Executive
Officer’s regular business priorities updates;
• Deep dives into the Group’s transformation programme,
marketing, employee engagement and culture, and cyber security;
• Financial performance and investor relations, via the Chief
Financial Officer’s regular updates;
• The Group’s liquidity and capital adequacy, and the approval
of its 2019 ICAAP;
• Approval of the Group’s three year operating plan;
• Continued embedding of, and improvements to, the Group’s risk
management framework and approval of its updated risk appetite
statement;
• Improvements to the Group’s system of internal controls;
• The Group’s implementation of the SMCR regime;
• Approval of updates to the Group’s key policies, including
conflicts of interest and Board diversity; and
• Progress of recommended actions from the annual evaluations
of Board performance, including further embedding best practice
and developing the resilience and expertise of the Board.
Division of responsibilities
The Board recognises the importance of a clear division of
responsibilities between Executive and Non-Executive roles, and in
particular a clear delineation of the Chair’s responsibility to run the
Board and the Chief Executive Officer’s responsibility for running
the Group’s business. The roles of Chair, Chief Executive Officer
and Senior Independent Director are clearly defined and have been
approved by the Board.
Role of the Chair
The Chair, Deanna Oppenheimer, is responsible for leading the
Board and ensuring that it is effective in discharging its duties.
Her key responsibilities are to:
• Chair the Board, the Nomination Committee and general
meetings of the Company;
• Set the Board agenda and ensure the Board receives accurate,
timely and clear information, and that adequate time is available
for discussion of all agenda items, in particular strategic issues;
• Set clear expectations concerning the Company’s culture, values
and behaviours and the style and tone of Board discussions;
• Demonstrate ethical leadership and promote the highest
standards of integrity, probity and corporate governance
throughout the Company and particularly at Board level,
and generally ensure the effective governance of the Group;
• Promote a culture of mutual respect, openness and debate by
facilitating the effective contribution of Non-Executive Directors,
develop productive working relationships with the Chief Executive
Officer and Chief Financial Officer, and ensure there are
constructive relations between Executive and Non-Executive
Directors generally;
• Encourage all Board members to engage in Board and
Committee meetings by drawing on their skills, experience,
knowledge and, where appropriate, independence;
• Ensure effective communication with the Company’s
shareholders and other stakeholders, and that the Board as a
whole is made aware of their views; and
• Ensure that the performance of the Board, its Committees and
individual Directors is evaluated at least once a year and that the
results of the evaluation are acted upon.
Role of Chief Executive Officer
The Board delegates responsibility for the executive leadership of
the Group’s business to its Chief Executive Officer, Chris Hill. His key
responsibilities are to:
• Lead the senior management team in the day-to-day running of
the Group’s business in accordance with the Board approved
strategic objectives;
• Chair the Group Executive Committee in its oversight of the
performance of the Group’s principal operating subsidiaries
against the Board approved strategic objectives and
communicate any decisions and recommendations to the Board;
• Review the operational performance and strategic direction of
the Group’s business;
• Ensure that appropriate systems of internal control and risk
management are in place and operating in accordance with the
Group’s risk appetite approved by the Board; and
• Together with the Chair, provide coherent leadership of the
Group and promote adherence to its culture and values.
Role of Senior Independent Director
The Senior Independent Director, Shirley Garrood, plays an important
role in supporting the Chair on governance issues, contributing to the
culture of open and honest communication between the Chair and
the other members of the Board, and providing an additional point of
contact for the Company’s shareholders.
The key responsibilities of the Senior Independent Director are to:
• Assist the Chair by being available to discuss and provide insight
and guidance on issues relating to the Group’s governance, the
performance of the Board and individual Directors, and on any
concerns raised by Directors, the Company’s shareholders or the
Group’s employees;
• Lead the NEDs in carrying out the Chair’s annual performance
review. This includes meeting with and obtaining appropriate
feedback from the NEDs without the Chair and Executive
Directors present, monitoring the Chair’s performance
throughout the year, and paying close attention to the
relationship between the Chair and Chief Executive Officer to
ensure it is well functioning;
• Lead the process for, and chair the Nomination Committee
when considering, the selection and appointment of a new Chair;
• Facilitate the resolution of disputes between the Chair and other
members of the Board; and
• Be available to address the concerns of the Company’s
shareholders in situations where the Chair, Chief Executive Officer
or Chief Financial Officer have failed to resolve those concerns, or
where contact with those individuals is inappropriate.
Non-Executive Directors
The role of the Non-Executive Directors is to constructively
challenge and help develop proposals on strategy, and play a leading
role in monitoring and scrutinising the performance of the Group’s
Executive management in meeting agreed goals and objectives.
The Non-Executive Directors are also responsible for determining
appropriate levels of remuneration for the Executive Directors, and
play a prime role in appointing and, where necessary, removing
Executive management.
The Non-Executive Directors are all independent of management
and bring valuable skills, experience and an external perspective to
the business conducted by the Board, as well as offering specialist
advice in their fields of expertise. The Non-Executive Directors also
play an important role as members of the Board’s Committees.
Group Company Secretary
All the Directors have access to the advice and services of the
Group Company Secretary. The Group Company Secretary is
responsible for working with the Chair to develop and maintain the
policies and processes, and for ensuring the Board has the
information, time and resources required, in order for it to function
effectively and efficiently.
The Group Company Secretary is also responsible for advising the
Board on corporate governance matters and for ensuring procedures
are followed and applicable rules and regulations complied with.
The appointment and removal of the Group Company Secretary is a
matter reserved for the Board.
Meetings, attendance and information provided to the Board
Director
Position
Deanna Oppenheimer Chair
Fiona Clutterbuck
Shirley Garrood
Chris Hill
Philip Johnson
Dan Olley
Roger Perkin
Stephen Robertson
Jayne Styles
John Troiano
Non-Exec Dir
Non-Exec Dir
Executive Dir
Executive Dir
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Eligible
meetings
Attended
meetings
••••••••• •••••••••
••••••••• •••••••••
••••••••• •••••••••
••••••••• •••••••••
••••••••• •••••••••
••••••••• •••••••••
••••••••• •••••••••
••••••••• •••••••••
•
•••••
•
•••••
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Financial statementsOther informationGovernanceStrategic report CORPORATE GOVERNANCE REPORT
The Board met nine times during the period under review. The
attendance of members of the Board are set out above. Supported
by the Group Company Secretary, the Board is satisfied that it has
the policies, processes, information, time and resources required in
order for it to function effectively and efficiently. Comprehensive
Board packs and agendas are circulated prior to meetings to ensure
Directors have the opportunity to consider the issues to be
discussed so that more time at meetings can be dedicated to
constructive challenge and strategic discussion. When a Director is
unable to attend all or part of a meeting, he or she is able provide
comments on the papers to the Chair before the meeting.
Outside of the scheduled Board cycles, the Board may meet to
discuss or otherwise consider and approve matters on an ad hoc
basis, such as appointments to the Board and other senior positions
within the Group, or other material and time critical matters. The
Non-Executive Directors also meet periodically without the
Executive Directors present. During the period under review this
has included sessions at the start of Board meetings, as well as
dinners and more latterly informal meetings by video conference.
The Board also met with members of the Group Executive
Committee and other senior management during the period
under review, including a formal dinner with the Group Executive
Committee and a dedicated ‘strategy day’ to consider in detail how
client outcomes should evolve given the Group’s strategy for growth.
Board independence and time commitments
The structure, size and composition of the Board is regularly reviewed
to ensure that the balance between Executive and Non-Executive
Directors allows it to exercise objectivity and that no individual or
small group of individuals dominates decision making. Each of the
Non-Executive Directors is considered to be of sufficient calibre
and experience to bring significant influence to decision making.
On her appointment as Chair, Deanna Oppenheimer satisfied
the independence criteria set out in the Code.
The Board considers that each of Fiona Clutterbuck, Shirley Garrood,
Dan Olley, Roger Perkin, Stephen Robertson and John Troiano are
independent, and that Jayne Styles was, until her resignation on 10
October 2019, independent, in each case when assessed against the
criteria set out in the Code. Throughout the period under review, the
Board has therefore satisfied the Code requirement that at least half
of the Board, excluding the Chair, comprises Non-Executive Directors
determined to be independent.
The Board considers that each of the Non-Executive Directors has
sufficient time to meet their responsibilities both to the Board and
any Committees of which they are a member. Board members are
required to disclose significant time commitments prior to their
appointment, and candidates’ existing time commitments are taken
into account by the Board when considering new appointments.
Directors are required to consult the Board prior to undertaking any
additional external appointments.
Composition, succession and evaluation
Board composition, balance and diversity
The Nomination Committee regularly reviews the size, structure
and composition of the Board and its Committees to ensure
an appropriate and diverse mix of skills, experience, knowledge,
backgrounds and personal strengths. The Non-Executive Directors
have strong and relevant experience across all aspects of financial
services and the Board as a whole is considered to have an
appropriate balance of skills and experience for the requirements
of the Group’s business.
The Board recognises the importance of diversity of thought,
gender, social and ethnic backgrounds. Promoting ethnic diversity
is a key priority for the Board for the next financial year as it works
towards meeting the recommendations of the Parker Review.
Diverse pools of candidates are considered for vacancies and in
succession planning, and any appointments are based on merit
and objective criteria. Further details on the Group’s approach to
diversity and inclusion when considering Board appointments and
succession planning, and how the approach promotes diversity of
gender, social and ethnic backgrounds, cognitive and personal
strengths, can be found in the Nomination Committee report
on pages 99 to 104.
Board composition
1
Chair
2
Executive
Directors
6
Non-Executive
Directors
Board diversity
Female
The independence and time commitments of the Non-Executive
Directors are kept under review by the Nomination Committee.
Details of its oversight of these matters can be found on pages 103
to 104. Neither of the Executive Directors currently holds any
significant external appointments.
Male
64
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Length of tenure
2
6-9 years
2
3-6 years
5
0-3 years
Consideration of the length of service of Directors is a key element
of the wider consideration of Board composition and succession
planning, and for Non-Executive Directors it is an important aspect
that is considered in determining continued independence. The
Group maintains clear records of the terms of service of the Chair
and Non-Executive Directors to ensure continued compliance with
the tenure requirements in the Code. The Chair has held the
position since her appointment to the Board in February 2018 and,
as at the date of this report, none of the Non-Executive Directors
has served on the Board for more than nine years from the date of
their first appointment.
Having first been appointed to the Board in October 2011, Stephen
Robertson will be standing down and will not seek re-election at the
2020 AGM.
Director election and re-election
In accordance with the requirements of the Code and the Company’s
Articles of Association, all Directors (other than Stephen Robertson
and Fiona Clutterbuck who have decided to step down) will stand for
election or re-election, as relevant, at this year’s AGM. Information on
how the Board evaluates the effectiveness and contribution of each
Director can be found in the Nomination Committee report on pages
99 to 104. The Notice of AGM will include specific details of why the
Board considers that the contribution of the Directors seeking
election or re-election is, and continues to be, important to the
Group’s long-term sustainable success.
Board appointment process
The Nomination Committee leads the process for Board
appointments, details of which can be found in the Nomination
Committee report on pages 99 to 104.
Non-Executive Directors are appointed for fixed terms of three years,
subject to election or re-election by the Company’s shareholders at
each AGM. At the end of each term, Non-Executive Directors may be
appointed for further three-year terms provided the Board is satisfied
with the individual’s performance and that he or she remains
independent and able to devote sufficient time to the role.
On joining the Board, Non-Executive Directors receive a formal letter
of appointment setting out the time commitment expected of them.
Once they have met all approval and induction requirements,
Non-Executive Directors are currently expected to commit a
minimum of 30 days per annum to their roles. This expectation is
calculated based on attendance at and preparing for Board meetings,
meeting with senior management and the Company’s shareholders,
and attending strategy days, Board dinners and training. Additional
time commitments may apply where a Non-Executive Director takes
on an additional role such as chairing a Committee.
Induction and professional development
The Chair is responsible, with the support of the Group Company
Secretary, for arranging a comprehensive induction programme for
all new Directors. Inductions are tailored to the individual following a
skills gap analysis, and have regard to their background, knowledge
and previous experience both professionally and as a director.
Induction programmes include meetings with a variety of key
stakeholders to provide the Director with a thorough overview of
the Group’s business and the environment within which it operates.
This includes meetings with the Chair, Chief Executive Officer,
Chief Financial Officer and other members of the Board, as well as
meetings with senior management, heads of business areas and
technical experts, to gain a detailed insight into the operation of the
business and its culture. The Group Company Secretary and Chief
Risk Officer will also meet with the Director to provide an overview
of the Group’s corporate governance and risk management
frameworks respectively.
An ongoing programme of training is available to all members of
the Board. During the period under review, this has included internal
online training and bespoke Board training on relevant topics such
as SMCR and updates on the wider market. The Board also carries
out periodic ‘deep dives’ into specific areas of the business in order
to broaden the Board’s understanding of the Group’s business and
the opportunities and challenges it faces. During the period under
review, the Board has carried out deep dive sessions on the Group’s
transformation programme, marketing, colleague engagement and
culture, and cyber security. Training is also arranged to align to any
specific development needs identified by the annual Board
evaluations, and individual Directors are encouraged to devote
an element of their time to self-development.
Board evaluation
A formal evaluation of the performance of the Board, its
Committees and the Directors is conducted annually, covering
topics such as composition, diversity and how effectively the
Directors work together to achieve objectives. Following the
externally facilitated evaluation in 2018, internal evaluations have
been carried out for 2019 and 2020. Further details of the process
undertaken and how the Chair has acted on the results can be
found in the Nomination Committee report on pages 99 to 104.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Financial statementsOther informationGovernanceStrategic report CORPORATE GOVERNANCE REPORT
Audit, risk and internal control
Audit
The Board is responsible for establishing the policies and
procedures that ensure the independence and effectiveness of
the Group’s Internal Audit function and the external auditor, and
for satisfying itself as to the integrity of the financial and narrative
statements in the Report and Financial Statements. The Board
delegates responsibility to its Audit Committee to oversee the
Group’s Internal Audit function and the Group’s relationship with
its external auditor. The Audit Committee is also responsible for
monitoring the integrity of the Group’s financial reporting and the
processes and controls that support it, and for advising the Board
as to whether the Report and Financial Statements provide a fair,
balanced and understandable assessment of the Company’s
position and prospects.
The main features of the Group’s internal control and risk
management systems that ensure the accuracy and integrity
of its financial reporting include:
• The utilisation of appropriately qualified and experienced
colleagues, and regular knowledge sharing within the team;
• The use of appropriate information security and access controls
around the key systems used in the Group’s financial reporting
processes;
• Appropriate segregation of duties to ensure that no individual
controls the end-to-end process;
• Promoting improvements to risk identification and management
through the appointment of risk champions;
• Detailed processes and controls around the reconciliation of
the Group’s office accounts, the recognition of revenue and
the Group’s tax balances, and payment processes; and
• A detailed process of reconciliation and review by management
of data extracted from the general ledger system for the
production of management accounts.
Further details can be found in the Audit Committee report on pages
67 to 72. Statements from the Board as to the adoption of the going
concern basis for preparing the financial statements and the Board’s
responsibility for preparing the Report and Financial Statements can
be found on page 112 of the Directors’ Report and the Statement of
Directors’ Responsibilities on page 116 respectively.
Risk management and internal controls
The Board is responsible for establishing procedures for risk
management and for monitoring the Group’s risk management
framework and system of internal controls. The Board is also
responsible for determining the nature and extent of the principal
risks the Group is willing to take in order to achieve its long-term
strategic objectives. Supported by the Risk Committee, the Board
carries out a robust assessment of the Group’s emerging and
principal risks when assessing the prospects of the Company over
the longer-term. The outcome of that assessment, along with a
description of the Group’s principal risks, the procedures in place to
identify emerging risks, and an explanation of how these risks are
managed or mitigated can be found on pages 22 to 29 of the
Strategic Report.
The Group’s risk management and internal control framework is
designed to manage rather than eliminate risk and follows the ‘three
lines of defence’ model. Risk management and the implementation
of controls is the responsibility of the operational teams which
constitute the first line. Oversight and guidance is provided by the
Group’s Risk and Compliance functions which constitute the
second line, and third line independent assurance is provided by the
Group’s Internal Audit function.
A description of the main features of the Group’s risk management
and internal control systems, which have been in place for the
period under review and up to the date of this report, can be found
on pages 22 to 29 of the Strategic Report.
The Board delegates responsibility for monitoring those systems to
its Audit and Risk Committees, and each carries out an annual
review of their effectiveness on the Board’s behalf. Together, this
review covers all material controls, including financial, operational
and compliance controls and risk management systems. Further
details can be found on page 71 of the Audit Committee Report and
pages 106 to 107 of the Risk Committee report. The crossover of
membership between the Audit Committee and Risk Committee
assists in the exchange of relevant issues and the facilitation of
associated discussions.
Following review by its Committees, the Board is satisfied that the
Group’s risk management and internal control systems are adequate
and have continued to improve throughout the period under review.
Remuneration
The Group’s remuneration policies and practices are designed to
support its strategic objectives and promote its long-term
sustainable success. A summary of how the Company has complied
with the remuneration requirements set out in the Code, along with
details of the Remuneration Committee’s activities during the period
under review, the levels of Directors’ remuneration and the proposed
new Directors’ Remuneration Policy, can be found on pages 73 to 98.
66
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
AUDIT COMMITTEE REPORT
ENSURING THE CONTINUED
INTEGRITY OF THE GROUP
Attendance at Committee meetings during
the year to 30 June 2020
Member
Roger Perkin
Fiona Clutterbuck
Stephen Robertson
Jayne Styles1
Position
Chair
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Meetings
eligible
•••••
•••••
•••••
•
Meetings
attended
•••••
•••••
•••••
•
1 Jayne Styles stepped down as a Director on 10 October 2019.
Focus on financial reporting and
effectiveness of the internal
control framework
Roger Perkin
Chair of the Audit Committee
Dear Shareholder
As Chair of the Audit Committee, I am pleased to present this report
on the Committee’s activities in the year under review.
It has been a period of significant uncertainty for the UK economy,
and although the results of the general election provided some
certainty on the UK’s departure from the EU on 31 January 2020, the
situation has been eclipsed by the unprecedented impact on the
global economy of the COVID-19 pandemic. The Committee’s
focus during this period has been on financial reporting and the
maintenance of the Group’s internal control framework to continue
to support good client outcomes and protect against client harm.
In carrying out its oversight of the Group’s financial reporting during
the year, the Committee has paid particular attention to the
changes to the accounting standards applicable to the Group
(notably the application of IFRS 5 to the sale of FundsLibrary Limited
and IFRS 16 to the Group’s leases) and the implementation of a new
Enterprise Resource Management system, as part of the continued
improvement of the Group’s internal controls associated with the
preparation of its financial statements.
The Committee has continued to oversee the effectiveness and
independence of the external auditor. This year’s audit is the last for
Alex Bertolotti, the Group’s lead audit partner. On behalf of the
Committee, I would like to thank Alex for all his hard work over the past
five years and welcome Darren Meek, who will be taking over from next
year’s audit. Darren can serve for a maximum of three years before we
are required to put the external audit mandate out to tender.
Elsewhere, the Committee has continued to oversee the
effectiveness and ongoing improvements being made to the
Group’s internal controls, particularly around the CASS assurance
framework, as well as overseeing and receiving assurance from the
Group’s Internal Audit function.
Given the challenges posed by the ongoing COVID-19 pandemic and
the restrictions on public gatherings, at the time of writing the Board
is considering all options as to what format this year’s AGM will take
and how shareholders might be given the opportunity to ask
questions relating to the Committee’s work. Further details will
be set out in the Notice of AGM.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Financial statementsOther informationGovernanceStrategic report AUDIT COMMITTEE REPORT
Role of the Audit Committee
The Committee assists the Board in ensuring that the interests
of the Company’s shareholders are protected in relation to the
Group’s financial reporting and internal controls. The Board
delegates responsibility to the Committee to monitor the integrity
of the Group’s financial reporting and the processes and controls
that support it. This includes reviewing and challenging the
appropriateness of accounting policies, significant issues and
judgements, and the assumptions in support of the Company’s
ability to continue as a going concern and its longer-term viability.
A key aspect of the Committee’s role in ensuring the integrity of
the financial reporting is its oversight of the Group’s relationship
with the external auditor. This includes making recommendations
to the Board in relation to the appointment of the external auditor,
approving its scope of work, fees and terms of engagement, as well
as regularly reviewing its independence, objectivity and effectiveness.
Ongoing training is provided to assist Committee members in
performing their duties. During the period, this has included a
briefing from the external auditor at the Committee’s June meeting
on developments in audit best practice, including an update on the
FRC’s consultation on the future of audit.
The Committee met five times in the period under review. The
attendance of members at each meeting is set out in the table
on page 67. Other individuals attend Committee meetings at the
request of the Committee Chair. This will usually include the Chair
of the Board, the Chief Financial Officer, the Head of Internal Audit
and the external auditor. The Committee has access to the Group
Company Secretary, who also acts as secretary to the Committee.
The Committee is authorised to obtain independent professional
advice where it considers it necessary.
Time spent on key areas of responsibility
More broadly, the Group’s internal control framework is an essential
part of ensuring the integrity of its financial reporting and other
business operations. The Committee oversees the effectiveness
of, and ongoing improvements to, the Group’s internal controls,
as well as having responsibility for monitoring and reviewing the
effectiveness of the Group’s Internal Audit function, which
provides assurance on those controls.
3%
Whistleblowing
16%
Internal Controls
The detailed responsibilities of the Committee are set out in its
terms of reference, which are available on the Group’s website
at www.hl.co.uk/about-us/board-of-directors.
17%
External audit
23%
Internal Audit
22%
Financial reporting
This report provides an overview of how the Committee has
discharged its responsibilities during the period under review.
Composition and meeting attendance
Roger Perkin (as Chair), Fiona Clutterbuck and Stephen Robertson,
each of whom is an independent Non-Executive Director, were
members of the Committee throughout the period under review.
Jayne Styles was a member of the Committee until her resignation
as a Non-Executive Director on 10 October 2019.
Committee appointments are made for three-year terms and can
be extended for no more than two additional three-year terms,
provided that the member remains independent. Committee
membership is regularly reviewed by the Committee Chair,
who makes suggestions for appointments to the Nomination
Committee, which may in turn recommend such appointments
to the Board for approval.
The Board has satisfied itself that the Committee as a whole
has an effective balance of skills and experience to perform its
responsibilities. Each of Roger Perkin and Fiona Clutterbuck have
significant experience of the asset management sector and the
wider financial services industry, and Stephen Robertson has
obtained a detailed understanding of the Group’s business during
his tenure as a Non-Executive Director of the Company. Roger
Perkin has recent and relevant financial experience and
competence in accounting and audit.
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19%
Governance and other
Financial statements
The Committee is responsible for monitoring the integrity of
the Group’s financial statements, including its interim and full
year results. Where practicable, and consistent with regulatory
requirements, it also reviews other statements requiring Board
approval which contain financial information.
In carrying out this role, the Committee reviews and challenges the
application of significant accounting policies across the Group that
feed into its financial statements, and the methods used to account
for significant or unusual transactions. Significant examples
considered by the Committee during the period include:
• The adoption of IFRS 16 (Leases), which has been applied for the
first time by the Company in its interim and full year financial
statements for the period under review; and
• The application of IFRS 5 (Non-current assets held for sale and
discontinued operations) in relation to the Company’s disposal
of its interest in FundsLibrary Limited on 29 February 2020.
In each case the Committee reviewed and challenged management
on the appropriateness of these accounting policies and how they
were applied to the Group’s financial statements.
The Committee also considers the accounting estimates and
judgements made, and any significant issues that have arisen, in
preparing the Group’s financial statements. It scrutinises the clarity
and completeness of related disclosures to ensure they are set
properly in context. In doing so, it pays due regard to any related
correspondence with the external auditor and any material
adjustments resulting from the external audit. In the period under
review, the Committee has concluded that there were no significant
issues requiring judgements to be made in relation to the financial
statements. In arriving at this conclusion, the Committee
considered the following:
• Revenue recognition. The Committee considered the veracity
of the Group’s revenue streams in the period, which continue to
be non-complex and primarily consist of high-volume, low value
transactions. The Committee receives assurance on revenue
calculations both internally through its oversight of the Group’s
CASS controls and from the external auditor’s approach to fully
recalculate the Group’s significant revenue streams and carry
out sample testing on the remainder. Following its review of the
Group’s 2019 Report and Financial Statements, the Committee
has overseen correspondence with the FRC’s Corporate
Reporting Review team around the Group’s policy on advisory
revenue recognition on client funds disclosures. The FRC’s helpful
recommendations on disclosures have been taken into account
in the preparation of the 2020 Report and Financial Statements.
At the FRC’s request, it should be noted that its review was based
solely on the published Report and Financial Statements and that
it accepts no liability for reliance on that review.
• Capitalisation of intangible assets. The Committee reviewed
and agreed the appropriate accounting treatment for capitalising
development costs associated with the Group’s Active Savings
proposition, improvements to the Group’s core IT systems, and
developments associated with improving its content
management system and robo-advice capability. As a connected
matter, the Committee also considered the results of the annual
test for impairment of the goodwill attributed to the acquisition of
shares in Hargreaves Lansdown Advisory Services Limited, which
again confirmed that no impairment was required. Full details of
the value of intangible assets capitalised and the policies applied
can be found in notes 2.1 and 2.2 to the consolidated financial
statements on pages 136 to 138.
• Tax. The Committee received reporting on and considered tax
matters impacting the Group, including FATCA reporting, the
implications of the outcome of the Upper Tier Tribunal’s decision
on the taxation of loyalty bonuses and correspondence with
HMRC around partial exemption special methods used for the
calculation of VAT.
• Brexit and COVID-19. The Committee continued to consider
the potential impact of Brexit on the Group’s performance and
financial reporting. Whilst the general election in December 2019
gave some certainty to the UK’s departure from the EU on
31 January 2020, this has been eclipsed by the unprecedented
impact of the COVID-19 pandemic on the global economy
since March. As a result, the Committee has spent additional
time with both the Group’s Finance and Internal Audit functions
to receive assurance on the quality of the Group’s financial
reporting and any issues and judgments made in connection
with its preparation.
Report and Financial Statements and interim results
In addition to considering significant accounting issues, policies
and judgements throughout the year, the Committee plays
an important role in the production of the Report and Financial
Statements and interim results. This includes reviewing and
challenging the assumptions and qualifications that support the
use of the going concern basis for the preparation of the financial
statements and the statement given by the Directors as to the
Company’s longer-term viability, which can be found on page 24.
The Committee also undertakes a wider review of the content
of the Report and Financial Statements to advise the Board as to
whether, taken as a whole, it is fair, balanced and understandable
and provides the information necessary for shareholders to
assess the Group’s performance, business model and strategy.
This supports the Board in providing the confirmations set out
on page 116.
In considering the wider content of the Report and Financial
Statements, the Committee pays particular attention to ensuring
the narrative sections provide context for, and are consistent with,
the financial statements, and that an appropriate balance is struck
between the articulation of successes, opportunities, challenges
and risks. In addition to considering its content, the Committee
also oversees the process for preparing the Report and Financial
Statements. In particular, the Committee has ensured that an
appropriate senior manager is accountable for the preparation of
each section, with overall responsibility for coordinating production
being assigned to the Chief Financial Officer.
External Audit
The Committee is responsible for overseeing the Group’s
relationship with its external auditor, PwC, which has been retained
since the Group’s last competitive tender process in 2013.
In addition to oversight of the audit process itself, the Committee
is responsible for monitoring the Group’s other interactions with
the external auditor to ensure that its independence and objectivity
are maintained.
External audit process
During the period, the Committee has overseen the end-to-end
audit process. At its January meeting, the Committee reviewed and
approved the external auditor’s engagement letter and the detailed
audit plan to ensure consistency of scope. In approving the
proposed audit fees, the Committee paid particular attention to
ensuring they were appropriate to enable an effective and high
quality audit.
The external auditor provided an update to the Committee at its
June meeting on progress of the audit, before submitting a formal
report in August following the completion of the audit process. The
Committee reviewed the findings with the external auditor, which
included a discussion of key audit and accounting matters including
significant judgements of which there were determined to be none,
and its views on its interactions with Executive management. The
Committee also reviewed and recommended to the Board that it
signs the representation letter requested by the external auditor in
respect of its audit of the financial statements.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Financial statementsOther informationGovernanceStrategic report AUDIT COMMITTEE REPORT
External auditor effectiveness and independence
The Committee is responsible for assessing the qualifications,
expertise and resources of the external auditor, and for reviewing
the effectiveness of the audit process. In discharging these
responsibilities, the Committee has considered information from a
variety of sources. It received a report from the external auditor on
its own internal quality control procedures, which included reference
to the outcome of the FRC’s 2018/19 AQR inspection report. The
views of the external auditor were also sought at the Committee’s
meetings, which included a session without Executive management
present to discuss its remit and any issues arising from the audit.
The views of Executive management and the Committee members
were also sought on the efficiency of the year end process and the
performance of the external auditor. It was noted that the external
auditor has demonstrated challenge and professional scepticism in
performing its role.
In addition to its effectiveness, the Committee is responsible for
monitoring and assessing the independence and objectivity of the
external auditor. In doing so, the Committee has considered the
FRC’s Revised Ethical Standard 2019, and paid particular attention to
the Group’s wider relationship with the external auditor through its
provision of non-audit services to the Group, to the rotation of the
senior audit partner, and to the external auditor’s tenure with the
Group, further information on which can be found below.
The Committee received a report from the external auditor
confirming that, in line with the FRC’s Revised Ethical Standard 2019
and having regard to the threats and safeguards to independence,
it had concluded that there were no matters that impaired or
restricted its objectivity as auditors to the Group.
Having considered the information and views presented to it, the
Committee has concluded that the external audit process was
effective, that it is satisfied with the performance of the external
auditor, and that there are policies and procedures in place
adequately to protect the independence and objectivity of the
external auditor. Accordingly, the Committee has recommended to
the Board that a resolution is put to the Company’s shareholders at
the upcoming AGM for the reappointment of the external auditor.
Non-audit fees
The Committee considers its oversight of the non-audit services
provided to the Group to be a key component of discharging its
responsibility for monitoring the independence and objectivity
of the external auditor. In addition to the report the Committee
received from the external auditor concerning the threats and
safeguards to its independence, the Committee received and
reviewed reports from the Group’s Finance function prior to
the publication of the Group’s interim and full year results on all
non-audit services provided to the Group by the external auditor
during the period under review.
The Committee has responsibility for developing and
recommending to the Board the Group’s policy on non-audit
services supplied by the external auditor. The policy is specifically
designed to ensure that the external auditor’s independence and
objectivity is maintained. It sets out a number of services which the
external auditor is prohibited from providing to the Group and, other
than services which are not prohibited, where the threat to auditor
independence is considered low and where the fee payable is clearly
trivial, the receipt of such services must be approved in advance by
the Committee.
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The policy also specifies, in line with the FRC’s Revised Ethical
Standard 2019 and the EU Audit Reform Directive, that the
maximum non-audit fees that the external auditor can receive from
the Group is 70% of the average of the audit fees incurred by the
Group over the previous three years. The full policy can be found
on the Group’s website at www.hl.co.uk/about-us/board-of-
directors/corporate-governance.
During the period under review, the Group incurred non-audit fees
with the external auditor amounting in aggregate to £222,330 (2019:
£216,854). Of this amount, £155,984 related to FCA-mandated
assurance reporting to the Group’s subsidiaries that are subject
to the CASS regime (2019: £150,383), £34,653 related to profit
verification work to enable the Company to pay dividends in line
with its established timetable (2019: £34,600) and £27,319 related
to the external auditor’s review of the Group’s interim results (2019:
£26,500). The profit verification work and the interim review are
non-audit services and they, along with the £5,464 relating to the
non-statutory audits of the Group’s employee benefit and SIP
trusts (2019: £5,305), are taken into account when determining the
ratio of non-audit to audit related fees. In each case, the rationale
for using PwC over alternative suppliers was the knowledge, skills
and experience they possess, and in particular their in-depth
understanding of the Group’s business.
Fees for the statutory audit for the period under review were
£218,320 (2019: £210, 700), which includes fees of £12,320 for the
non-UK statutory audit of HL Tech (2019: £10,700). For the purposes
of determining the ratio of non-audit to audit related fees, fees
relating to the audit of HL Tech are not taken into account. The ratio
of non-audit to audit related fees for the period under review was
therefore 31% (2019: 32%), which remains well within the limits set
out in the Group’s policy.
Tenure of the external auditor
The Company has complied throughout the period under review
with the provisions of The Statutory Audit Services for Large
Companies Market Investigation (Mandatory Use of Competitive
Tender Processes and Audit Committee Responsibilities) Order
2014, as regards the tenure of the Group’s external auditor and the
tender process for auditor appointments.
The Group appointed PwC as its external auditor following a tender
process in 2013. It will therefore be required to undertake a formal,
competitive tender process by 2023, being 10 years from the date of
PwC’s appointment. It is the Company’s current intention not to put
the external auditor appointment out to tender until it is required to
do so. It is considered that, taking account of the controls in place to
maintain the external auditor’s independence and objectivity, the
relationship the Group has developed with PwC is conducive to an
efficient and effective audit, and that it is therefore in the best
interests of the Company’s members as a whole to maintain that
relationship for the time being.
The lead audit partner for the period under review was Alex
Bertolotti, whose tenure came to an end following the conclusion of
the audit, this being his fifth year in the position. During the period
under review, the Committee has overseen the process for
appointing Darren Meek as the new lead audit partner, who
shadowed this year’s audit in preparation for next year.
The Committee spent a significant amount of time in the final
quarter of the period under review considering the impact on the
Group’s system of internal controls of the measures put in place by
the Group in response to the COVID-19 pandemic. This included
receiving specific reports on how the business has ensured
appropriate controls have been maintained in response to changes
in working practices, and how assurance programmes have been
realigned to focus on key control monitoring and support the
business during exceptional circumstances.
Overall, the Committee is satisfied that the Group’s internal control
and risk management framework comprises appropriate
arrangements, actions and mitigating controls. The Committee has
reviewed and approved the statements included in this Report and
Financial Statements relating to risk management and longer-term
viability on pages 22 to 29 of the Strategic Report and on the
adequacy of the Group’s internal control and risk management
arrangements on page 66 of the Corporate Governance Report.
Whistleblowing
The Group is committed to creating a culture of openness, integrity
and accountability. A formal policy is in place which encourages
colleagues and contractors to raise concerns, in confidence, about
possible wrongdoing in relation to financial reporting or other
matters. Changes to the policy require the approval of the Board,
and the Committee has responsibility for regularly reviewing the
adequacy of arrangements to ensure the proportionate and
independent investigation of matters raised and appropriate follow
up action. These arrangements are viewed as an important internal
control for the Group and the Committee regularly updates the
Board on their operation and incidences of concerns raised.
During the period, the Committee received regular reporting on the
Group’s whistleblowing arrangements, including management
information on concerns raised and completion rates for internal
training. The Committee has also overseen improvements to the
Group’s whistleblowing framework, which included an external
benchmarking exercise to assess governance, engagement and
operational processes, and proposed changes to the procedures
for raising concerns. This has included proposals for the
appointment of a third party to provide a whistleblowing hotline and
case management tool to further encourage colleagues to raise
concerns without fear of reprisal and improve case administration.
The Committee has also overseen the transfer of responsibility for
the operation of the whistleblowing arrangements from the Group’s
Compliance Monitoring function to HR, to further distinguish
between first and second line responsibilities.
Internal controls
In conjunction with the Risk Committee, the Committee provides
assurance to the Board on the Group’s system of internal controls.
A key aspect of this is the review of the financial controls systems
that identify, assess, manage and monitor financial risks, which are
an important aspect of ensuring the integrity of the Group’s
financial statements as a whole. During the period, the Committee
reviewed and challenged a report from the Group’s Finance function
setting out the processes and controls relied upon in the
preparation of the financial statements. It also oversaw the
implementation of a new Enterprise Resource Management
system, as part of the continued improvement of the Group’s
internal controls associated with the preparation of the financial
statements, and considered the potential impact of the new system
on year end planning with the external auditor.
As part of its oversight of the Group’s wider system of internal
controls, the Committee receives reports from management on
the effectiveness of those controls, as well as the results of the
control testing by the Group’s Internal Audit function and the
external auditors. During the period, the Committee has:
• Received regular reports from the Group’s Internal Audit function
on the sufficiency of the internal controls in those areas of the
business included in the Internal Audit Plan for the period.
Specific areas of focus in the period have included IT, change
management, product governance and the systems and controls
that support regulatory changes. Reporting to the Committee
has also included updates on progress against management
actions identified and a root cause analysis of internal audit
observations over the preceding 12 month period. The
Committee has also received the Head of Internal Audit’s
annual assessment of the Group’s internal control framework;
• Monitored the status of the Group’s CASS control environment
and the improvements being made in moving from a
predominantly manual control environment to a more automated
one. In doing so it has considered the report from the external
auditors on client assets held by the Group’s regulated
subsidiaries and received regular reports from the Group’s CASS
function on the completion of CASS assurance activity, status
updates on remediation activity carried out as part of the CASS
action plan, and management information on any breaches of
significance and associated remediation;
• Received reports from the Group’s Compliance Monitoring
function on the compliance of the Group’s Operations control
framework with regulation. The Committee also reviewed the
forward compliance monitoring programme to ensure
coordination with the Internal Audit plan; and
• Received an annual report from the Group Director of Risk and
Compliance to assist the Committee in its responsibility to keep
under review the adequacy and effectiveness of the Group’s
Compliance function as a whole. This includes ensuring it is
adequately resourced, has appropriate access to information and
is sufficiently independent from first line management to enable
it to perform its duties effectively.
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Financial statementsOther informationGovernanceStrategic report The Committee continues to support the maintenance of the
function’s objectivity. It ensures the Head of Internal Audit has
direct access to both the Chair of the Board and the Committee
Chair, in each case without the involvement of Executive
management, and receives reporting directly from the function.
It is also the responsibility of the Committee Chair to set objectives
for the Head of Internal Audit, appraise his performance (with
support from the Chief Executive Officer) and recommend his
annual remuneration for approval by the Remuneration Committee.
Audit Committee evaluation
During the period under review, the Committee has overseen the
implementation of recommendations relating to its effectiveness
from both the externally facilitated 2018 evaluation and internally
led 2019 evaluation of its performance. This has included continuing
improvement to meeting planning and preparation through a
comprehensive forward agenda and planning for an external
evaluation of the Group’s Internal Audit function.
Audit Committee priorities for 2020/21
Looking ahead to the next financial year, it is anticipated that
the Committee will focus in particular on:
• Preparations for changes arising from the recommendations of
the Business, Energy and Industrial Strategy Committee’s inquiry
into the future of audit;
• Planning for the application of the revised UK audit standard
on going concern (ISA (UK) 570);
• The continued impact of changes to the political environment
in the UK and the broader macroeconomic situation; and
• Assurance from the Group’s Internal Audit function on the
Group’s governance arrangements and changes to the Group’s
risk profile as a result of the COVID-19 pandemic to identify any
action needed to continue to support good client outcomes and
prevent client harm.
Roger Perkin
Chair of the Audit Committee
6 August 2020
AUDIT COMMITTEE REPORT
Internal Audit
The role of the Group’s Internal Audit function is to provide
objective assurance and advice to both the Board and senior
management on the Group’s internal control and risk management
framework. The Committee plays an important role both in
overseeing the programme of work carried out by the function,
and in monitoring and reviewing its role and effectiveness,
including its objectivity.
The role of the Group’s Internal Audit function is defined by the
Internal Audit Charter, which sets out its objectives, responsibilities
and scope of work. During the period, the Committee reviewed
and approved minor updates to the Charter.
The function’s detailed work programme is set out in a rolling
12 month Internal Audit Plan, which is reviewed and approved by
the Committee every six months. In doing so, the Committee
has ensured that the Plan is aligned to the Group’s key risks and
to the assurance work being carried out by the Group’s second
line functions and the external auditor. The Committee
approved modifications to the Plan in April in response to
the COVID-19 pandemic.
The Committee monitors the effectiveness of the function
throughout the year to ensure that it is appropriate in the context
of the Group’s overall risk management system and its current
needs. The Head of Internal Audit is a permanent invitee to the
Committee’s meetings, and meets regularly with both the
Committee Chair and its members without Executive management
present. During the period, the Committee received regular reports
on progress against the Internal Audit Plan, the responsiveness of
management in addressing recommended management actions,
and the function’s requirements for resource and access to
management and information. The Committee uses this
information to assess the function’s effectiveness and to
ensure that it is adequately resourced and fully equipped to fulfil
its mandate and perform in accordance with the Internal Audit
Charter and relevant professional standards. Where required,
the Committee also supports the function in putting in place
co-source arrangements to enable it to commission the support
of appropriate subject matter experts.
In addition to the regular reporting it receives on progress against
the Internal Audit Plan, the Committee also receives an annual
assessment of the function’s effectiveness from the Head of
Internal Audit. Having considered that assessment and the
information provided to it throughout the period under review,
the Committee remains satisfied that the quality, experience
and expertise of the function is appropriate and that it is
operating effectively.
In order to obtain additional assurance, the Chair of the Committee
is currently overseeing the process for appointing an external
evaluation of the function’s effectiveness, which it is anticipated will
take place in the first half of the next financial year.
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ANNUAL STATEMENT BY THE CHAIR OF THE REMUNERATION COMMITTEE
OVERVIEW OF OUR REMUNERATION
POLICY AND PHILOSOPHY
Encouraging client-centric
sustainable performance.
Fiona Clutterbuck
Chair of the Remuneration Committee
Dear Shareholder
On behalf of the Board, I am pleased to present my report
as Remuneration Committee Chair.
I have set out below an overview of our remuneration policy
and philosophy which is aligned to our values and is designed to
encourage client-centric sustainable business performance.
During this financial year, the Committee’s main focus was on
ensuring appropriate remuneration outcomes based on 2020
business performance, improving gender pay and diversity, and
developing our remuneration policy to reflect changes in the Code
and in anticipation of regulatory changes impacting our industry.
We were able to gather shareholder feedback, as well as seeking
and responding to the views of our wider workforce regarding
remuneration, culture and the Group’s strategy. Finally, I want to
provide you with details of our areas of focus for the forthcoming year.
Encouraging client-centric sustainable business performance
Our purpose is to empower people to save and invest with
confidence and our pay philosophy aligns to this and aims to:
• Attract, retain and motivate high calibre colleagues who role
model our culture and values;
• Reward client-centric sustainable performance aligned to
our purpose and values;
Review of Remuneration Policy
Having applied our remuneration policy for a third year, we have
examined our approach and propose changes to reflect the
evolving governance and regulatory requirements, shareholder
feedback and the talent environment. We wish to ensure we have
the right tools to recognise the contribution made by our executive
team to the Group’s success, and to enhance the alignment of our
Executive Directors’ interests with those of shareholders. Finally,
the proposed policy is designed to support the execution of our
strategy to retain market leadership and financial strength.
The Board and Executive management recognise the importance
of being able to demonstrate to shareholders and regulators that
our remuneration policy encourages the right behaviours to
deliver long-term sustainable business performance and good
client outcomes.
We have considered the appropriateness of the current policy and
believe overall the existing structure works well. However, since the
previous policy was approved, the Code has introduced new
requirements for Executive Director pay, which are reflected in the
updated policy to apply from 1 July 2020. At this time we will also
seek to comply with requirements anticipated to be implemented
by the FCA in line with the new Investment Firm Directive, which is
expected to apply to the Group from 1 July 2021.
• Recognise our colleagues who deliver exceptional client service;
I would like to highlight the following changes:
• Share in the success of the Company and align colleagues’
• This year we have introduced weightings on our bonus
interests with those of shareholders;
• Encourage colleagues to save over the long-term, in line with
our Company purpose; and
• Offer flexibility to meet the needs of a diverse workforce.
The Group’s remuneration policies and practices are designed to
promote the long-term success of the Company by supporting
the business strategy, promoting high individual and team
performance, and delivering value to our shareholders, without
paying more than is necessary, whilst taking account of regulatory
requirements, affordability and market conditions.
performance measures to guide performance assessment and
to enhance transparency of outcomes;
• To align with Code requirements, under the new policy, we will
introduce a two year post-employment shareholding requirement
and we have also updated our malus and clawback provisions;
• In response to pension annual allowance changes, we will be
extending the current Company contribution matching for all
colleagues to non-pension savings. This results in Executives
receiving a contribution of up to 11% of salary, in line with the rest
of the workforce;
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Financial statementsOther informationGovernanceStrategic report ANNUAL STATEMENT BY THE CHAIR OF THE REMUNERATION COMMITTEE
• We propose to reduce the Chief Executive Officer’s (CEO) target
bonus level (phased over three years) so that it is 50% of the
maximum opportunity in line with evolving shareholder
expectations. To balance this reduction, from FY2022 we propose
to increase the CEO’s maximum bonus to 400% of salary;
• We propose to align the Chief Financial Officer’s (CFO) target
bonus to 50% of the current maximum for the same reason. This
will ensure a consistent approach for both Executive Directors;
• We propose to simplify the operation of the Sustained
Performance Plan by using a three-year performance period to
improve alignment to the timing of our strategic objectives and to
motivate the Executives to deliver against these (the five year
vesting timeline remains unchanged);
• We have also updated the remuneration policy to ensure we have
the ability to respond to all requirements the FCA may implement
in line with the new Investment Firm Directive (i.e. an increase in
the amount of variable pay subject to deferral, and awarding
variable pay in instruments with a post vesting retention period).
These requirements are expected to apply to variable pay awards
for the performance year beginning on 1 July 2021;
• Given the increase in deferral rate coupled with the expected
retention period that will apply to awards delivered in shares from
that date, we propose to move to pro-rata vesting of the deferred
bonus such that awards will vest one third each year over the three
year deferral period. At each vesting point, shares will be subject to
a retention period as required by the new regulation; and
• If we are required to deliver the upfront (non-deferred) bonus in
cash and shares, this will be similarly reflected in the deferred
element of bonus with delivery in a balance of cash and at least
50% in shares.
The majority of the above changes are required to comply with
governance and regulatory requirements. In determining the
additional policy changes, we have been mindful of the feedback
from our shareholders gained via consultation meetings and
correspondence. As a result, the above proposed changes
take account of our shareholders’ views and I trust the
amendments to our policy adequately take into account
concerns raised during consultation.
In particular, we are aware that the current base salaries of the
Executive Directors do not adequately reflect the significant increase
in scope and complexity of the Group and its impact on the Executive
Directors’ roles. However, we are very cognisant of the current market
environment and future economic uncertainty which has led us to the
view that any salary adjustment above the wider workforce median
this year would not be appropriate or responsible.
Further details of these changes are set out in our revised
remuneration policy.
Business context in 2020
This year saw consistent challenge in the external environment,
with continued political uncertainty and low investor confidence
throughout 2019, followed by the unique challenge presented by
the COVID-19 pandemic in 2020. In addition, we have continued to
support our clients and improve our processes as a result of the
impact of the suspension of the Woodford Equity Income Fund at the
end of last year. Despite this, 2020 saw a very strong performance,
with net new business, client numbers and profit showing significant
growth on prior year. This has been an exceptional outcome and
delivered whilst we maintained excellent support for clients,
colleagues and the community at this difficult time.
The strength of our business model is evidenced by our response
to the COVID-19 crisis, where we have effectively managed the
business through the crisis and supported our clients throughout.
Over the past three years, we have deliberately invested into
service, technology and operational resilience. This client-focused
strategy has been validated by our ability to remain open for
business throughout the COVID-19 crisis, supporting our clients
through the period of market volatility and personal upheaval, and
ensuring that all our core services remained available throughout.
Management actions enabled this proactive response to COVID-19,
maintaining our client service whilst ensuring the well-being and
safety of our colleagues. This included moving 85% of colleagues
to work from home whilst ensuring effective social distancing
between three sites for those colleagues who needed to be in
the office. In keeping with our CSR strategy to ‘Help Bristol thrive’
we also focused on supporting our local community. Leading
fundraising activities through our HL Foundation for Bristol
homeless and NHS charities, double matching payroll giving
over the period, donating to the Bristol NHS Nightingale Hospital
and supporting the local economic recovery.
2020 saw us drive success despite the challenging external
environment whilst also continuing to develop the business and
build our proposition in line with our strategy. Net new business for
the year was £7.7 billion and we added over 188,000 net new clients,
taking us to over 1.4 million clients by the end of the financial year.
The second half of our year was very strong with several record
months for new clients and new business. This performance was
supported by the decision to conduct our first multi-channel
advertising campaign during the early months of 2020. Latest
figures show that we have maintained our position as the market
leader in the direct to consumer platform market with market share
of 41.1%1 whilst our share of the execution only stockbroking market
has grown from 34.1% to 39.5%2 .
Over the year, we continued to pursue development, expanding
and diversifying our offering, with the delivery of several initiatives
including the recent launch of our new Wealth Shortlist with
associated fund tools. We have also continued to focus on
ensuring the scalability of the business, commencing our Digital
Transformation project and further enhancing our governance
and risk practices across the Group.
Notes
1 Source: Platforum UK D2C Market Update (July 2020)
2 Source: Compeer Limited XO Quarterly Benchmarking Report Quarter 1 2020
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
The Committee has taken account of the exceptional business
performance delivered in the difficult external environment outlined
above, the significant improvement to business capability and the
strengthening of our corporate culture over the period. We also
acknowledge the significant contribution made by both Chris Hill
and Philip Johnson in driving this performance through their
leadership and effective stakeholder management. The Committee
recognises their excellent delivery against personal objectives.
We have considered individual performance based bonus awards
accordingly and are satisfied that the outcomes for the Executives
reflect the performance of the business in the round and the
experience of our stakeholders, without any need to apply
discretion to adjust the 2020 bonus awards.
Further details on how bonuses have been determined for the 2020
performance year are set out in the annual report on remuneration.
Areas of focus for the forthcoming year
Looking forward, we continue to monitor remuneration
developments within the asset management industry. During
2020/21, we intend to build on the review of our remuneration
approach throughout the organisation to ensure we remain
compliant with our governance and evolving regulatory
requirements and that we are clear, fair and transparent in how we
assess and recognise the contribution of all our colleagues and that
these reflect our culture and values.
Gender pay and diversity
At HL, our diversity and inclusion objective is to build a diverse
workforce at all levels and create an inclusive culture for all. Earlier
this year, we launched our Diversity and Inclusion policy as having a
diverse workforce and an inclusive culture positively impacts our
clients, our business and our people.
Our diversity and inclusion strategic priorities aim to build
awareness and engagement, address the gender diversity gap
at senior levels and ensure all senior leaders support our robust
expectations in this area.
Some clear successes to date include:
• 74% of colleagues surveyed feel that HL values and promotes
employee diversity. This is +2% ahead of the FS norm;
• Introduction of colleague networks to raise awareness and
drive engagement;
• Introduction of employee policies that better support a diverse
workforce; and
• Increased rigour in our senior promotion and talent processes
leading to an increased proportion of senior female promotions
(33.3% of successful candidates were female in 2018 and 50%
in 2019).
Our gender pay gap figures show that we have more than halved our
mean gender pay gap, down from 28.8% in April 2017 to 12.9% in
April 2019, and significantly narrowed the median bonus gap since
2017. However, both our median gender pay gap and mean bonus
gap have increased marginally since 2017. Whilst we are pleased to
have made some progress, we are aware that the root cause of the
gender pay gap, the higher proportion of men in senior or higher
paid roles, has not changed. This is why one of our strategic
priorities for 2020 is to hire more, promote more and lose
fewer senior women.
We have also:
• Rolled out unconscious bias training to all hiring managers;
• Made it easier for candidates to learn more about our family-
friendly policies;
• Participated in the Women Ahead Mentoring programme;
• Continued the Career Confidence Mentoring Scheme; and
• Implemented a range of initiatives to increase fairness and
consistency of our pay process.
Making progress in the diversity and inclusion space requires long-
term focus and commitment to drive change. We will report back in
next year’s Directors’ remuneration report on the further progress
we have made during the year.
Wider workforce
Over the year, we have adopted an ‘Always Listening’ strategy to
enable us to better consider the voice of our colleagues when
making decisions.
The HL Colleague Forum, set up in January 2019, focuses on key
strategic decisions including: remuneration, culture and corporate
strategy. On remuneration, the Forum sought to understand
colleague views on a) the factors considered when setting executive
remuneration, b) alignment with the wider pay approach used with
all colleagues, c) share ownership and d) the difference in pay
between the CEO and HL colleagues.
I attended the feedback session and was pleased to hear the
positive response from colleagues regarding these topics. As part
of the Forum, we also shared proposed changes to the wider
remuneration approach and we were happy to note the enthusiasm
with which colleagues responded to these proposals. I look forward
to seeing the impact once the changes come into effect.
On a personal note, I have informed the Board that I do not intend to
stand for re-election at the AGM in October. I will have completed a
three year term on the Board and have immensely enjoyed
contributing, inter alia, to the increased professionalism regarding
the process and structure for remuneration at all levels throughout
the organisation. I believe that the organisation’s remuneration
principles will be appropriately aligned with our strategy and values
as a consequence of the implementation of the new remuneration
policy. The recruitment for my replacement is well advanced, and I
wish the business and my eventual successor all the very best over
the coming years.
Contents of this report
On the following pages we set out:
• A revised Directors’ Remuneration Policy which we will ask
shareholders to approve at our AGM on 8 October 2020; and
• The annual report on remuneration. This will be subject to an
advisory vote at the AGM.
On behalf of the Committee, I hope that you will support our
proposed Policy at the 2020 AGM.
Fiona Clutterbuck
Chair of the Remuneration Committee
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
75
Financial statementsOther informationGovernanceStrategic report REVIEW OF DIRECTORS’ REMUNERATION POLICY
Over the past year we have been examining our approach to
remuneration. The new Directors’ Remuneration Policy will be subject
to a binding vote and approval by shareholders at our 2020 AGM.
effect from the 2022 performance year, which is the first year we
expect the FCA to implement requirements in line with the new
Investment Firm Directive.
Details of the main proposed policy changes have been highlighted
in the following table. Certain changes are only proposed to take
Element
Pension
Current policy
Proposed policy
Executive Directors receive a pension
contribution of up to 11% of base
salary, in line with the wider workforce.
• Where Annual Allowance limits and/or Lifetime protection
has been taken, contributions can be paid in to an alternative
employer savings vehicle, matched up to 11% of salary, in line with
the wider workforce.
Annual bonus
Maximum bonus opportunity of 350%
of base salary.
On-target bonus opportunity
disclosed as a percentage of salary
in advance in the Directors’
Remuneration Report each year
(CEO 64%, CFO 45% of maximum
in 2019/20).
40% of annual bonus is subject to
compulsory deferral into awards over
shares for a period of three years.
No retention period is applied to
vested shares.
• Move to on-target bonus opportunity of 50% of maximum
opportunity for both Executive Directors. This is in response
to shareholder feedback, and to ensure consistency with the
wider workforce.
• Given the material decrease in target opportunity, the CEO will
reach this level through a phased reduction over three years,
starting in FY2022
• To reflect the reduction to the on-target bonus for the CEO,
from FY2022 it is also proposed that he will receive an increase
in maximum opportunity to 400% of base salary. The maximum
opportunity for the CFO will remain at 350% of salary.
• Introduction of weightings for our performance measures,
including individual performance, to guide performance
assessment and enhance transparency of outcomes.
• When required, deferral of total variable pay will increase to at least
60% in line with anticipated regulatory change. Variable pay awards
delivered in shares will also be subject to any post-vesting retention
period that is required under the new regulations.
• Under the new regulatory requirements, it may be necessary to
deliver each element of the bonus (including the upfront bonus
paid following the end of the relevant performance year) at least
50% in shares. To balance the impact of this, deferred bonus
awards would be delivered 50% in cash and 50% in shares.
• To balance the impact of the retention period, vesting of deferred
bonus awards will be in equal tranches of one third each year over
a three year period. At each vesting point, shares will be subject
to any retention period required under the new regulations.
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Element
SPP
Shareholding
guidelines
Malus and clawback
Current policy
Proposed policy
Maximum award of half times
base salary.
Awards vest over a five year period,
subject to the achievement of
underpinning performance conditions
over the vesting period. No retention
period is applied to vested shares.
The grant of awards are subject to
satisfactory personal performance
of each Director in the period prior
to grant.
Directors have six years from
appointment to the Board to achieve
a shareholding with a minimum value
of three times base salary.
No formal post-employment
shareholding guideline in place.
• Proposing to simplify the operation of the SPP award, by using a
three year performance period.
• This will improve alignment to the timing of our strategic
objectives and to motivate the Executives to deliver against these.
• Five year vesting timeline remains unchanged.
• Awards will also be subject to any post-vesting retention period
that is required under the new regulations.
• All Executive Directors are expected to hold a number of shares in
the Company with a specific market value within a reasonable time
frame (typically within six years of appointment).
• The requirement for the CEO and CFO will remain unchanged.
• Introduction of a post-employment shareholding guideline that will
operate for two years after an Executive Director steps down from
the Board.
Malus and clawback provisions are in
place for variable pay awards. The cash
element of the bonus is subject to
clawback until three years following the
date of award and unvested deferred
awards are subject to malus until the
vesting date. SPP awards are subject to
malus prior to vesting.
• Enhanced malus and clawback provisions will apply to annual and
long-term incentive plans to ensure alignment with best practice,
including the addition of corporate failure as a trigger.
• For all variable pay awards, malus provisions will apply until vesting
occurs, Clawback will apply to all awards until the later of three
years following grant of an award and the end of any relevant
vesting and retention period. See page 81 for further details.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
77
Financial statementsOther informationGovernanceStrategic report DIRECTORS’ REMUNERATION POLICY
The tables below summarise the elements of the remuneration
package for Directors and will be effective from the date approved
by shareholders in 2020 and will apply until shareholders next
consider and vote on a subsequent policy (intended to be three
years from the date of approval).
The Directors’ Remuneration Policy is designed to ensure that
remuneration supports the Group’s strategic objectives, is
appropriately positioned against the external market, and provides
fair rewards that will attract, retain and motivate individuals of the
calibre required to run a group of the scale and complexity of
Hargreaves Lansdown.
The policy is divided into separate sections for Executive and
Non-Executive Directors.
Executive Directors
Component/purpose
and link to strategy
Base salary
Reflects the
individual’s
responsibilities,
experience and
contribution.
Supports the
recruitment and
retention of the
calibre of individuals
required to lead the
Company.
Benefits
An ‘across the board’
benefits package is
available both to
employees and
Directors alike.
Supports the
recruitment and
retention of the
calibre of individuals
required to lead the
Company.
Pension
Provides adequate
pension saving
arrangements for
Directors and
employees.
Supports the
recruitment and
retention of the
calibre of individuals
required to lead the
Company.
Operation and performance measures
Base salaries are reviewed annually, with any increase usually effective
from 1 July.
Base salaries are set taking into account a range of factors including
external remuneration levels and remuneration levels within the Group, as
well as an individual’s responsibilities, experience and contribution.
Base salary will ordinarily increase by no more than the average of relevant
employee increases. Any increase beyond this would only be made in
exceptional circumstances, which would be explained by the Remuneration
Committee. Circumstances in which the Committee may award increases
outside this range may include:
• A change in the scope and/or size of Executive Director’s role and/or
responsibilities;
• Performance and/or development in role of the Executive Director; and
• A material change in the Group’s size, composition and/or complexity.
The Committee’s policy is to provide Executive Directors with competitive
levels of benefits, taking into consideration the benefits provided to all
eligible employees and the external market.
Where costs are necessarily incurred in the performance of duties on
behalf of the Group, those costs will be reimbursed in full, e.g. travel,
accommodation, subsistence, relocation, and any tax and social
costs arising.
Provision of tax efficient benefits such as additional holiday,
childcare vouchers and workplace parking is available through
a salary sacrifice mechanism.
Other benefits include (but are not limited to) Group life insurance and Group
income protection, as well as participation in the Save As You Earn scheme.
Pension provision is provided in line with the pension provision available
for all employees.
Any changes made to the employee arrangements will be carried across
to the Directors.
The Committee may amend the form of any Director’s pension
arrangements in response to changing pension legislation or similar
developments, so long as any amendment does not increase the cost to the
Company of a Director’s pension provision by any greater percentage than
the increase to the provision for all other employees.
The Company will contribute, on the same basis as the pension provision
available to all employees, to a savings vehicle where a Director has reached the
Lifetime Allowance, would exceed any pension contribution limits in any year,
or has elected to protect their Lifetime Allowance. Alternatively if, in these
circumstances, the Director does not wish to contribute to a savings vehicle,
a cash allowance will be paid.
All employees and Directors may waive an element of their annual
performance bonus in return for a corresponding employer’s contribution
into their pension.
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Maximum opportunity
No absolute maximum increase.
While no absolute maximum level
of benefits has been set, the
level of benefits provided is
determined taking into account
individual circumstances,
overall costs to the business
and market practice.
In approving the benefits paid, the
Committee will ensure that they do
not exceed a level which is, in the
Committee’s opinion, appropriate
given the Executive Director’s
particular circumstances.
The Group provides a matched
employer contribution of 5% of
base salary.
Where employees make
additional contributions of over
5% of salary, these will be double
matched by the Company, up to a
maximum of 11% of salary.
The maximum contribution
available to the Directors is 11% of
salary, in line with the wider
workforce rate. The maximum
cash alternative is 5%.
Any contribution paid as a result
of waiver of the cash element of
an Annual Performance Bonus will
not be counted towards these
maxima and will not attract
matched funding.
Component/purpose
and link to strategy
Annual
performance bonus
Rewards
achievement of the
Group’s business
plan, key
performance
indicators and the
personal
contribution of
Directors.
Aligns the interests
of Directors with
those of
shareholders
Operation and performance measures
Maximum opportunity
The level of annual performance bonus payable is linked to key financial and
non-financial metrics as well as corporate and individual performance
against objectives.
The maximum bonus opportunity
for Directors under the policy is as
follows:
• CEO: four times base salary in
respect of the relevant financial
year; and
• CFO: three and a half times base
salary in respect of the relevant
financial year.
The on-target bonus for each Director as a percentage of base salary will be
disclosed in advance in the annual report on remuneration for each year.
The on-target award level for the CEO will be reduced to 50% of the
maximum opportunity over the life of this policy.
For each performance element of the bonus, 25% of the maximum
opportunity will be paid for the attainment of threshold performance.
Performance will be assessed against a combination of financial/growth,
non-financial and individual performance measures with at least a 50%
weighting allocated to financial/growth measures, and no more than 20%
allocated to individual performance. In assessing the overall performance
outcome, the Remuneration Committee will use its judgement to consider:
• The extent to which market movements, investor sentiment, interest
rates and regulation, all of which are beyond the control of the Directors,
have impacted the performance. This may result in either reductions or
increases in the awards that would otherwise have been granted;
• The extent to which management has operated within the agreed risk
parameters; and
• The extent to which the bonus outcome reflects the overall performance
of the business, including in the context of the shareholder experience.
A minimum of 40% of the annual performance bonus is subject to
compulsory deferral over three years. Where required by regulation, deferral
will be increased to ensure compliance with regulatory deferral levels for all
variable pay.
Awards will be delivered in an appropriate combination of cash and shares, in
line with prevailing regulatory requirements, with a minimum of 50%
delivered over HL plc shares. The combination of cash and shares will be
determined each year by the Committee.
Vesting will occur over a period of three years. Vested shares will be subject
to a further retention period as required under regulation.
Subject to regulatory requirements, dividend alternatives will accrue on
deferred awards up to the vesting date and will be paid as soon as practical
after exercise of the award.
Awards are subject to a formal malus mechanism until vesting. Awards are
subject to clawback until the later of three years from the date of award or
the end of any post vesting retention period. Further details of malus and
clawback provisions are set out on page 81.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Financial statementsOther informationGovernanceStrategic report DIRECTORS’ REMUNERATION POLICY
Maximum opportunity
The maximum award each year
under the Policy is half times
base salary.
Not applicable.
Component/purpose
and link to strategy
Sustained
Performance Plan
Aligns the interests
of Directors with
those of
shareholders and
rewards long-term
stewardship of the
Company.
Shareholding
guideline
Aligns the interests
of management and
shareholders to the
success of the
Group
Operation and performance measures
Annual awards of over HL plc shares will vest over a five year period, subject
to the achievement of underpinning performance conditions over a period
of three financial years beginning from the financial year in which awards are
granted. Vested shares will be subject to a further retention period as
required under regulation.
Awards will be granted subject to satisfactory personal performance of
each Director in the period prior to grant. The underpinning performance
conditions applicable for each award will be disclosed upfront in the
remuneration report.
Subject to regulatory requirements, dividend alternatives will accrue on
unvested awards up to the vesting date and will be paid as soon as practical
after exercise of the award.
Awards are subject to a formal malus mechanism until vesting. Awards are
subject to clawback until the end of any post vesting retention period.
Further details of malus and clawback provisions are set out on page 81.
All Executive Directors are expected to hold a number of shares in the
Company with a specific market value expressed as a percentage of their
salary, within a reasonable time frame (typically within six years of
appointment).
The current shareholding guideline for Directors is a minimum value of three
times base salary.
Vested and unvested (net of tax) awards under the annual performance
bonus are included in the calculation of a Director’s shareholding for this
purpose. Unvested awards no longer subject to performance conditions
(net of tax) under the Sustained Performance Plan are also included.
Reflecting best practice, the Committee has adopted a post-cessation
shareholding guideline, effective from the adoption of this new policy, which
applies for two years following cessation of employment. Upon ceasing to
be employed, Directors will be required to retain a shareholding equal to
their shareholding guideline, or the number of shares actually held on
departure, whichever is the lower, for twenty four months. This will not
include shares purchased or awarded to Directors upon recruitment in
respect of any buyout award. Nor will it include shares vested prior to the
2020 AGM.
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Choice of performance measures and approach to target setting
Annual bonus
The choice of the performance measures applicable to the annual
bonus scheme reflects the Committee’s belief that incentives
should be appropriately challenging and tied to the achievement
of financial and non-financial measures (including risk and other
strategic measures) and key personal objectives, including
behaviours aligned to our values.
The Committee reviews the measures each year and varies them
as appropriate to reflect the priorities for the business in the year
ahead. A sliding scale of targets is set for each measure to
encourage continuous improvement and the delivery of above
target performance.
SPP
As highlighted in the above table, the Committee will take into
consideration prior individual performance when assessing the
value of the SPP grant level for Executive Directors.
Forward-looking performance is measured against financial and
non-financial performance underpins that reflect the Group’s
strategic priorities.
Discretion
The Committee retains the flexibility to make adjustments to the
formulaic vesting outcomes of variable pay in instances where the
outcome would otherwise not be reflective of the wider shareholder
experience and/or materially inappropriate in the context of
unexpected or unforeseen circumstances relating to the Group.
Malus and clawback
Annual bonus and SPP awards are subject to malus and clawback
provisions in exceptional circumstances. In addition, the Committee
can defer a decision to award bonuses, or award and suspend
payment of bonuses, and/or vesting of deferred bonus and/or SPP
awards for any individual in scope of an investigation into their
conduct or responsibility, accountability or knowledge and/or
influence over any material risk event identified during or after the
performance year.
The triggers that apply to malus and clawback under all incentive
plans are as follows:
• A material misstatement of the financial results of any Group
Company or its funds;
• A material failure of risk management in any Group Company
or a relevant business unit;
• Serious reputational damage to any Group Company or a relevant
business unit attributable to the conduct of, or an act of omission
by, the Award Holder or an Employee for which the Award Holder
is or was responsible;
• A failure by the participant to identify any serious risks relating
to any Group Company;
• A failure by the participant to implement appropriate controls
for any serious risks relating to any Group Company;
• Corporate failure or significant downturn in financial
performance; and
• An error in the calculation of the Award Holder’s performance
bonus in respect of which the award was made.
Legacy arrangements
The Committee retains discretion to make any remuneration
payment or payment for loss of office outside of this Directors’
Remuneration Policy (including the exercising of discretion available
in respect of any such payment) where:
• The terms of the payment were agreed before this Directors’
Remuneration Policy came into effect, provided in the case of
any payment whose terms were agreed before this Directors’
Remuneration Policy became effective, the remuneration
payment or payment for loss of office was permitted under the
Company’s relevant former Directors’ Remuneration Policy at
the time of agreement; or
• The terms of the payment were agreed at a time when the
relevant individual was not a Director of the Company and, in the
opinion of the Committee, the payment was not in consideration
of the individual becoming a Director of the Company
For these purposes, ‘payment’ includes the satisfaction of awards of
variable remuneration and, in relation to an award over shares, the
terms of the payment are agreed at the time the award is granted.
Approach to recruitment remuneration
The Committee will set a remuneration package for new Executive
Directors determining the individual elements of the package and
the total package taking account of the skills and experience of the
candidate, the market rate, and remuneration levels across the
Group, respecting maximum levels for variable pay referred to in
the appropriate policy table.
Additional cash and/or share based awards on a one-off basis
may be made as deemed appropriate by the Committee if the
circumstances require, taking into account pay or benefits forfeited
by a Director on leaving a previous employer. The Committee
has the discretion to make such awards under the Sustained
Performance Plan and in excess of the salary limits contained
therein, or as permitted under Rule 9.4.2 of the Listing Rules (which
allows companies to make one off share awards in exceptional
circumstances, including recruitment). Such awards will, as far as
possible, maintain consistency with the awards forfeited in terms
of type of reward (shares or cash), expected value, time horizons
and whether they were subject to performance criteria. Other
payments may be made for relocation expenses, recruitment
from abroad, legal costs, tax equalisation, other costs or benefits
forfeited by an individual being recruited.
Service agreements and loss of office payments
All Executive Directors have a service contract which reflects the
approved policy in force at the time of appointment.
The service contracts for all Directors in post are available for
viewing (on the giving of reasonable notice) at our registered office
during normal business hours and both prior to, and at, the Annual
General Meeting. Under the terms of our Articles of Association,
all Directors are subject to annual re-election by shareholders.
Service contracts do not have a specific duration but may be
terminated with 12 months’ notice from the Company or the
Executive Director.
The service agreements contain provisions for payment in lieu
of notice in respect of base salary and pension contributions.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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The Committee has a policy framework for payments for loss of office by an Executive Director, both in relation to the service contract
and incentive pay, which is summarised below. The approach of the Company on any termination is to consider all relevant circumstances,
including the recent performance of the Executive Director, and to act in accordance with any relevant rules or contractual provisions.
Nature of termination:
By Executive Director or
Company giving notice
By Company summarily
Base salary, pension
and benefits
Paid until
employment ceases.
Paid until
employment ceases.
Annual bonus
No entitlement to
annual bonus for that
financial year.
No entitlement to
annual bonus for that
financial year.
Deferred bonus award
Unvested deferred
bonus awards
lapse when
employment ceases.
Unvested deferred
bonus awards
lapse when
employment ceases.
Sustained Performance
Plan (SPP) awards
Within first three years
of award grant, unvested
awards lapse when
employment ceases.
Vested unexercised,
and unvested SPP
awards lapse when
employment ceases.
After three years from
award grant, unvested
awards will continue to
vest in full on the original
terms subject to
achievement of the
performance underpins.
Other payments
None.
None.
Good leaver: leaving by reason of death, ill health, injury or
disability, redundancy, retirement with the agreement of the
Committee, the sale of employing business or company, or
other circumstances at the discretion of the Committee
Paid until employment ceases or in respect of
notice period (subject to mitigation) depending
on the reason for cessation.
Discretion for Company to pay salary,
pension and benefits in a single payment
or in monthly instalments.
Cessation during the financial year or after the
financial year end, but before payment date,
may result in bonus being payable subject to
performance (pro-rated for the proportion of
the financial year worked unless the Committee
determines otherwise).
Vested unexercised, and unvested deferred
bonus awards, may vest and be exercised in
accordance with normal terms.
Committee has discretion to determine
whether awards vest when employment ceases.
Within the performance period, unvested
awards will vest in accordance with the original
terms, on a pro rata basis for the period of
time served as a proportion of the initial
three years, subject to achievement of the
performance underpins.
Following the end of the performance period,
unvested awards will continue to vest in full
on the original terms.
In appropriate circumstances, disbursements
such as legal costs, outplacement services,
relocation expenses and the cost of a
settlement agreement.
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Provisions on a takeover or other corporate events
In the event of a takeover or other corporate event, the Committee
shall determine the amount (if any) of any bonus payable taking
into account any applicable performance targets that have been
achieved and any such factors as it considers appropriate given
the curtailed performance period.
Unvested deferred bonus awards and outstanding SPP awards
will vest at that time subject to, for SPP awards, satisfaction of any
applicable performance conditions and pro-rated to reflect the
length of the Performance Period which has been worked (with
the Committee having discretion not to pro-rate or to reduce the
pro-rate if it considers it appropriate to do so). Alternatively, the
Committee may determine with the agreement of the acquiring
company that awards may be exchanged for equivalent awards
in another company.
Illustration of application of Remuneration Policy
The Committee discloses each year in the Group’s Report and
Financial Statements a bar chart that models the potential
remuneration for each of the Executive Directors for the
forthcoming year using a range of assumptions. The chart shows
the potential value of the current Executive Directors’ remuneration
for the forthcoming year for three scenarios; minimum, maximum
and mid-point scenario as follows:
Chris Hill – Remuneration opportunity for 2020/2021
(£’000s)
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
3,317k
10%
3,479k
5%
9%
68%
65%
2,507k
13%
58%
725k
100%
29%
22%
21%
Minimum
Mid-point
Maximum
SPP
Annual bonus
Fixed
Max incl 50%
share price growth
under SPP
50% share price
growth under SPP
Philip Johnson – Remuneration opportunity for 2020/2021
(£’000s)
• The minimum amount represents the unconditional
component of the remuneration package: salary, pension
and employee benefits;
3,000
2,500
• The mid-point amount is the amount the Executive Director will
2,000
2,351k
10%
2,465k
5%
9%
receive if they achieve an on-target bonus level and awards under
the Sustained Performance Plan vest in full. It will include both
fixed and variable components of remuneration; and
• The maximum level is the maximum amount of remuneration
each Executive Director can be awarded in the year. The
maximum is subject to remuneration caps that have been
established for each component.
Within the above scenario charts, the final scenario on the right
hand side sets out the impact on the SPP award of a 50%
appreciation in Company’s share price during the relevant period.
1,500
1,000
500
100%
0
515k
1,547k
15%
52%
33%
68%
65%
22%
21%
Minimum
Mid-point
Maximum
SPP
Annual bonus
Fixed
Max incl 50%
share price growth
under SPP
50% share price
growth under SPP
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DIRECTORS’ REMUNERATION POLICY
Non-Executive Directors
Component/purpose
and link to strategy
Base salary
Supports the attraction and
retention of high performing
individuals, considering both
the market value of the position
and the individual’s skills,
experience and performance.
Committee Chair fees
Recognises the additional time
commitment and responsibility
involved in chairing a
Committee of the Board.
Senior Independent Director
(SID) fee
Recognises the additional time
commitment and responsibility
involved in holding the role of
the SID.
Benefits and expenses
To appropriately reimburse the
Chair and Non-Executive
Directors for out-of-pocket
expenses incurred in the
fulfilment of their
responsibilities and any tax and
social costs arising.
Operation and performance measures
Non-Executive Directors are paid an annual base fee with fees for additional roles (for example,
Senior Independent Director or Chair of a Board Committee and/or Chair or member of a
subsidary Board).
The Chair’s and Non-Executive Directors’ basic fees are reviewed annually and any increases, if
applicable, are normally effective from 1 July.
The fee levels are set taking into account relevant factors, such as time commitment and market
data for comparable positions, and taking account of the time commitment required for the role.
All Non-Executive Directors’ fees including those below are paid in cash on a monthly basis or such
other frequency as determined by the Board.
The Non-Executive Directors are not eligible for bonuses, pension or to participate in any Group
employee share plan.
Each Non-Executive Director receives an additional fee for each Committee for which they are Chair.
The Committee Chair fees reflect the additional time and responsibility in chairing a committee
of the Board, including time spent liaising with management and preparing for a committee
of the Board.
The SID receives an additional fee for his or her role.
The fee reflects the additional time and responsibility in fulfilling the role of Senior
Independent Director.
Non-Executive Directors may be eligible to receive benefits such as travel and other
reasonable expenses.
Where costs are necessarily incurred in the performance of duties on behalf of the Company, those
costs will be reimbursed in full, e.g. travel, accommodation, subsistence, relocation, and any tax and
social costs arising.
Expenses may be claimed by the Chair and Non-Executive Directors in line with the Company’s
expenses policy.
Appropriate Director insurance and indemnity cover is provided by the Company.
Some Group services are provided at a reduced cost, on the same basis as for all other employees.
Where benefits are provided to Non-Executive Directors, they will be provided at a level considered
to be appropriate, taking into account individual circumstances.
In accordance with the Company’s Articles of Association, the maximum aggregate remuneration for the Non-Executive Directors is
£1,500,000 per annum. This limit will be reviewed by the Board from time to time to ensure that it remains appropriate.
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Consideration of shareholder views
The Committee recognises that Director remuneration is an
area of particular interest to our shareholders and in setting and
considering changes to remuneration, it is critical that we listen to,
and take into account, their views.
The Committee considers shareholder feedback received in
relation to the AGM each year at its first meeting following the AGM.
This feedback, as well as any additional feedback received during
any other meetings with shareholders, is then considered as part
of the Group’s annual review of the implementation of the
Remuneration Policy. We also regularly engage with our largest
shareholders to ensure we understand the range of views which
exist on remuneration issues.
When any material changes are made to the Policy, the Committee
will discuss these in advance with our major shareholders wherever
practical. The Committee will also consult with professional advisers
to ensure we consider regulatory requirements and current market
and industry practices, where appropriate.
The Committee undertook a specific shareholder consultation
exercise in relation to the development of this Policy in summer
2020, liaising with major shareholders and seeking engagement
with the main proxy advisory bodies. Their feedback was taken
into account in the finalisation of the Policy.
General
External Board appointments
The Company recognises that external Non-Executive
Directorships are beneficial to both the Director and the Company
and that its Executive Directors may be invited to become Non-
Executive Directors of other companies. Such non-executive duties
can broaden experience and knowledge which can benefit the
Company. Subject to approval by the Board, Executive Directors are
allowed to accept two non-executive appointments (limited to one
in the FTSE 100) and retain the fees received, provided that the
appointment is not likely to lead to conflicts of interest.
Consideration of employment conditions elsewhere
in the Company
The Committee considered the Company’s remuneration
principles which apply across the Group when determining the
Executive Director Policy outlined above. In particular, the approach
taken to salary increases and the structure of the annual bonus
aligns closely to the approach generally taken across the wider
workforce, and the same SPP structure is used for all participants
within the plan.
Over the year, we have adopted an ‘Always Listening’ strategy to
enable us to better consider the voice of our colleagues when
making decisions.
The HL Colleague Forum, set up in January 2019, focuses on key
strategic decisions including, remuneration, culture and corporate
strategy. On remuneration, whilst the Committee has not consulted
directly on the proposed Directors’ Remuneration Policy changes,
the Forum was asked its views on a) the factors considered when
setting executive remuneration, b) alignment with the wider pay
approach used with all colleagues, c) share ownership and d) the
difference in pay between the CEO and HL colleagues.
The Committee is regularly updated on the pay and employment
conditions for the wider workforce through reports from the
Reward Governance Committee and this provided context for
its decisions regarding the Directors’ Remuneration Policy.
The Committee also considers the wider salary increase,
remuneration arrangements and employment conditions across
the wider employee population when considering Directors’ pay
and awards.
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ANNUAL REPORT ON REMUNERATION
This report has been prepared in accordance with the provisions
of the Companies Act 2006 and the Large and Medium-Sized
Companies and Groups Regulations 2013, as amended. It also
meets the requirements of the UK Listing Authority’s Listing
Rules and the Disclosure Guidance and Transparency Rules. The
Remuneration Committee confirms throughout the financial year
that the Company has complied with these governance rules and
best practice provisions.
Role of the Remuneration Committee
The Board remains ultimately accountable for Executive
remuneration but has delegated this responsibility to the
Remuneration Committee.
The Remuneration Committee is therefore responsible for
determining the Remuneration Policy for the remuneration of
the Executive Directors of the Company and of the subsidiary
companies, the Chair, other members of executive management
and all other employees who are deemed to be Material Risk Takers.
The policy is determined with due regard to the interests of the
Company, the shareholders and the Group, with the objective of
being able to attract, retain and motivate Executive management
of the quality required to run the Group successfully without paying
more than is necessary.
The performance measurement of the Executive Directors and key
members of senior management and the determination of their
annual remuneration packages is also undertaken by the
Committee. For individuals below the Group Executive Committee,
the Reward Governance Committee, as a sub Committee of the
Group Executive Committee, consisting of the Chief Executive
Officer, Chief Financial Officer, Chief People Officer and Group
Director of Risk and Compliance which reviews individual
remuneration outcomes and reports and refers decisions to the
Committee for final approval where relevant.
The Committee also ensures that the remuneration relationship
between the Executive Directors and senior employees of the
Group is appropriate and that the Remuneration Policy complies
with the relevant FCA Remuneration Codes. Any exceptional
remuneration arrangements for senior employees are approved by
or advised to the Committee.
UK Corporate Governance Code
When considering the proposed policy, the Committee was mindful
of the Code and believes that the executive remuneration
framework addresses the following principles:
• Clarity – The Committee believes that the remuneration
framework should be clear and transparent. This year, the annual
report has enhanced disclosure on variable pay. The performance
measures for the annual bonus have been simplified, with
attached weightings for each measure being disclosed going
forward.
• Simplicity – The remuneration arrangements for Executive
Directors are well understood by both participants and
shareholders. The structure consists of fixed pay, annual bonus
award (including deferral) and the SPP (restricted share award).
• Risk – The remuneration framework has been designed to
mitigate risk where appropriate. The Committee reviews
adherence to the Group’s risk parameters as part of its
determination of variable pay outcomes and malus and clawback
provisions apply to both the annual bonus and SPP award. In the
proposed policy, these provisions have been enhanced to include
corporate failure.
• Predictability – In the Report and Financial Statements,
the potential value of the Executive Directors’ remuneration
packages at threshold, target and maximum scenarios (including
with 50% share price appreciation) have been provided. In
addition, the policy also states the maximum annual bonus
and SPP opportunity as a percentage of salary.
• Proportionality – The Committee strongly believes that poor
performance should not be rewarded. The annual bonus requires
performance against stretching measures and the SPP award
has a robust underpin. The underpin measures both financial
and non-financial performance, reflecting the Group’s
strategic priorities.
• Alignment to culture – The remuneration framework has been
designed to support both the Group’s culture, purpose and
values. The performance measures and underpins of the variable
pay awards have been chosen to drive desired behaviours and are
aligned to the strategy of the business.
Meetings during the year
There were nine scheduled meetings during the year and additional
ad hoc meetings where required. All meetings were chaired by Fiona
Clutterbuck. Other members were Deanna Oppenheimer, Shirley
Garrood and Stephen Robertson.
None of the Committee has any personal financial interest (other
than as shareholders), conflicts of interests arising from cross-
directorships or day-to-day involvement in running the business.
Attendance at Committee meetings during
the year to 30 June 2020
Member
Position
Fiona Clutterbuck
Deanna Oppenheimer Non-Exec Dir
Chair
Shirley Garrood
Non-Exec Dir
Stephen Robertson
Non-Exec Dir
Meetings
eligible
Meetings
attended
••••••••• •••••••••
••••••••• •••••••••
••••••••• •••••••••
••••••••• •••••••••
During the year, the Committee has undertaken activities as
set out below and, in doing so, confirm that there have been no
deviations from the procedure for implementation of the Policy
in this financial year:
• A detailed review of the Directors’ Remuneration Policy in
preparation for the AGM vote and considering our remuneration
approach for 2020/21;
• Consideration of the Directors’ remuneration report in the 2020
Report and Financial Statements, and all of the feedback received
from institutional shareholders;
• Reviewing the 2019/20 Remuneration Policy implementation and
updating our approach to business and individual performance
measures, targets and weightings, also including a more detailed
calibration process;
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
• Receiving and noting regulatory and governance updates to keep
abreast of best practice;
• Considering a formal assessment of risk performance in relation
to remuneration;
• Reviewing and agreeing performance bonuses for the Executive
Directors as well as other Material Risk Takers;
• Reviewing and approving Executive Directors’ objectives and
performance measures;
• Reviewing the approach to proportionality and the approach for
the identification of Material Risk Takers under CRD IV, AIFMD
and UCITS V;
Throughout the year, the Committee has reappointed and been
advised by Deloitte LLP, which is a signatory to the Remuneration
Consultants Group’s Code of Conduct for the provision of
independent remuneration advice. The advisers review all
Committee papers and provide input on matters directly to the
Committee as well as attend all Committee meetings. As such, the
Committee is satisfied that the advice it has received was objective
and independent. The fees payable to Deloitte for this advice were
based on services provided against a scope of services approved by
the Committee and amounted to £83,700 plus VAT. Other services
provided to the Group by Deloitte LLP during the year consisted of
risk advisory, tax, consulting and internal audit services on a
co-sourced basis.
• Reviewing the remuneration policy for the wider workforce,
Overview of activities during the financial year
including improvements in the approach to the year end pay and
bonus to improve clarity, fairness and transparency for colleagues;
• Approving the annual Save As You Earn scheme invitation
and terms;
• Approving a new delegation policy setting out circumstances
under which the authority of the Committee can be delegated;
• Receiving reports and overseeing decisions and
recommendations made by the Reward Governance Committee;
9%
Regulatory
and governance
13%
Other including
management admin
• Reviewing and approving the required Remuneration
Code disclosures;
• Reviewing colleague feedback on remuneration via the HL
Colleague Forum;
15%
Wider workforce policy
and gender pay
• Reviewing the gender pay gap reporting covering the snapshot
date of 5 April 2019 and noting management’s action plan to
address the gender pay gap; and
19%
Business performance and
risk assessment review
44%
Executive
Remuneration
and policy
• Reviewing and approving retention awards and updated Terms
of Reference for this Committee.
The detailed responsibilities of the Committee are set out in its
terms of reference, which are available on the Group’s website at
www.hl.co.uk/about-us/board-of-directors.
Advice to the Committee
The Committee is supported by the Group Company Secretary, the
Chief People Officer, the Head of Performance and Reward, and the
Chief Executive Officer who are invited to attend Committee
meetings to provide further background information and context to
assist the Committee in its duties. No Director was involved in
discussions regarding the determination of their own remuneration.
Consultation with employees
The HL Colleague Forum was set up in January 2019 to create a
feedback channel directly between colleagues and the Board on
matters of strategic importance. The Forum has considered culture
at HL, pay and development and corporate strategy.
The Forum was able to recognise the complexities associated
with executive pay and the importance of aligning this to business
performance and colleague satisfaction. Colleagues supported
the share ownership incentive for Executives, noting that it was
important they had ‘skin in the game’. They also recognised the
benefits of share ownership offered through our SAYE scheme.
As outlined in our Directors’ Remuneration Policy, the Committee
also considers the wider salary increase, remuneration
arrangements and employment conditions across the wider
employee population when considering Directors’ pay and awards.
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ANNUAL REPORT ON REMUNERATION
Executive Director remuneration for 2020
Remuneration payable for the 2020 financial year (1 July 2019 to 30 June 2020) (Audited)
The Directors’ Remuneration Policy operated as intended in the financial year with remuneration received by Executive Directors in
relation to performance in 2020 as set out below:
Single Total Figure Table
Annual Bonus
Name of
Director
Chris Hill
Philip
Johnson
Year
2020
2019
2020
2019
Gross
basic salary
£’000
Other taxable
benefits1
£’000
Upfront
cash
£’000
Deferred
shares
£’000
630
612
446
434
6
6
5
1
1,243
–
870
–
829
–
580
–
Employer
pension
contribution3
£’000
LTIP/SPP2
£’000
–
–
–
–
32
31
22
22
Total
fixed
remuneration
£’000
Total
variable
remuneration
£’000
668
649
473
457
2,072
–
1,450
–
Total
£’000
2,740
649
1,923
457
1 This includes Medical, PMI and SAYE discount value over the term of this savings contract.
2 Sustained Performance Plan (SPP) is our Long Term Incentive Plan (LTIP), introduced in 2016/2017 and, subject to performance conditions, these will first start to vest in 2022.
No SPP award has vested and therefore none of the SPP is attributable to share price growth.
3 This includes employer pension contributions and any pension allowance paid in lieu of pension contributions.
Other than SAYE options (which are available to Directors on the same basis as all employees and included in other cash benefits), and
the awards made to Chris Hill on joining, no share options without performance criteria have been granted to Executive Directors since
7 March 2012.
Where eligible, benefits in kind are available to Directors on the same basis as other employees. For 2020, benefits include Life Insurance,
Income Protection, Private Medical Insurance, Save As You Earn (SAYE) scheme, reduced platform fees for holding assets on the Group’s
investment platform reduced dealing charges for self and connected persons, and access to a range of voluntary benefits such as critical
illness cover.
No Director has a prospective entitlement to a defined benefit pension by reference to their length of qualifying service.
Assessment of annual performance for the 2020 financial year (1 July 2019 to 30 June 2020) (Audited)
The value of any bonuses payable to Executive Directors was determined by the Committee based on:
• An assessment of the performance of the Group against financial/growth, client, colleague and delivery measures, including an
assessment of risk performance and risk events as detailed below; and
• Each individual’s performance, including progress against the specific objectives set for them as well as an assessment of risk
management and compliance and their behaviours aligned to the Group’s values.
The Committee agreed that financial and growth metrics should make up at least 50% of the business performance assessment and, in
doing so, simplified the assessment to three key metrics as set out below whilst removing metrics that were duplicative.
In order to ensure a minimum 50% weighting towards the financial/growth business metrics, the remaining 50% is split 30% against the
client, colleague and delivery business metrics and 20% against individual objectives. Again, in agreeing that client, colleague and delivery
would make up 30% of the assessment, the Committee removed duplicative measures in order to improve their ability to appropriately
assess performance.
The Committee’s determination was undertaken, taking all factors into account and using all relevant information. For each Executive
Director, their overall bonus was determined by reference to the following target and maximum levels, as disclosed in the 2019 Report and
Financial Statements:
Chris Hill
Philip Johnson
On-target bonus
opportunity
(% of base salary)
Maximum bonus
opportunity
(% of base salary)
225%
156%
350%
350%
The total value of any bonuses payable to both Executive Directors and other members of the Executive Committee is subject to a cap of
5% of profit before tax, in line with the policy.
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Group performance has been considered in relation to the following measures:
Financial/growth – 50%
Client, colleague and delivery – 30%
CEO
Individual – 20%
CFO
Net new business
Client retention
Strategic growth and client
service
Sustainable financials
Client numbers
Profit before tax
Colleague advocacy (engagement)
Strategic delivery
Culture, risk and governance
Reputation
Strategy evolution and risk
Capability and delivery
Details of performance in each of these areas is set out below:
Financial/Growth
(50% weighting)
Net new business £5.5bn
Threshold
Target
£6.75bn
Stretch
£8.0bn
Actual
£7.7bn
Achievement Commentary
88%
Client numbers
1,224,521
1,279,449
1,334,376
1,412,094
100%
£292.4m £314.5m £336.5m £339.5m 100%
Profit before tax
(excluding gain on
the sale of Funds
Library)
Client, colleague and
delivery
(30% weighting)
Client retention
Threshold
90%
Target
92%
Stretch
94%
Actual
92.8%
Achievement Commentary
70%
Colleague
engagement
56
58
61
63
100%
Strategic delivery 0
50%
100%
100%
100%
A strong overall performance with net new business
just short of a very ambitious target and ahead of prior
year (£7.3bn). The Committee noted the strong tax year
end with record figures during March and April 2020 and
recognised this very strong performance given difficult
external market conditions in both halves of the year.
Exceptional performance with 188,000 net new clients
(133,000 last year) despite challenges in the first half of
the year.. The Committee noted the impact of
management actions through migrations and a very
effective marketing campaign. The Committee also
noted continued growth in market share (40.5% to
41.1% in the platform market and 34.1% to 39.5% in the
UK execution only stockbroking market).
The Committee noted exceptional performance
through rigorous cost control, excellent focus on
trading volumes and strategic decisions regarding
investment. Statutory profit before tax of £378.3m
(including gain on sale of Funds Library)
Overall achievement 47.9% of 50% weighting
A strong overall performance with client retention
remaining relatively consistent with previous periods
although slightly below last year (93.6%). The
Committee noted the measures put in place by
management to retain clients.
Exceptional performance supported by many other
positive results from the colleague survey, including
leadership, management and culture measures. The
Committee noted the culture engagement programme,
diversity and inclusion strategy and, in particular, the
effectiveness of empathetic leadership through positive
management of the impact of the COVID-19 pandemic.
The Committee noted very strong performance and a
step change in delivery of the strategic delivery
programme across transformation, technology,
proposition, service and efficiency, regulation and
operational infrastructure. In addition, the Committee
noted the resilience of core systems together with agility
in responding to and supporting clients and colleagues
during the height of the COVID-19 pandemic.
Overall achievement 27% of 30% weighting
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The Committee assessed each individual Director’s performance during the financial year, including against their personal objectives, as
follows:
Chris Hill
Objective
Metrics
Achievement
Define and shape the business to deliver
strategic growth whilst maintaining market
leading client service
Foster a diverse and innovative, results
oriented culture that operates within an
effective risk framework and well
governed organisation
Proactively manage the reputation of the
Group across all stakeholders
Assessment based on growth in market
share and client advocacy (likelihood to
recommend)
Assessment based on diversity,
application of best practice and
effectiveness of controls and processes
Assessment based upon a basket of
measures contained within the
reputation scorecard
Outperformed on market share and
positive improvement on client advocacy
Excellent progress on all metrics with
some outperformance
Strong performance achieved
Summary:
The Committee concluded the CEO achieved a very strong performance. Notably his preparation, supported by the leadership team,
ahead of the COVID-19 pandemic ensured record levels of business with significant numbers of colleagues working from home and
remaining motivated and engaged. Learnings from last year have produced tangible results and he has made a significant contribution
to performance throughout the year and, in delivering against his personal objectives, demonstrated a strong set of values, vision and
talent in an extremely challenging environment.
Overall achievement 16.5% of 20% weighting
Philip Johnson
Objective
Metrics
Achievement
Shape a sustainable business model that
delivers long-term financial results
Assessment based on delivery of strategic
initiatives, capital and liquidity
Outperformed on strategic delivery
(notably operational resilience and
transformation projects) and very strong
performance across all financial delivery,
including personal oversight of Funds
Library sale)
Outperformed on investor relations and
colleague with very strong performance
across the risk and controls framework.
Outperformed in all areas
Assessment based on quality of investor
relations, colleague engagement and
audit, risk and compliance actions
Assessment is based on client service
metrics, including errors and complaints
balanced against efficiency measures
Provide leadership and direction to evolve
and communicate the strategy within an
effective risk framework
Balance resources and service levels to
improve capability and delivery across
functional areas
Summary
The Committee determined that Philip Johnson has made a significant contribution to the financial success of the business through
financial leadership and a robust focus on costs. Through achievement of his personal objectives, capital and liquidity remains strong to
support an ambitious business strategy coupled with high service levels and strong investor relationships. Philip Johnson has made a
significant contribution to performance throughout the year and, in delivering against his personal objectives, demonstrated a strong
set of values, leadership and talent in an extremely challenging environment.
Overall achievement 18.5% of 20% weighting
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Overall assessment and bonuses awarded for the financial year (1 July 2019 to 30 June 2020) (Audited)
The Committee considered all of the above in making their bonus determination for Chris Hill and Philip Johnson for the 2020 financial year.
The Committee is satisfied that the outcomes for Executives reflect the performance of the business in the round and the experience of
the Group’s stakeholders, without any need to apply discretion to adjust the 2020 bonus awards.
In addition, it also considered the extent to which performance (both Group and individual) has been achieved within the agreed risk
parameters, based on an assessment from the Chief Risk Officer, and the extent to which the bonus outcome reflects the overall
performance of the business in the context of the client and shareholder experience.
The Committee concluded that the bonus outcomes for Chris Hill and Philip Johnson should reflect the strong levels of Company
performance during the year, as well as the high levels of leadership shown by both, including their performance against individual
objectives and the Group’s values.
The resulting bonuses determined by the Committee for the year ending 30 June 2020 are set out below:
Chris Hill 2020
Chris Hill 20191
Philip Johnson 2020
Philip Johnson 20191
Cash £’000
Deferred £’000
Total £’000
1,243
0
870
0
829
0
580
0
2,072
0
1,450
0
% of maximum
94%2
0
93%3
0
Notes
1 In the prior year, Executive Directors informed the Committee that they did not wish to take any bonus for the 2019 performance year. The Committee accepted their
decision and their awards were waived.
2 Having applied the performance outcome to the CEO’s on-target and maximum bonus opportunity (on a straight line basis), this results in a bonus of 329% of salary which is
94% of his maximum opportunity
3 Having applied the performance outcome to the CFO’s on-target and maximum bonus opportunity (on a straight line basis), this results in a bonus of 325% of salary which is
93% of his maximum opportunity
Deferral of annual performance bonuses
40% of the annual performance bonus is subject to compulsory deferral into nil cost options over shares for a period of three years.
Dividend alternatives will accrue on the deferred share element of bonuses up to the time of vesting and will be paid at exercise. Individuals
have a right to exercise deferred awards that vest after three years provided they remain employed by the Group at exercise.
Share awards made during the year ending 30 June 2020 (audited)
Name of director
Chris Hill
Type of
award
SPP3
Market value
of maximum
award at date
of grant £
Exercise price £
Share price
on day of
grant £
Number of
shares over
which the award
was granted
Face value1
of award £
Fair value2
at date of
grant £
% of face
value that
would vest
at threshold
306,000
Nil cost option 20.21
15,141
306,000
306,000
n/a
Philip Johnson
SPP
216,732
Nil cost option 20.21
10,724
216,732
216,732
n/a
Performance
period
1 July 2019 to
30 June 2024
1 July 2019 to
30 June 2024
Notes
1 Face value is calculated as the share price at the date of grant multiplied by the number of options granted.
2 Fair value is calculated as the difference between market value and the exercise price at the date of grant.
3 Awards under the SPP were granted on 3 February 2020 with grant price relating to what would have been the original grant date on 20 September 2019, at 50% of base salary
subject to the achievement of underpinning performance conditions and will vest over five years. The underpinning performance conditions are:
• A requirement for average AUA for the last complete financial year prior to vesting to be above the average AUA for the last complete financial year prior to award;
• Maintenance of a satisfactory risk, compliance and internal control environment across the plan period; and
• Satisfactory personal performance throughout the plan period.
Due to the fact that Executive Directors waived their 2019 bonus awards, no awards were granted under the deferred share plan during the year to 30 June 2020.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Financial statementsOther informationGovernanceStrategic report ANNUAL REPORT ON REMUNERATION
All-employee share plans
The Company operates a SAYE share option scheme on the same
terms for all employees. All employees are encouraged to become
shareholders, both through direct ownership or through
participation in the share scheme. At the end of the latest financial
year, 35% of The Group’s employees owned shares in the Company.
Both Executive Directors opted to participate in the 2020 cycle of
the SAYE scheme.
Sourcing shares
The Investment Association guidelines on sourcing shares have
been followed and, in line with the scheme rules, the Company has
not issued shares under all employee schemes which, when
aggregated with awards under all of the Company’s other schemes,
exceed 10% of the issued ordinary share capital in any rolling 10 year
period. The Company has also not issued new shares under
executive (discretionary) schemes which exceed 5% of the issued
ordinary share capital of the Company in any rolling 10 year period.
Executive Directors’ shareholding and share interests (audited)
The current guideline for Executive Directors to accumulate
minimum personal holdings in Hargreaves Lansdown plc shares
amounts to a value of three times base salary within six years of
appointment to the Board.
Current shareholdings are summarised in the following table:
Beneficially
owned at
30 June 2019
Beneficially
owned at
30 June 20201
Outstanding
subject to
continued
employment
Outstanding
subject to
performance
conditions and
continued
employment
arising from
sustained
performance
plan
Outstanding
subject to
continued
employment
arising from
deferred bonus
24,503
30,612
29,260
32,314
1,547
1,547
72,925
29,520
47,912
33,937
Name of Director
Chris Hill
Philip Johnson
No of share
options
vested but
unexercised
at 30 June
2020
Shareholding
guideline
(multiple of
base salary)
Shareholding
as a multiple
of base salary
achieved at
30 June 2020
0 Three times
0 Three times
0.76
1.18
No of share
options
exercised
in year
9,0501
1,7022
Notes
1 Options exercised granted under 2016 Deferred Bonus Plan.
2 Options exercised were granted under the 2017 SAYE scheme.
3 Includes shares held by the Directors and their connected persons.
There has been no subsequent change in Directors’ shareholding and share interests since 30 June 2020.
.
Pension
No Directors or employees participate in a defined benefit
pension scheme.
Payments to third parties
The Committee confirms that no amounts have been paid to third
parties in respect of Directors’ services.
Payments to past Directors (audited)
The Committee confirms that no payments have been made to
past Directors during the year with the exception of the vesting of
the following share awards for:
• Ian Gorham who exercised 37,409 shares, relating to deferred
bonus shares on 12 September 2019 where the share price was
£20.2986.
Payments for loss of office (audited)
The Committee confirms that no payments have been made for
loss of office during the year.
The Group operates its own Group Self Invested Personal Pension
(the GSIPP) which applies to Directors and employees. The
Company requires a minimum employee contribution of 5% of
reference salary and in exchange the Company will contribute 5%.
Employees are able to contribute up to 3% more than the 5% on a
double matching basis. This means that for an 8% employee
contribution the Company contribution can be up to
11%. Employees wishing to make additional contributions to the
GSIPP can do so via salary exchange or bonus waiver ensuring that
they benefit from the maximum, immediate relief from income tax
and National Insurance.
Where an employee has reduced the level of their contribution to
the GSIPP due to exceeding, or being due to exceed, the Annual
Allowance limits and/or has sought Lifetime Allowance protection,
the Company contributes on the same basis as the pension
scheme (on a taxable basis) where the employee contributes
to a savings vehicle.
Where an employee, who has reached (or is due to reach) their
Annual Allowance limit and/or has sought Lifetime Allowance
protection, does not wish to contribute to a savings vehicle, the
Group will make an additional monthly payment equivalent to the
employer’s pension contribution amount forsaken up to a maximum
of 5% of reference salary. The Committee confirms that no excess
retirement benefits have been paid to current or past Directors.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Remuneration in context
Total shareholder return
The following graph shows the Company’s performance measured
by total shareholder return (TSR), which is the capital growth and
dividends paid. This is compared with the performance of the
FTSE 350 Financial Services Index for the past ten years.
This chart shows the value of £100 invested in the Company on 1
July 2010 compared with the value of £100 invested in the FTSE 350
Financial Services Index for each of our financial year ends to
30 June 2020. We have chosen the FTSE 350 Financial Services
Index as we believe it is the most appropriate comparator for
benchmarking our corporate performance over the ten year period.
800
600
400
200
0
2010
Hargreaves Lansdown
FTSE 350 Financial Services Index
2020
Chief Executive Officer remuneration for the past ten years
CEO
Peter Hargreaves1/
Ian Gorham2
Ian Gorham
Ian Gorham
Ian Gorham
Ian Gorham
Ian Gorham
Total remuneration
£85,123/£1,034,167
£1,640,895
£6,751,557
£10,608,359
£2,058,642
£2,070,861
Ian Gorham3/Chris Hill4
Chris Hill
Chris Hill
Chris Hill
£1,167,549/£1,035,211
£2,454,048
£648,278
£2,739,520
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
Annual bonus as a
percentage of maximum
Shares vesting as a
percentage of maximum6
(£73,333)5/(£666,667)5
(£1,250,000)5
(£1,500,000)5
60% (£1,350,000)
52% (£1,170,000)
78% (£1,550,000)
43%/81%
(£600,000/£790,625)
81% (£1,700,000)
0% nil
94% (£2,072,000)
nil/nil
nil
100%
100%
nil
nil
66%
39%
nil
nil
Notes
1 Emoluments for Peter Hargreaves for 2011 are shown for the two months prior to the date of his resignation from the role as Chief Executive Officer.
2 Emoluments for Ian Gorham for 2011 are shown for the ten months following his appointment to the Board as a Director.
3 Emoluments for Ian Gorham for 2017 are shown for the period to 9 February 2017 when he stepped down as Chief Executive Officer.
4 Emoluments for Chris Hill for 2017 reflect his emoluments for the period from 9 February 2017, and exclude his earnings as Chief Financial Officer and Deputy Chief Executive
Officer prior to that date.
5 Prior to 2014, there was no individual cap on annual bonus payable, other than the overall bonus pool cap as a percentage of profit before tax. Bonus figures shown
are gross of any sacrifice into pension and before any compulsory deferral.
6 Options vesting in 2014 and 2013 pre-dated the LTIP and therefore had no performance criteria.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Financial statementsOther informationGovernanceStrategic report
ANNUAL REPORT ON REMUNERATION
Percentage change of all Directors and all employees
The table below shows the percentage change in remuneration of each Executive and Non-Executive Director against the Group’s
employees as a whole between the year ended 30 June 2019 and the year ended 30 June 2020.
Average
employee
(% change)1,2
Executive Directors
(% change)
C Hill
P Johnson
Non-Executive Directors (% change)
D
Oppenheimer S Robertson S Garrood
J Styles4
F Clutterbuck R Perkin
D Olley
J Troiano5
6.41%
2.82%
2.9%
0%
2.9%
366%6
0%
N/A 7
59.3%
N/A 7
10.5%
N/A 7
N/A
N/A 7
10.8%
N/A 7
4.3%
N/A 7
0%
N/A 7
N/A
N/A 7
11.8%
–3
–3
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
Element of
pay
Base
salary
Benefits
Annual
Bonus
Notes
1 This table shows the change in average salary and average bonus delivered to eligible colleagues between 2019 and 2020.
2 Average employee pay has been calculated on a full-time equivalent basis.
3 For 2018/19, both Executive Directors did not receive an annual bonus. Therefore, no comparison to 2019/20 has been drawn.
4 Stood down 9 October 2019
5 Appointed 1 January 2020
6 The increase in benefits for P Johnson is due to the inclusion this year of the value of the SAYE discount over the full three year contract term (in accordance with the single
figure methodology). The reportable value of benefits this year is £5,495 compared to £1,180 last year’
7 Effective 4 September 2019, expenses reimbursed via the Group’s travel and expenses policy have been reported as taxable benefits. Since these were not reportable last
year, it is not possible to reflect a percentage change figure.
CEO pay ratio
The table below sets out the ratio at median, 25th and 75th percentile of the total remuneration received by the CEO for the past two years
compared to the total remuneration received by our UK colleagues. Last year, we voluntarily published our CEO pay ratio ahead of
disclosure requirements using the same methodology as set out below.
Year
2020
2019
Method
Lower quartile
Median
Upper quartile
Change in median
Option A
Option A
103:1
24:1
73:1
17:1
47:1
11:1
329.4%
-75.7%
Notes to the calculations:
1. The median, 25th and 75th percentile colleagues were determined based on calculating total annual remuneration up to and including 30 June.
2. In calculating total remuneration for colleagues, any gains on historic options vesting within the calculation year have been excluded. The omission of this factor does not
materially affect the ratio outcomes.
3. Basic salary for part-time colleagues and new joiners within the calculation year have been converted into full-time annualised equivalent values for the purposes of the
calculations.
4. ‘Option A’ was chosen from the options available in the reporting regulations since it is the most robust and statistically accurate method.
5. Benefits are provided on the same terms to Directors and all employees alike and as such are not included within the table above. The methodology used in these calculations
is consistent with those in the single figure table, with the same approach being taken for 2019 and 2020.
6. Set out separately in the table below is the basic salary and total remuneration figures for each of the percentiles in each year:
Year
2020
2019
Pay element
Basic salary
Total remuneration
Basic salary
Total remuneration
UK employee
lower quartile
UK employee
median
UK employee
upper quartile
22,433
26,573
21,838
26,605
28,888
37,625
28,050
37,093
44,940
58,249
46,920
57,714
7. 2019 calculations have been included to allow for a relative comparison of the 2020 outcomes to be evaluated.
The pay ratio has increased from the prior year due to the Executive Directors waiving their bonus last year. There have been no material
changes in pay or benefits of UK employees nor changes in the proportion of employees working outside the UK or employed under
contracts for service.
The Committee believes that our 2020 median pay ratio is consistent with the Group’s wider pay, reward and progression policies for our
UK employees.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Relative importance of the spend on remuneration
The table below shows the actual expenditure of the Group in terms of total employee remuneration, profit before tax, and total
dividends for this and the previous year together with the percentage change between the years. Profit before tax has been chosen as
a metric in this instance to demonstrate the profits generated for shareholders and the relationship between this and the overall cost
of employee remuneration.
2020
2019
% change
Total dividend
paid
£m
Profit before
tax
£m
Employee
costs
£m
Total dividend
declared
(pence per share)
203.3
190.5
+7%
378.3
305.8
+24%
101.2
97.2
+4%
54.9p
42.0p
+31%
External directorships of Executive Directors in the year
None of the Executive Directors have held any external directorships during the year.
Remuneration Policy for other employees
All employees across the Group are subject to the same process in respect of annual salary reviews. Consideration is given to the scope
of each role, the level of experience, responsibility, progress in role, and pay levels for similar roles in comparable companies. The
performance and potential of the individual is also considered.
All permanent employees are considered for an annual performance bonus, or equivalent, with similar metrics to those used for the
Executive Directors. All eligible employees (under the rules of the scheme) may also participate in the Group’s Save As You Earn.
Chair and Non-Executive Director remuneration
Fees for Non-Executive Directors are structured with a base fee payable to all Non-Executive Directors, with additional fees paid for
the role of Senior Independent Director and for the chairs of Board sub-committees.
Fees for Non-Executive Directors for the 2020 financial year are as follows:
Fee policy
Chair
Base fee for Non-Executives
Senior Independent Director
Chair of Audit Committee
Chair of Remuneration Committee
Chair of Risk Committee
Chair of Nomination Committee1
Note
1 Under current arrangements the Chair fulfils this role for no additional fee.
Fees have been increased by up to 2.9% in line with Executive Director and wider workforce increases.
Fees from
1 July 2019
(£ p.a.)
£325,000
£70,000
£15,000
£20,000
£20,000
£20,000
£10,000
Fees from
1 July 2020
(£ p.a.)
£334,500
£72,000
£15,400
£20,500
£20,500
£20,500
£10,000
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Financial statementsOther informationGovernanceStrategic report ANNUAL REPORT ON REMUNERATION
Remuneration payable for the 2020 financial year (1 July 2019 to 30 June 2020) (audited)
The remuneration received by Non-Executive Directors in 2020 is set out below.
D Oppenheimer
S Robertson
S Garrood
J Styles2
F Clutterbuck
R Perkin
D Olley
J Troiano3
2020 fees
(£)
325,000
107,5001
105,000
26,667
90,000
90,000
70,000
55,000
2020 Benefits
(£)
13,611
3,112
1,543
1,934
1,814
3,369
594
846
2020 Total
(£)
338,611
110,612
106,543
28,601
91,814
93,369
70,594
55,846
2019 fees
(£)
325,000
67,500
95,000
75,000
81,250
86,250
5,833
–
2019 Benefits
(£)
–
–
–
–
–
–
–
–
2019 Total
(£)
325,000
67,500
95,000
75,000
81,250
86,250
5,833
–
Notes
1 Includes £37,500 payable for acting as Chair of Hargreaves Lansdown Fund Managers Ltd from 1 October 2019.
2 Stood down 10 October 2019.
3 Appointed 1 January 2020.
Non-Executive Directors received no other benefits or other remuneration other than reimbursement of all reasonable and properly
documented travel, subsistence and other incidental expenses incurred in the performance of their duties and any tax and social costs
arising thereon, the benefit of officers’ liability insurance and reduced fees for the use of Hargreaves Lansdown services for themselves
and connected persons, on the same basis as all other Hargreaves Lansdown employees.
The table below shows, as at 30 June 2020, the Company shares held by the current Non-Executive Directors:
D Oppenheimer
S Robertson
S Garrood
F Clutterbuck
R Perkin
D Olley
J Troiano
1 There has been no subsequent change in Non-Executive Directors’ shareholdings since 30 June 2020.
Shares
30,572
12,847
Nil
2,197
Nil
Nil
Nil
Implementation of the Remuneration Policy in 2020/21 –
Executive Directors
Salary
The Executive Directors’ base salaries were reviewed in August 2020.
In reviewing base salaries, the Committee takes into account salaries
paid elsewhere across the Group, relevant market data and
information on remuneration practices in peer companies in the
financial services sector. Based on this information, the Committee
agreed to award a 2.9% increase to the Executive Directors against a
range of increases from 0% to 12.5% within an overall budget for base
salary increases of 3% across the organisation.
Name of Director
Chris Hill
Philip Johnson
Salary as at
1 July 2020 (£)
Salary as at
1 July 2019 (£)
% increase
648,000
459,000
630,000
446,000
2.9
2.9
Annual bonus
For 2021, awards will be subject to performance assessment against
a combination of financial/growth, client, colleague and strategic
delivery measures, as well as personal performance, including an
assessment against the Hargreaves Lansdown Values. Risk and
compliance considerations will also be taken into account at both
Company and individual levels.
The Company performance assessment will include the
following measures:
Financial/growth
– 50%
Client, colleague
and delivery – 30%
Individual – 20%1
CEO
CFO
Net new
business
Client retention Scale and client
Client numbers Colleague
advocacy
(engagement)
Strategic
delivery
Profit before
tax
service
Reputation
Governance
risk and
culture
Scale and
sustainable
business
Resources
to deliver
strategy
Governance,
risk and
culture
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Note
1 Assessment of performance will take account of both delivery (what) and
demonstrations of behaviours aligned to HL’s values (how).
Dividend alternatives will accrue on the deferred share element of
bonuses up to the time of vesting and will be paid at exercise. Bonus
awards are subject to a formal malus mechanism until vesting and
clawback until the later of three years from the date of award or until
the end of any post vesting retention period. The Committee can
defer a decision to award bonuses or award and suspend payment
of bonuses for any individual in scope of an investigation into their
conduct or responsibility, accountability or knowledge and/or
influence over any material risk event identified during or after the
performance year. For further details of the relevant malus/
clawback triggers, please see page 81.
Sustained Performance Plan (SPP)
Each Executive Director will receive an award over HL plc shares
with a face value of 50% of base salary, subject to satisfactory
personal performance in the period prior to grant.
Awards will vest after five years, subject to the achievement of the
following underpinning performance conditions assessed over a
three year period:
• A requirement for average AUA for the last complete financial
year prior to the third anniversary of grant to be above the
average AUA for the last complete financial year prior to award;
• Maintenance of a satisfactory risk, compliance and internal
control environment across the performance period; and
• Satisfactory personal performance throughout the
performance period.
The Board will review performance against these underpinning
conditions in the round, giving due consideration to market
movements, investor sentiment, interest rates and the impact
of regulation, all of which are beyond the control of the Executive
Directors. They will also consider the extent to which management
has operated within the agreed risk parameters in assessing the
extent to which awards should vest.
Dividend alternatives will accrue up to the time of vesting and
will be paid at exercise.
Awards are subject to a formal malus mechanism until vesting.
Awards are subject to clawback until the end of any post vesting
retention period.
Under the Group’s variable pay plans, the Committee can defer
a decision to award bonuses or award and suspend payment of
bonuses or suspend vesting of deferred bonuses or SPP awards
for any individual in scope of an investigation into their conduct or
responsibility, accountability or knowledge and/or influence over
any material risk event identified during or after the performance
year. For further details of the relevant triggers, please see page 81.
The targets set in relation to these measures are considered to be
commercially sensitive, but will be disclosed in next year’s Annual
Remuneration Report.
In making an assessment of performance, the Committee will give
due consideration to market movements, investor sentiment,
interest rates and the impact of regulation, all of which are beyond
the control of the Executive Directors. They will also consider the
extent to which management has operated within the agreed risk
parameters and the extent to which the bonus outcome reflects
the overall performance of the business in the context of client and
shareholder experience. Details of the Committee’s assessment
will be given in the remuneration report next year.
Individual performance will be assessed against the
following objectives:
Individual objectives for Chris Hill
• Define and shape the business to thrive at scale whilst
maintaining market leading client service.
• Proactively manage the reputation of the Group across
all stakeholders,
• Shape a well governed organisation that operates within the
Board’s risk appetite.
• Develop a diverse, inclusive and innovative culture with colleagues
who are engaged, empowered, work together and live our values.
Individual objectives for Philip Johnson
• Shape a sustainable business model to thrive at scale and deliver
long-term financial results.
• Balance resources across the Group to support delivery of the
strategy and maintain service levels.
• Support a well governed organisation that operates within the
Board’s risk appetite.
• Develop a diverse, inclusive and innovative culture with colleagues
who are engaged, empowered, work together and live our values.
In addition, each Executive Director’s performance will be assessed
against how they have demonstrated behaviours aligned to our
values: Put the client first | Go the extra mile | Make it easy |
Do the right thing | Do it better.
In line with the Directors’ Remuneration Policy, the following
on-target and maximum bonus opportunities will apply:
Chris Hill
Philip Johnson
On-target bonus
opportunity
(% of base salary)
Maximum bonus
opportunity
(% of base salary)
225%
175%
350%
350%
In line with the approved policy, any bonus awarded to each
Executive Director will be delivered in a combination of cash
and shares as required by regulation and following the end of the
financial year with a minimum of 40% of any bonus deferred over
HL plc shares vesting in annual instalments equally over a period
of three years, subject to continued employment.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Financial statementsOther informationGovernanceStrategic report ANNUAL REPORT ON REMUNERATION
Statement of voting at the AGM
At the AGM held in 2019, votes cast by proxy and at the meeting in respect of the Directors’ remuneration report, and at the AGM in 2017,
votes cast by proxy and at the meeting in respect of the Directors’ Remuneration Policy were as follows:
Resolution
Approve Directors’ Report
on Remuneration
Approve Directors
Remuneration Policy
Votes for
(including
discretionary
votes)
% for
Votes
against
% against
Total votes
cast excluding
votes withheld
Votes
withheld
Total votes
cast including
votes withheld
419,940,653
99.64%
1,534,884
0.36% 421,475,537
4,073,659
425,549,196
397,269,387
98.69%
5,289,288
1.31% 402,558,675
1,771,890
404,330,565
Fiona Clutterbuck
Chair of the Remuneration Committee
6 August 2020
98
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
NOMINATION COMMITTEE REPORT
REFINING THE GROUP’S APPROACH
TO SUCCESSION PLANNING
Attendance at Committee meetings during
the year to 30 June 2020
Position
Member
Deanna Oppenheimer Chair
Fiona Clutterbuck
Shirley Garrood
Roger Perkin
Stephen Robertson
Jayne Styles
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Meetings
eligible
••••••
••••••
••••••
••••••
••
••
Meetings
attended
••••••
••••••
••••••
••••••
••
••
Dear Shareholder
As Chair of the Nomination Committee, I am pleased to present
this report on the Committee’s activities in the year under review.
The Committee continues to improve and refine the Group’s
approach to succession planning, both at Board level and within
the Group’s senior management. During the period, the Committee
has overseen the development of a detailed skills matrix to assist
it in planning for future Board changes, as well as considering in
detail the potential skills gap when Directors rotate off the Board
in due course.
In its approach to succession planning and recruitment, the
Committee has continued to promote diversity and inclusion
across the business to support the Group’s growing and
increasingly diverse client base, and has overseen improvements
to the Group’s policy and strategy to encourage and embed
a diverse and inclusive culture across the organisation.
The Board considers that having high calibre Directors is key to the
Group achieving its strategic objectives. During the period, John
Troiano was recruited as an independent Non-Executive Director
of each of the Company and Hargreaves Lansdown Fund Managers
Ltd (HLFM, the Groups fund management arm), John Misselbrook
was recruited to chair the board of HLFM, and each of John Troiano
and Dan Olley joined the Risk Committee. Dan has also joined the
Remuneration Committee with effect from 1 July 2020.
Promoting diversity and inclusion
across the business
Deanna Oppenheimer
Chair of the Nomination Committee
As at the date of this report, the Committee is at an advanced stage
in the process of recruiting up to two additional Non-Executive
Directors to build further resilience into the membership of the
Board’s Committees and continue to align the Board’s overall
skillset to the future strategic needs of the business. As part of the
recruitment process, the Committee is paying close regard to the
recommendations of the Hampton-Alexander and Parker Reviews.
The Committee also carried out regular reviews of Board and
Committee composition, and oversaw the Group’s progress in
implementing recommendations from the recent Board
effectiveness reviews.
Given the challenges posed by the ongoing COVID-19 pandemic
and the restrictions on public gatherings, at the time of writing the
Board is considering all options as to what format this year’s AGM
will take and how shareholders might be given the opportunity to
ask questions relating to the Committee’s work. Further details will
be set out in the Notice of AGM.
Deanna Oppenheimer
Chair of the Nomination Committee
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Role of the Nomination Committee
The Committee plays a key role in reviewing and monitoring the
composition of the Board and its Committees to ensure that each
has the right balance of skills, knowledge and experience to function
effectively and support the Group in achieving its strategic
objectives. In doing so, it conducts ongoing succession planning to
ensure there is a diverse pipeline of talent for appointments to the
Board and senior management to meet the Group’s current and
anticipated future business needs. The Committee leads the
process for appointments to the Board and re-election of Directors,
having regard to the skills and experience required and the need to
promote diversity throughout the Group.
As part of its role in ensuring the Board and its Committees are
functioning effectively, the Committee also oversees the annual
evaluation of the Board’s performance and monitors the Group’s
progress in implementing recommendations.
The detailed responsibilities of the Committee are set out in its
terms of reference, which are available on the Group’s website
at www.hl.co.uk/about-us/board-of-directors.
This report provides an overview of how the Committee has
discharged its responsibilities during the period under review.
Composition and meeting attendance
Deanna Oppenheimer (as Chair), Fiona Clutterbuck, Shirley Garrood
and Roger Perkin were members of the Committee throughout
the period under review. Jayne Styles was a member of the
Committee until her resignation as a Non-Executive Director
on 10 October 2019, and Stephen Robertson stepped down as
a member of the Committee following its October meeting. The
Code requirement that a majority of members are independent
Non-Executive Directors has therefore been satisfied throughout
the period under review.
Committee appointments are made for three-year terms and
can be extended for no more than two additional three-year terms,
provided that the member still meets the criteria for membership.
The Board regularly reviews the composition of the Committee
and makes appointments accordingly.
The Committee met six times in the period under review. The
attendance of members at each meeting is set out in the table on
page 99. Other individuals attend Committee meetings at the
request of the Committee Chair. This will usually include the Chief
Executive Officer and Chief People Officer and, where relevant, the
Group’s external advisers. The Committee has access to the Group
Company Secretary, who also acts as secretary to the Committee.
The Committee is authorised to obtain independent professional
advice where it considers it necessary.
Percentage of time spent on key areas
19%
Governance
and other
32%
Recruitment
21%
Talent, leadership
succession, diversity
& inclusion
28%
Board composition and effectiveness
Overview of the Committee’s activities in the year to 30 June 2020
Approach to succession planning
The Committee has responsibility for ensuring appropriate
succession planning for both for the Board and the Group’s senior
management. In doing so, the Committee considers the Group’s
present and future needs by reference to the challenges and
opportunities it faces, its strategic objectives, its culture, and the
need to promote diversity of gender, social and ethnic backgrounds,
cognitive and personal strengths.
To date, the Committee has adopted an approach whereby
succession planning for the Board is based on key drivers such as
recommendations from externally led Board evaluations, feedback
from meetings with key stakeholders such as the FCA, the
Committee’s own reviews of Board size, structure and composition,
and developments in corporate governance best practice, such as
the recommendations of the Parker Review.
At its June meeting, the Committee considered and approved a
change of emphasis to an ‘evergreen’ approach to succession
planning, with greater focus on proactively anticipating succession
demands and to develop a pipeline of talent with the skills and
capabilities that align to the future strategic needs of the business.
Skills matrix
During the period under review, the Committee has overseen the
development of a detailed skills matrix to aid it in identifying the
present and future needs of the Board. The skills by which Board
members are assessed are aligned to the Group’s current needs
and strategic objectives. In addition to aiding the Committee in
succession planning and supporting recruitment, the matrix assists
the Committee in its review of the size, structure and composition
of the Board and its Committees, and in identifying collective and
individual development needs.
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Board size, structure and composition
The Committee regularly reviews the size, structure and
composition of the Board, as well as conducting annual reviews
of the composition of its Committees. In addition to providing the
Board with assurance on its ability to satisfy the Group’s current
and future business needs, the reviews provide an opportunity
to consider the additional skills and experience that might
complement those already on the Board. This, in turn, is used
as a tool to develop the Group’s succession planning.
The Group’s approach to Director training and development is
therefore to provide collective training events on topics of interest
for the Board as a whole, such as key regulatory changes, business
developments, cyber security and market updates. In addition,
there is now access to bespoke training events for individuals based
on specific development needs, background or changing roles.
For example, this could include detailed CASS training for Audit
Committee members, or one-on-one sessions with the Head of
Performance and Reward for Remuneration Committee members.
In reviewing the composition of the Board and its Committees,
the Committee also considers the tenure of the Non-Executive
Directors. Potential gaps in skills, knowledge and experience
when Directors rotate off are taken into account when developing
succession planning for both the Board and its Committees. In the
period under review, the Committee has considered in detail the
skills and experience gap that will flow from Stephen Robertson’s
and Fiona Clutterbuck’s departures. Having served on the Board for
nine years, Stephen will retire from the Board at the 2020 AGM, in
line with Provision 10 of the Code which lists a tenure of longer than
nine years as a circumstance that could impair independence. In
addition to Stephen’s focus on the client and marketing, he served
on all Committees and was the first Non-Executive Chair of HLFM.
Fiona will also retire from the Board at the 2020 AGM, and the
Committee will be working in particular to find a suitable
replacement as Chair of the Remuneration Committee.
John Troiano, appointed to the Board and Risk Committee as well
as the board of HLFM in January 2020, brings a strong knowledge
of the investment client and wealth management from his many
executive roles at Schroders. John Misselbrook has been recruited
to replace Stephen as Non-Executive Chair of HLFM. Further details
on these appointments are included below.
Contingency planning
In addition to considering longer-term succession planning, the
Committee has received and reviewed reports on short-term
contingency planning to prepare for unexpected periods of stress
using existing talent. In doing so, the Committee has received its
annual report on Non-Executive Director contingency planning, as
well as in-depth contingency planning for the Senior Management
Functions across the Group’s regulated subsidiaries that are subject
to the SMCR regime, which includes plans for the Executive
Directors on the Board.
Board training
During the period under review, the Committee oversaw
developments in the approach to training and development for
Directors. The Board recognises that the breadth and depth of
knowledge and experience required for the boards of listed
companies continues to expand, particularly in regulated
environments such as the financial services sector, and that owing
to previous experience and tenure with the Company, each Director
will have differing training and development needs.
In recognition of the time demands of Non-Executive Directors in
particular, training is offered via a range of mediums such as deep
dives at Board or Committee meetings, group or one-on-one
sessions at the office or remotely, as well as more formal courses
or training sessions offered by third party providers.
The output of annual Board evaluations and the skills matrix referred
to above are also used to identify both individual and collective
training and development needs.
Diversity
The Board believes that building a diverse and inclusive workforce is
important not just because it is the right thing to do, but because it
is good for the Group’s clients, its business and its people. The
Group’s objective is to build a diverse workforce at all levels and
create an inclusive culture for all. The Board is committed to
creating a culture where people treat each other with dignity and are
encouraged to realise their full potential.
The Group’s diversity and inclusion policy supports this by making
clear the Group’s aspirations and commitment to diversity and
inclusion, and by defining the roles and responsibilities that will
support it in attaining its objectives. The Group’s policy is based on
five key principles:
• Driving an inclusive culture. Inappropriate behaviour is not
accepted, and training is provided to reduce bias across
the organisation;
• Embedding diversity and inclusion into the Group’s systems and
processes. This includes a focus on hiring more, promoting more
and losing less diverse talent, and making reasonable workplace
adjustments to accommodate colleagues from diverse
backgrounds and those with specific needs;
• Taking a data-driven approach. The Group Executive Committee
is provided with regular management information, and the
demographics of the Group’s workforce are reviewed against
relevant external benchmarks;
• Driving the diversity and inclusion agenda. The Group’s leadership
are made personally accountable for promoting diversity and
inclusion within the organisation; and
• Doing less, well. The Group focuses on a smaller number of
actions that will have the greatest impact.
During the period, the Committee reviewed updates to the Group’s
diversity and inclusion policy and approved the strategy and action
plan being followed as the Group continues to promote and embed
a diverse and inclusive culture. Further information on the Group’s
progress in achieving its objectives can be found on pages 41 to 45
of the Strategic Report.
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Gender balance
Part of the Board’s commitment to promoting diversity is its
continued focus on gender diversity both at Board level and in
the Group’s senior management. The Committee has overseen
the development of specific strategic initiatives in this respect,
including to hire more, promote more and lose less women in
senior positions.
As at 30 June 2020, the Board numbered nine in total, three of
whom are female. Whilst this is a reduction in female representation
on the Board since last year, the Board is proud to have met the
target set out in the Hampton-Alexander Review of 33% female
representation by 2020, and the Committee continues to focus
on promoting gender diversity as part of its recruitment processes.
The Group continues to promote diversity across the organisation
and is proud to be a signatory to the Women in Finance Charter, a
government initiative to promote diversity and inclusion. As at 30
June 2020, female representation across the Group’s senior
management (as per the Code definition) was 31%. For these
purposes ‘senior management’ comprises members of the Group
Executive Committee, the Group Company Secretary, and each of
their direct reports (including administrative staff). The gender
balance of the Group’s senior management as per the Companies
Act 2006 definition (which only includes those responsible for
planning, directing or controlling the activities of the Group or
a strategically significant part) can be found on page 42 of the
Strategic Report.
Approach to NED recruitment
The Committee leads the process for appointments to the Board.
It uses the output of its detailed succession planning and regular
assessment of Board and Committee composition to identify the
skills, knowledge and experience required in candidates to meet the
Group’s current and future requirements. The Committee engages
external search firms for all Board appointments, using their
networks and expertise to identify a list of candidates that meet the
capability requirements developed by the Committee. Shortlisted
candidates are invited to interview with various members of the
Board and senior management. Summaries of the outcome of
interviews, along with candidate CVs, are then provided to the
Committee for detailed consideration.
In line with the Group’s Board diversity policy, the Committee
reviews broader aspects of diversity as part of its reviews of Board
composition and succession planning , and when searching for
candidates, the Committee takes into account a number of factors,
including the benefits of diversity and balance of composition of the
Board, including in terms of ethnicity and gender. The Group’s policy
is to work with search firms who have signed up to the Standard
Voluntary Code of Conduct for Executive Search Firms on diversity
and best practice, and reject candidate lists that are not suitably
diverse without sufficient reason. The overriding requirement
though is that recommendations for appointments are based on
merit against objective criteria, and that the best candidates are put
forward for consideration.
The Committee recommends its preferred candidate to the Board
for approval. The Committee maintains a list of unsuccessful
candidates who it considers may be suitable for consideration
in the future.
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Appointment of new independent Non-Executive Director
During the period under review, the Committee carried out a
detailed search for a new Non-Executive Director with experience
in investment management and a high profile City background.
The Committee engaged Lygon Group, an independent external
search agency, to assist with the search. Following a rigorous
process involving initial interviews with a range of potential
candidates, John Troiano was identified as the preferred candidate.
Further interviews were conducted by all members of the Board and
selected senior management. Having received detailed feedback
from the interview process, the Committee was pleased to
recommend John’s appointment to the Board and the board of
Hargreaves Lansdown Fund Managers Ltd, the Group’s fund
management arm. John was appointed as a Non-Executive Director
and member of the Risk Committee with effect from 1 January 2020.
During the period, the Committee also recommended to the Board
the appointment of Dan Olley as a member of the Risk Committee
and Remuneration Committee. Dan was appointed to the Board in
June 2019 to develop the Board’s understanding of emerging
technologies and to assist in developing its technology strategy.
Dan became a member of the Risk Committee in August 2019 and
his appointment adds to its capability to oversee and challenge
executive management on the risks associated with the Group’s
strategic objectives in the fields of technology and digital
transformation. Dan was appointed to the Remuneration
Committee on 1 July 2020, and it is considered his external
appointments in executive roles will add diversity to the
Committee’s constitution and thought processes.
In the latter part of the period under review, the Committee
commenced a rigorous search for up to two new Non-Executive
Directors. The key aims of the search have been to build resilience
into the membership of the Board’s Committees and aid succession
planning for Committee Chair roles, accelerate progress toward
meeting the recommendations of the Parker Review whilst
continuing to meet the recommendations of the Hampton-
Alexander Review, and bring further recent executive experience
to the Board to promote diversity of thought. Russell Reynolds
Associates, an independent external search agency, has been
engaged to assist with the search. It is anticipated that the results
of the search will be announced early in the new financial year.
The Committee also takes an active role in appointments to the
Group’s subsidiary boards. During the period under review, the
Committee carried out rigorous processes to identify suitable
candidates for two new independent Non-Executive Director
positions within HLFM, the Group’s fund management arm. This
included recommending to the Board the appointment of John
Misselbrook as a suitable candidate for the replacement of Stephen
Robertson, the outgoing chair. John was formally appointed to the
HLFM board on 3 July 2020 following FCA approval.
The Committee also recommended to the Board the appointment
of the Group Marketing Director to the board of Hargreaves
Lansdown Savings Limited to further develop the Active
Savings proposition.
Board effectiveness
The Committee oversees progress on the implementation of
recommendations and actions from the annual evaluation of the
performance of the Board and its Committees. The last externally
led Board evaluation was carried out in 2018 and facilitated by
Boardroom Review Limited, an external consultancy with no
connection to the Group. In line with the requirements of the Code,
the next externally facilitated review is planned to take place in 2021.
In the interim, annual evaluations of Board performance have been
facilitated internally. The 2019 evaluation consisted of a detailed
questionnaire covering areas such as Board and Committee
composition and culture, the conduct of meetings and the provision
of information, corporate culture and workforce engagement, and
understanding of shareholder, regulator and other stakeholder
issues. Members of the Board’s Committees were also asked
specific questions about the work of the Committees and how they
interact with key stakeholders. After completing the questionnaire,
members of the Board were invited to have one-to-one discussions
with the Chair and the Group Company Secretary to provide greater
insight into survey responses. The results of the 2019 evaluation
were submitted to the Board and actions approved in August 2019.
The 2020 evaluation has followed the same format as that for 2019,
with the questions refined to focus on the key themes and principal
issues identified from the 2018 and 2019 evaluations. Results will be
presented and actions agreed by the Board in the first half of the
new financial year.
Whilst the evaluations are opportunities to recognise what is
working well, they are also an important tool in identifying where
improvements can be made to ensure the Board and its
Committees are functioning and able to perform their roles in an
effective manner.
During the period, the Committee has received regular updates on
progress against actions from the 2018 and 2019 evaluations, as well
as approving the approach for this year’s evaluation. It also received
a report from the Group’s Internal Audit function to obtain
additional assurance on the progress in implementing
recommendations from the externally facilitated 2018 evaluation.
Key priorities and outcomes from the 2018 external evaluation
included the following:
• Strategy. Move toward a dynamic strategic process and develop
the strategic information provided to the Board. In response, a
cycle of review and refinement of the Group’s strategic plan has
been implemented by reference to the annual operating plan.
Critical strategic initiatives have also been identified and are
regularly reported to the Board through the Chief Executive
Officer’s business performance update.
• Culture. Ensure the culture of the organisation is conducive to
the growth and wellbeing of the Group. In response, a culture
action plan for the Group has been developed. This has resulted
in refinements to the Group’s people strategy and policies,
further details of which can be found on pages 41 to 45 of the
Strategic Report.
• Governance. Review the Group’s governance framework and
implement recommendations. In response, a detailed review of
the Group’s governance arrangements has been carried out and
a revised governance framework approved and implemented. You
can read more on page 60 of the Corporate Governance Report.
Key priorities and outcomes from the 2019 internal evaluation
included the following:
• Board and Committee meetings. Develop comprehensive
forward planners and ensure meetings are scheduled to ensure
sufficient time is set aside for strategic debate. In response,
rolling 12 month Board and Committee agendas have been
introduced and strategic discussions scheduled to take place
earlier in meetings.
• Provision of information. Increase rigour around timescales
for the submission of papers and improve the quality of papers.
In response, the Company Secretariat team has worked to
commission papers earlier with time for initial Chair review
and feedback where required. The Group’s paper templates
and associated guidance for authors have also been further
developed and refined.
• Culture. Review and develop consistent non-financial culture KPIs
for sharing regularly with the Board. In response, proxy culture
measures have been developed and are now included within the
Chief Executive Officer’s business performance updates.
Nomination Committee evaluation
During the period under review, the Committee has overseen the
implementation of recommendations relating to its effectiveness
from both the externally facilitated 2018 evaluation and internally led
2019 evaluation. This has included the aforementioned skills matrix,
which has been developed to assist the Committee with succession
planning and recruitment, the approval of a revised role profile for
the Senior Independent Director, and a detailed review of the
Committee’s corporate calendar to ensure sufficient time is made
available for the Committee to effectively discharge its
responsibilities. The Committee has also supported the Group
Company Secretary in developing a revised induction programme
and training approach for Non-Executive Directors.
Director independence, time commitment and re-election
The Committee conducted its annual review of the independence
of the Non-Executive Directors, and time commitments of the
Directors generally, at its June meeting. In reviewing the
independence of the Non-Executive Directors, the Committee
considered in detail whether any circumstances have arisen,
including those set out in Provision 10 of the Code, which are likely to
impair, or could appear to impair the independence of each Non-
Executive Director. This included consideration of length of tenure,
existing and proposed external directorships and other similar
appointments, and any other conflicts recorded by the Company in
respect of each Non-Executive Director. The Committee concluded
that it considered each of the Non-Executive Directors to be
independent under the provisions of the Code.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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In concluding that each of the Non-Executive Directors has
sufficient time available to allocate to the Company as set out
in their letters of appointment, the Committee considered the
detailed requirements of the Code and the Capital Requirements
Directive (CRD IV), attendance records for each Director and
responsiveness to Company business, as well as the confirmations
given to the Chair by each of the Non-Executive Directors that
they continue to have sufficient time to discharge their
responsibilities effectively.
As part of its review of the size, structure and composition of the
Board, and taking into account its assessment of independence
and time commitments, the Committee is satisfied that the Board
continues to be effective. Based on its assessment of each Director’s
performance and ability to continue to contribute to the Board in
light of the knowledge, skill and experience they possess, the
Committee has recommended to the Board that, other than
Stephen Robertson and Fiona Clutterbuck who are standing down,
each of the Directors is put forward for election or re-election at the
2020 AGM as appropriate.
Nomination Committee priorities for 2020/21
Looking ahead to the next financial year, it is anticipated that
the Committee will focus in particular on:
• The recruitment of additional Non-Executive Directors to
increase resilience in succession planning and continue to build
expertise and diversity to support the Group’s growing and
increasingly diverse client base;
• The Group’s increased commitment to strengthen a diverse
talent pipeline across the organisation;
• Embedding the ‘evergreen’ approach to succession planning to
proactively anticipate successional demands and to develop a
pipeline of talent with the skills and capabilities that align to the
future strategic needs of the business; and
• Overseeing the 2021 external Board evaluation.
Deanna Oppenheimer
Chair of the Nomination Committee
6 August 2020
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RISK COMMITTEE REPORT
CONTINUING TO IMPROVE AND
EMBED RISK MANAGEMENT
Attendance at Committee meetings during
the year to 30 June 2020
Member
Shirley Garrood
Fiona Clutterbuck
Dan Olley
Roger Perkin
Stephen Robertson
Jayne Styles
John Troiano
Position
Chair
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Non-Exec Dir
Meetings
eligible
•••••••
•••••••
•••••••
•••••••
•••••••
•
•••
Meetings
attended
•••••••
•••••••
•••••••
•••••••
•••••••
•
•••
Responding to the challenges of
COVID-19
Shirley Garrood
Chair of the Risk Committee
Dear Shareholder
As Chair of the Risk Committee, I am pleased to present this report
on the Committee’s activities in the year under review.
The Committee’s activities in the latter part of the period under
review have naturally been dominated by the COVID-19 pandemic.
The Committee has given detailed consideration to its impact
on the Group’s principal risks and obtained assurance on the
Group’s operational resilience in response to the challenges
faced by all of us.
Elsewhere, the Committee has overseen improvements in the
Group’s risk management framework through the implementation
of the risk enhancement plan to ensure that it continues to support
good client outcomes and mitigate the risk of harm, as well as
overseeing the continued shift of risk management responsibilities
to the Group’s first line Operations teams. In doing so it has received
regular reports on how risk management is being embedded in the
first line, as well as receiving assurance reports from the Group’s
second line Risk function and third line Internal Audit function.
The Committee has also reviewed and challenged updates to the
Group’s risk appetite statement prior to its approval by the Board,
including the incorporation of a detailed escalation matrix to define
escalation routes where acceptable levels of risk are breached.
The Committee carried out a detailed review of the Group’s 2019
ICAAP prior to its recommendation to, and subsequent adoption by,
the Board in December 2019.
Given the challenges posed by the ongoing COVID-19 pandemic
and the restrictions on public gatherings, at the time of writing the
Board is considering all options as to what format this year’s AGM
will take and how shareholders might be given the opportunity to
ask questions relating to the Committee’s work. Further details will
be set out in the Notice of AGM.
Shirley Garrood
Chair of the Risk Committee
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Role of the Risk Committee
The Committee assists the Board in its oversight of risk within the
Group. It has a particular focus on reviewing and advising the Board
on changes to the Group’s risk appetite, and monitoring the
effectiveness of, and improvements being made to, the Group’s risk
management framework. The Committee also advises the Board
on changes to the Group’s risk profile and future risk strategy, as
well as reviewing reports on material breaches to the Group’s
approved risk limits. However, the Board as a whole remains
responsible for the Group’s risk management and strategy,
and for determining an appropriate risk appetite.
The Committee also plays a key role in overseeing the delivery of
the Group’s ICAAP and supports the Remuneration Committee
by advising on risk considerations to be taken into account when
determining bonus pools and Executive remuneration.
The detailed responsibilities of the Committee are set out in its
terms of reference, which are available on the Group’s website
at www.hl.co.uk/about-us/board-of-directors.
This report provides an overview of how the Committee has
discharged its responsibilities during the period under review.
Composition and meeting attendance
Shirley Garrood (as Chair), Fiona Clutterbuck, Roger Perkin and
Stephen Robertson were members of the Committee throughout
the period under review. Dan Olley and John Troiano have each
been members of the Committee since their appointments on
6 August 2019 and 1 January 2020 respectively. Jayne Styles was a
member of the Committee until her resignation as a Non-Executive
Director on 10 October 2019.
Committee appointments are made for three-year terms and can
be extended for no more than two additional three-year terms.
Committee membership is regularly reviewed by the Committee
Chair, who makes suggestions for appointments to the Nomination
Committee, which may in turn recommend such appointments to
the Board for approval. Ongoing training is provided to assist
Committee members in performing their duties.
The Committee met seven times in the period under review. The
attendance of members at each meeting is set out in the table on
page 105. Other individuals attend Committee meetings at the
request of the Committee Chair. This will usually include the Chair
of the Board, the Chief Financial Officer, the Chief Risk Officer, the
Group Director of Risk and Compliance, and the Head of Internal
Audit. The Committee has access to the Group Company
Secretary, who also acts as secretary to the Committee.
The Committee is authorised to obtain independent
professional advice where it considers it necessary.
Percentage of time spent on key areas
7%
Risk exposures and reporting
7%
Response to
Woodford fund
suspension
20%
Governance
and other
26%
ICAAP
40%
Risk management
framework
40%
Risk management
framework
Risk management framework
In conjunction with the Audit Committee, the Committee has
responsibility for reviewing the effectiveness of the Group’s internal
controls and risk management framework. This includes advising
the Board on the Group’s overall risk appetite, overseeing
the management of risk within the Group’s business and
monitoring progress on improvements being made across
its risk management framework.
Risk appetite
A key element of the Group’s risk management framework is its
risk appetite statement, which defines, by reference to the
Group’s principal risks, the acceptable levels of risk that Executive
management are permitted to take in order to achieve the Group’s
strategic goals and objectives.
The Committee reviews the Group’s risk appetite statement
annually. During the period under review, the Committee reviewed
and challenged proposed enhancements to the Group’s risk
appetite approach. Improvements have included increasing the
coverage of the risk appetite statement to a broader range of risk
taking activities, linking risk appetite metrics to the Group’s values
to illustrate associated impacts on client outcomes in the event of
risk crystallisation, and aligning risk appetite metrics with a detailed
risk escalation matrix to define the appropriate governance forum
for notification where acceptable levels of risk are breached.
Following the Committee’s review, revisions to the Group’s risk
appetite statement were approved by the Board in April.
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Embedding risk management
In carrying out its responsibilities in respect of the Group’s wider
risk management framework, the Committee has overseen and
supported the continued shift of risk management responsibilities
to operational teams in the first line, to enable the Group’s Risk
function to properly focus on second line activities.
In doing so, the Committee has reviewed and challenged reports
from senior management on risk management within the first line,
including deep dives into how risk management is being embedded
in the Group’s IT, Change and Marketing functions as well as
updates on enhancements to investment governance and
processes and data governance. First line papers provide an update
on the management of key risks linked to a heat map, along with
details of improvements made, benefits achieved and further
enhancements planned.
The Committee has also received assurance on risk management
within the Group’s operations activities via reports from the
Group’s second line Risk function on how risk management is being
embedded in the first line. This included a review of the focused first
line risk and control functions now in place and an update on the
implementation of the Group’s ‘inForm’ process for managing
and recording risk events across the Group’s operational teams.
During the period under review, the Committee also reviewed
the twice yearly control self-assessment from the Chief Executive
Officer on the Group’s risk management framework and reports
from the Chief Risk Officer on the self-assessment process and
the level of assurance it provides.
MLRO updates
The Committee receives and reviews periodic reports from the
MLRO specifically addressing the adequacy and effectiveness of
the Group’s anti-money laundering systems and controls and the
prevention of bribery. During the period, the Committee received
updates on the continued focus on maintaining a strong control
environment whilst pursuing enhancements to reduce reliance on
manual controls, as well as on changes to legislative requirements
and enhancements to, and completion rates of, anti-money
laundering and counter terrorist financing training that all
colleagues are required to complete. During the period, the
Committee also reviewed and approved updates to the Group’s
Anti-Bribery & Corruption Policy.
Risk maturity and enhancements to the framework
The CRO reports regularly to the Committee on his assessment
of the maturity of the Group’s risk management framework and the
progress being made to improve it. This has included a thematic
review on outsourcing by the Group and a detailed review of the
maturity of risk management within the Group’s Operations teams.
The Committee also received a detailed report from the CRO on
the Group’s overall risk maturity, both against the external
assessment that took place in 2018 and its competitors.
Actions designed to support improvements to the Group’s risk
management framework are set out in a risk enhancement plan.
The Committee received regular updates on progress against the
plan throughout the period under review, including a full report on
progress at its December meeting. It is intended that, following
completion of the plan later this year, a further external review will
be commissioned to assess the Group’s risk maturity following the
improvements made to the risk management framework.
Whilst the Committee acknowledges that further work is needed
to develop the Group’s risk management framework, it is satisfied
that the effectiveness of the Group’s risk management activities
continues to improve. In June, the Committee received and
approved the detailed annual reports from the CRO on the
adequacy and operating effectiveness of risk management, the
internal control environment, and risk embedding across the Group.
The Committee has subsequently reviewed and approved the
disclosures and statements in the Report and Financial Statements
relating to risk management.
Risk exposures and reporting
The Committee is responsible for overseeing and advising the
Board on the Group’s current risk exposures and future risk strategy.
The Committee receives regular updates from the Executive
Risk Committee and the CRO on the principal and emerging risks
facing the Group. During the period under review, the Committee
considered risks to the Group associated with Brexit, the use of
cloud based solutions, the suspension and closure of the Woodford
Equity Income Fund and the implementation of IR35.
The Group’s risk appetite statement provides a robust tool for
monitoring risk levels and escalations across the Group based
on materiality and during the period under review, the CRO has
provided regular updates to the Committee on the status of the
Group’s principal risks by reference to a heat map derived from the
materiality metrics set out in the risk appetite statement.
Specific matters or risk events are escalated to the Committee in
accordance with the risk appetite statement and, during the period
under review, the Committee has reviewed and opined on the
various matters escalated to it. This has included a perceived
increase in the cyber security threat to the Group, as well as out
of appetite changes to the Group’s Net Promoter ScoreSM1 and
reductions in the availability of certain of the Group’s systems
following spikes in demand as a result of the general election and
the increased market volatility associated with the COVID-19
pandemic. Following the notification of a risk event, the Committee
reviews a root cause analysis and makes recommendations for
future improvement to the Group’s risk management systems.
Note
1 Net Promoter Score, NPS and the NPS-related emoticons are registered service marks, and Net Promoter Score and Net Promoter System are service marks
of Bain & Company Inc., Satmetrix Systems, Inc. and Fred Reichheld.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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COVID-19 pandemic
In the latter part of the period under review, the Committee’s
attention has naturally focused on understanding the impact of the
COVID-19 pandemic. It reviewed and challenged a detailed report
on the current and likely future impact of the pandemic on the
Group’s principal risks, and has overseen arrangements to mitigate
that impact and ensure the Group can continue to deliver good
client outcomes and core services whilst maintaining a robust
control environment and safeguarding colleague wellbeing.
The Committee has also requested and received assurance
reporting on how the Group’s control framework is being maintained
during the pandemic and a report from the Group’s Internal Audit
function providing an independent assurance opinion on the
effectiveness of the Group’s operational resilience in response to
the pandemic. The report noted that the Group had demonstrated a
high level of operational resilience in managing the early stages of the
pandemic and responding to increased levels of client contact, with
the majority of client services remaining in place, the maintenance of
good client contact metrics, the Group’s core IT systems continuing
to function well and its change programme continuing to deliver.
The report also highlighted the importance of enhancing and
strengthening risk assurance and control processes to monitor
the additional risks associated with operating controls remotely. The
Committee has been kept updated with developments in this regard.
Suspension of Woodford fund and subsequent
framework improvements
The Committee reported last year on its consideration of the
suspension of trading in the Woodford Equity Income fund (now LF
Equity Income) in June 2019. During the period under review, the
Committee has continued to review and challenge the Group’s
proposed actions in response to the fund’s suspension and
subsequent winding up, to ensure client service is maintained and
any risks are identified and appropriately mitigated. The Committee
was also delegated responsibility for overseeing a programme of
improvements to the Group’s governance framework to mitigate
the risk of a similar situation in the future, and has received regular
updates on progress during the period under review. You can read
more about these improvement in the Chair’s Introduction to
Corporate Governance on pages 54 to 55.
ICAAP
An important aspect of the Committee’s role is its annual review
and challenge of updates to the Group’s ICAAP. The 2019 ICAAP
was a dominant feature of the Committee’s agenda in the first half
of the period under review, prior to its approval by the Board on the
Committee’s recommendation in December. Separate agenda
items were dedicated to the constituent parts of the ICAAP,
including the review of Pillar I capital requirements, operational
risk scenarios, stress testing and the wind down plan.
The Committee’s consideration of the Group’s 2019 ICAAP included
the detailed review of the Pillar II operational risk scenarios and the
improvements made to the methodology by the Group’s Risk
function following the external validation work carried out on the
Group’s 2018 ICAAP modelling. The Committee provided feedback
and challenge to year-on-year movements in the scenarios included,
as well as requesting the inclusion of an additional scenario similar to
that experienced by the Group following the suspension of trading in
the Woodford Equity Income fund referred to above. The Committee
also reviewed and challenged the model assumptions and testing
that underpin the Pillar II capital adequacy calculations.
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Oversight of Risk function
The Group’s second line Risk function is an integral part of its wider
risk management framework. The Committee is responsible for
approving its remit and ensuring it has adequate resources and
appropriate access to information to enable it to perform its duties
effectively. During the period under review, the Committee
reviewed and approved changes to the Group’s second line Risk
Charter, received regular updates from the CRO on resourcing
and workload, and received a detailed report on the operational
effectiveness of the function at its June meeting.
Remuneration and risk
The Committee also has responsibility for advising the
Remuneration Committee on risk considerations to be applied to
performance objectives incorporated into executive remuneration.
During the period under review, the Committee considered and
recommended to the Remuneration Committee the process for
malus adjustments to senior management reward based on
accountability for risk events that impacted the Group. The
Committee also reviewed and commented on the CRO’s risk
adjustment paper relating to the period under review prior to
its submission to the Remuneration Committee.
Risk Committee evaluation
During the period under review, the Committee has overseen the
implementation of recommendations relating to its effectiveness
from both the externally facilitated 2018 evaluation and internally
led 2019 evaluation of its performance. This has included the
continued embedding of the Group’s risk management framework
across first line teams and improvements to risk reporting across
the Group, as well as a review of how well the risk management
framework is being embedded.
Risk Committee priorities for 2020/21
Looking ahead to the next financial year, it is anticipated that
the Committee will focus in particular on:
• Continuing to embed the Group’s risk management framework
within first line operational teams to ensure they continue to
support good client outcomes and mitigate the risk of harm,
and assessing developments to the Group’s risk maturity;
• Reviewing and challenging proposed updates to the Group’s 2020
ICAAP and recommending to the Board for approval; and
• Continuing to monitor the resilience of the Group’s operations,
including the Group’s ability to meet the challenges posed by the
COVID-19 pandemic and its impact on the Group’s risk profile.
Shirley Garrood
Chair of the Risk Committee
6 August 2020
DIRECTORS’ REPORT
The Directors present their report on the affairs of the Group,
together with the audited consolidated financial statements
for the year ended 30 June 2020.
The Company is the holding company for the Group. The Group’s
regulated operating subsidiaries carry out its business of providing
financial products and services, principally to retail clients. The
Group operates predominantly in the United Kingdom, with one
operating subsidiary (HL Tech) located in Poland that provides
IT development services to the rest of the Group.
The Directors’ Report for the period under review comprises pages
53 to 116 of the Report and Financial Statements, as well as other
sections incorporated by reference.
As permitted by legislation, certain information required to be
included in the Directors’ Report has instead been included in
the Strategic Report, on the basis that the Board consider those
matters to be of strategic importance. Commentary on the
development and performance of the Group’s business, including
in the field of research and development, and an indication of likely
future developments can be found on pages 2 to 37 of the Strategic
Report. Disclosures relating to the Group’s greenhouse gas
emissions, energy consumption and the measures being taken
to increase energy efficiency can be found on pages 47 to 49 of
the Strategic Report.
Details of how the Group engages with its key stakeholders,
including its shareholders, can be found on pages 30 to 31 of the
Strategic Report and on page 59 of the Corporate Governance
Report. Details of how the interests of stakeholders are considered
in the Board’s decision making can be found in the Section 172
Statement on pages 113 to 115.
The Strategic Report and the Directors’ Report together form
the Management Report for the purposes of DTR 4.1.8R. For the
purposes of DTR 7.2.1R:
• A statement as to the Company’s compliance with the Code
and details of where the Code is publically available can be found
in the Chair’s Introduction to Corporate Governance on page 55;
• A description of the main features of the Group’s internal control
and risk management systems in relation to the financial
reporting process can be found on page 66;
• Information regarding significant shareholders, special rights
regarding control of the Company, restrictions on voting rights,
the appointment and replacement of Directors and changes to
the Company’s articles of association, and the powers of the
Directors can be found on pages 109 to 111;
• A description of the composition and operation of the Group’s
corporate governance framework can be found on pages 60 to
61; and
• A description of the Group’s diversity and inclusion policy, its
objectives, how it has been implemented and the results in the
period under review can be found on pages 41 to 45 and 101 to 102.
Information to be disclosed under LR 9.8.4R
Listing Rule 9.8.4CR requires listed companies to include in their
annual financial report all information required under Listing Rule
9.8.4R in a single identifiable section, or otherwise in a cross
reference table indicating where that information is set out. The
following cross reference table sets out where the relevant
disclosures can be found in the Report and Financial Statements.
Listing Rule
Disclosure
LR 9.8.4R (1)
to (11)
LR 9.8.4R (12)
Not applicable
Current year dividend
waiver agreements
LR 9.8.4R (13)
Future dividend
waiver agreements
LR 9.8.4R (14)
Information regarding
controlling
shareholder
Page reference
Not applicable
Note 3.2 to the
consolidated
financial statements
on page 146
Note 3.2 to the
consolidated
financial statements
on page 146
See disclosure under
Controlling
Shareholder heading
on page 110 below.
Share capital structure
The Company’s share capital consists of a single class of ordinary
shares of 0.4p each. As at 30 June 2020 and the date of this report,
there were 474,318,625 ordinary shares in issue, each of which is fully
paid up, amounting to an aggregate nominal share capital of
£1,897,274.50. Each ordinary share is listed on the Official List
maintained by the FCA and admitted to trading on the Main Market
of the London Stock Exchange. Further details of the Company’s
share capital can be found in note 3.1 to the consolidated financial
statements on page 146. There were no changes to the Company’s
share capital during the period under review.
Rights attaching to shares and restrictions on transfer
The ordinary shares have attached to them full voting, dividend
and capital distribution rights, and rank pari passu in all respects.
Save for deadlines for voting by proxy, there are no restrictions
on voting rights attaching to, or on the transfer of, the Company’s
ordinary shares. Full details regarding the exercise of voting rights at
the 2020 AGM, whether in person or by proxy, will be set out in the
Notice of AGM. To be valid, the appointment of a proxy to vote at a
general meeting must be received not less than 48 hours before
the time of the meeting.
The Company is not aware of any agreements between the holders
of ordinary shares that may restrict their transfer or the voting
rights attaching to them.
None of the Company’s ordinary shares carry any special rights
regarding control of the Company.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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Financial statementsOther informationGovernanceStrategic report DIRECTORS’ REPORT
Authority to allot or buy back shares
The Company was granted authority at the 2019 AGM to purchase
in the market its own shares up to an aggregate nominal value of
10% of its issued ordinary share capital. No shares were purchased
under this authority in the year to 30 June 2020 and up to the date
of this report. This authority expires at the end of the 2020 AGM,
at which a special resolution will be proposed for its renewal.
This is a standard authority that the Directors have no present
intention of exercising.
The Directors were granted authority at the 2019 AGM to allot
relevant securities up to an aggregate nominal amount of
£632,424.83, representing approximately one third of the Company’s
issued ordinary share capital. No shares were allotted under this
authority in the year to 30 June 2020 and up to the date of this report.
This authority expires at the end of the 2020 AGM, at which an
ordinary resolution will be proposed for its renewal. This is a standard
authority that the Directors have no present intention of exercising.
Shares held in trust for employee share schemes
Hargreaves Lansdown EBT Trustees Limited (the EBT Trustee)
holds ordinary shares in the Company in trust under the terms
of the Hargreaves Lansdown Employee Benefit Trust (the EBT) to
satisfy the exercise of options granted to the Group’s employees
under its approved and unapproved share option schemes. Under
the rules of the EBT, the EBT Trustee has discretion as to the
exercise of voting rights attaching to ordinary shares held within
the EBT. As at 30 June 2020, the EBT Trustee held 381,831 ordinary
shares, equating to approximately 0.08% of the Company’s issued
ordinary share capital.
Hargreaves Lansdown Trustee Company Limited (the SIP Trustee)
holds ordinary shares in the Company in trust under the terms of
the Hargreaves Lansdown plc Share Incentive Plan (the SIP) to
satisfy the exercise of options granted to the Group’s employees
under the SIP. Save where the Company notifies it that such waiver
does not apply, the SIP Trustee must refrain from exercising the
voting rights attaching to ordinary shares held in the SIP trust that
have been allocated to employees. The SIP Trustee has no express
power under the terms of the SIP to exercise voting rights attaching
to ordinary shares held in the SIP trust that have not been allocated
to employees. As at 30 June 2020, the SIP Trustee held 224,910
ordinary shares, equating to approximately 0.05% of the Company’s
issued ordinary share capital.
Substantial shareholdings
Notifications received by the Company in accordance with
DTR 5 are published on a Regulatory Information Service and
on the Company’s website. As at 30 June 2020, the Company had
been advised of the following voting interests in the Company’s
ordinary shares amounting to more than 3% of the Company’s
issued share capital.
Name
Peter Hargreaves
Lindsell Train Limited
Stephen Lansdown
Baillie Gifford
Black Rock, Inc.
Ordinary shares
115,482,448
61,723,106
33,817,419
23,888,812
23,608,605
Percentage
holding
24.35%
13.01%
7.13%
5.04%
4.98%
In the period between 30 June 2020 and the date of this report,
the Company received no further notifications.
Controlling Shareholder
The Company announced on 7 February 2020 that, following an
accelerated bookbuild offering, Peter Hargreaves had reduced his
shareholding to 24.35% and therefore ceased to be a controlling
shareholder of the Company.
The Company had previously entered into a relationship agreement
with Peter Hargreaves in accordance with Listing Rule 9.2.2ADR(1)
intended to ensure that any transactions or arrangements with him
were conducted at arm’s length and on commercial terms, and that
neither he nor his associates would prevent the Company
complying with its obligations under the Listing Rules or propose or
procure a shareholder resolution intended to circumvent the proper
application of the Listing Rules.
The relationship agreement automatically terminated when
Mr Hargreaves ceased to be a controlling shareholder. Prior to that
date and during the period under review, both the Company and,
so far as the Company is aware, Mr Hargreaves and his associates
had complied with the independence provisions set out in the
relationship agreement and Listing Rules 6.5.4R and 9.2.2ADR(1).
The Company did not have more than one controlling shareholder
and, as such, the procurement obligation set out in Listing Rules
6.5.5R and 9.2.2BR did not apply.
Dividends
The Board recommends a final ordinary dividend of 26.3 pence
per ordinary share to be paid in respect of the period ending
30 June 2020. Subject to shareholder approval at the 2020 AGM, it
is proposed that this ordinary dividend, along with a special dividend
declared by the Board on 6 August 2020, is paid on 16 October 2020
to all shareholders on the register at close of business on
25 September 2020.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Board of Directors
Powers of the Directors
The Company’s articles of association (the Articles) set out the
powers of the Directors. Subject to UK company law, the Articles
and any directions given by special resolution of the Company, the
Directors have been granted authority to exercise all the powers
of the Company.
The Articles may only be amended by special resolution at a
general meeting of the Company’s shareholders.
Appointment and replacement of Directors
The appointment and replacement of Directors is governed
by the Articles, the Code and the Companies Act 2006 and
related legislation.
Under the Articles, Directors may be appointed, either to fill a
vacancy or as an addition to the existing Board, by ordinary
resolution of the Company or by resolution of the Board. If
appointed by the Board, a Director must retire and, if willing to act,
seek election at the next AGM following appointment.
In addition, the Articles require all Directors to retire at each AGM
and, if willing to do so, offer themselves for re-election. This aligns
to the requirements of provision 18 of the Code. Further details can
be found on page 65 of the Corporate Governance Report.
In addition to the powers set out in the Companies Act 2006, the
Articles provide for the removal of a Director before the expiration
of their period of office by ordinary resolution of the Company.
The Board
The names of the Directors of the Company as at the date of this
report, along with their biographies, are set out on pages 56 to 58.
Appointments to and departures from the Board during the period
under review are set out in the table below.
Name
Role
Jayne Styles
John Troiano
Non-Executive
Director
Non-Executive
Director
Date of appointment/
departure
Resigned
10 October 2019
Appointed
1 January 2020
Directors’ interests
Details of the Directors’ interests in the Company’s ordinary
shares can be found on pages 92 and 96 of the Annual Report
on Remuneration.
During the period under review, no Director had any material
interest in a contract to which the Company or any of its subsidiary
undertakings was a party (other than their own service contract)
that required disclosure pursuant to the Companies Act 2006.
Directors’ indemnities
As permitted by the Articles, the Directors have the benefit of an
indemnity which is a qualifying third party indemnity provision as
defined by Section 234 of the Companies Act 2006. The indemnity
was in place throughout the period under review and remains in
place as at the date of this report.
The Company also maintains directors’ and officers’ liability
insurance cover to protect the Directors from loss resulting from
claims against them in relation to the discharge of their duties.
This cover was in place throughout the period under review and
remains in place as at the date of this report.
Compensation for loss of office
There are no agreements in place between the Company and its
Directors or employees for compensation for loss of office or
employment as a result of a takeover bid.
Financial instruments and financial risk management
Details of the Group’s financial risk management policies and
objectives in relation to the use of financial instruments, and its
exposure to market, liquidity and credit risk, can be found in note 5.7
to the consolidated financial statements on pages 154 to 158.
Change of control
There are no significant agreements to which any member of the
Group is a party that take effect, alter or terminate upon a change
of control of the Company following a takeover bid.
Colleague engagement and involvement
The Group is committed to engaging and communicating with
colleagues to ensure they understand the Group’s purpose, vision
and priorities and how they each play their part in the development
of its business. Information on action taken to ensure colleagues
are provided with information on matters that concern them and
to promote awareness of the factors affecting the Group’s
performance can be found on pages 44 to 45 of the Strategic
Report. Details of how the Group engages with colleagues and how
their interests are considered in decision making can be found on
pages 44 to 45 of the Strategic Report and in the Group’s Section
172 Statement on pages 113 to 115.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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In accordance with Provision 31 of the Code, the Directors have
assessed the prospects of the Group over a longer period than the
12 months required by the going concern provision. Details of this
assessment can be found on page 24 of the Strategic Report.
Disclosure of information to external auditor
Each of the persons who are Directors at the time when this report
is approved confirms that:
• So far as they are aware, there is no relevant audit information of
which the Company’s external auditor is unaware; and
• They have taken all the steps that they ought to have taken as a
Director to make themselves aware of any relevant audit
information and to establish that the Company’s external auditor
is aware of that information.
This confirmation is given and should be interpreted in accordance
with Section 418 of the Companies Act 2006.
Approved by and signed by order of the Board.
Alison Zobel
General Counsel and Group Company Secretary
6 August 2020
DIRECTORS’ REPORT
Further details of how we encourage colleague involvement in the
Group’s performance, including by way of participation in share
schemes, can be found on page 43 of the Strategic Report.
Details of the Group’s policies for the recruitment, continuing
employment and career development of disabled persons can be
found on pages 43 to 44 of the Strategic Report.
Post-balance sheet events
Details of important events affecting the Group that have occurred
since the end of the period under review can be found in note 5.5 to
the consolidated financial statements on page 152.
Political donations
The Group did not make any political donations or contributions or
incur any political expenditure during the period under review.
Annual General Meeting
The challenges posed by the ongoing COVID-19 pandemic may
necessitate a change from the usual manner in which the Company
holds its AGM. As at the date of this report, the Board is considering
all options having regard to the current restrictions on public
gatherings, and the possibility of more severe restrictions being
imposed on short notice. Further information, along with details of
all resolutions to be proposed to the Company’s shareholders and
how to vote, will be set out in the Notice of AGM that will be
circulated ahead of the meeting.
Electronic communications and dividend payments
Shareholder communications are only sent in paper format to
shareholders who have elected to receive documents in this way.
This approach enables the Company to reduce printing and
distribution costs and the impact of the documents on the
environment. Shareholders who wish to receive email
notification instead of paper copies can register online at
www.shareview.co.uk.
Shareholders can also request that dividends are paid directly into
their bank or building society account via Shareview. This saves time
and is more secure than receiving dividends by cheque, which could
arrive late or be lost in the post.
Going concern
In adopting the going concern basis for preparing the financial
statements, the Directors have considered the Group’s business
activities, together with the factors likely to affect its future
development, performance and position including the impact of
Brexit and the COVID-19 pandemic. This includes the Group’s
principal risks and uncertainties, details of which can be found in the
Strategic Report. The Operating and Financial Review on pages 32
to 37 of the Strategic Report describes the Group’s robust balance
sheet, managed to internal risk appetite and regulatory capital
limits, and a business with a high conversion of operating profit
to cash and a strong net cash position.
Having regard to the Group’s financial, liquidity and capital position,
the Board has concluded that it remains appropriate to adopt
the going concern basis of accounting in preparing the Group’s
financial statements.
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SECTION 172 STATEMENT
Understanding the views and interests of our stakeholders helps
the Group make responsible and balanced decisions. In doing so, we
aim to generate long-term value for the Company’s shareholders
whilst contributing to wider society by building strong and lasting
relationships with our other key stakeholders.
Section 172 of the Companies Act 2006 requires the Directors to
act in a way they consider will promote the success of the Company
for the benefit of our shareholders as a whole. In doing so, the
Directors must have regard (amongst other matters) to:
In the period under review, the Group revised its board and
committee paper template to encourage paper authors to consider
and highlight the impact on the Group’s stakeholders of the matters
covered. In addition to acting as an aid to the Board in discharging its
duties and facilitating focused debate, this is intended to provide an
additional layer of comfort that paper authors have properly
considered and taken into account the interests of impacted
stakeholders. The new template is being rolled out across the
Group and has been accompanied by a series of training sessions
to ensure paper authors are aware of what is required and why.
• The likely consequences of any decision in the long term;
• The interests of the Group’s employees;
• The need to foster business relationships with the Group’s
suppliers, clients and others;
• The impact of the Group’s operations on the community
and the environment;
• The desirability of the Group maintaining a reputation for high
standards of business conduct; and
• The need to act fairly as between the Company’s shareholders.
You can read more about how we engage with and respond to the
interests and needs of our key stakeholders on pages 30 to 31 of
the Strategic Report.
How the Board has discharged its Section 172 duties
The Directors are briefed on their duties as directors as part of
the Group’s induction programme and the Board as a whole
periodically receives refresher training. Each Director also has
access to the Group Company Secretary for advice on the
application of those duties.
The Directors’ awareness of their duties to the Company, combined
with the knowledge and insights they obtain on the views and
interests of the Group’s key stakeholders and the impact of the
Group on wider society, enables them to make balanced decisions
that promote long-term sustainable value for the Company’s
shareholders. In practice, the Group operates within a corporate
governance framework whereby responsibility for day-to-day
decision making is appropriately delegated. In considering their
duties under Section 172 when setting the Group’s strategy,
values and framework of policies, the Board aims to ensure that
the consideration of stakeholder interests and the Group’s
long-term success is embedded across its business.
The Board recognises that the impact of each decision made by
it and elsewhere in the Group’s governance framework will be
different for each of its key stakeholders. It understands the
importance of considering the impact on each of those
stakeholders, in order to balance their interests whilst
promoting the success of the Group’s business.
Further details of how the Board considers each of the specific
matters set out in Section 172 is set out below, along with specific
examples of how those considerations have influenced decisions
taken by the Board and Group more widely.
Considering the long term
The Board sets the strategy, values and culture, and develops and
oversees the Group’s framework of governance, risk management
and internal controls to promote and safeguard the Group’s
long-term success. The strategic goals and objectives it sets are
focused around developing the Group’s proposition and service to
fulfil the long-term needs of its clients. You can read more about the
Group’s strategy on pages 18 to 21 of the Strategic Report. The
Group’s annual operating plan, which is approved each year by the
Board, sets out how the Group intends to prioritise its efforts over a
rolling three-year period in order to achieve its longer-term strategic
objectives. Details of how stakeholder considerations influence the
Board’s approval can be found in the case study on page 115.
The Group provides an essential service to its clients in a highly
regulated environment. The identification, management and
mitigation of risks to the Group’s business is key to ensuring the
delivery of the Group’s strategy over the longer term, and the
consideration of risk plays an important part in decision making.
You can read more about how the Group evaluates and manages
risk along with a description of the principal and non-financial risks
relating to the Company’s operations on pages 22 to 29 of the
Strategic Report.
Our employees
The Board recognises that understanding the needs of the Group’s
people is essential in developing a workplace and culture in which
they can reach their full potential and, in turn, ensure the long-term
success of the Group.
The Group’s workplace advisory panel, the HL Colleague Forum,
provides a feedback channel directly between colleagues and the
Board on matters of strategic importance. It is chaired by the Chief
People Officer and each meeting is attended by at least one
Non-Executive Director and a broad range of colleagues from across
the Group’s business. In addition to the direct Board and Executive
Committee representation on the Forum, details of the issues raised
and outcomes are reported to the Remuneration Committee, with
onward escalation to the Board where appropriate. You can read
more about the Forum on page 45 of the Strategic Report.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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The views of colleagues are also obtained via regular colleague
surveys. Detailed results are shared with the Group Executive
Committee, with key themes and issues escalated to the Board
for consideration.
You can read more about how we engage with colleagues and the
actions we have taken as a result of that engagement on pages 30
to 31 and 41 to 45 of the Strategic Report. Details of how
engagement with colleagues has influenced the Group’s response
to the COVID-19 pandemic can be found in the case study on page
115 and on pages 49 to 50 of the Strategic Report.
Our clients
The Group’s clients are at the heart of its strategy and their
interests are a key consideration in everything that the Group does.
Both the Group Executive Committee and the Board regularly
receive updates on client proposition and service metrics, and a
significant portion of the pre-reading for the annual strategy day
each attends is focused on client issues. The consideration and
determination of current and future needs of clients drives the
Group’s innovation and the prioritisation of activities within the
Group’s annual operating plan.
You can read more about how we engage with our clients and the
actions we have taken as a result of that engagement on pages 30,
39 to 40 and 51 of the Strategic Report. You can read more
about how consideration of our clients’ interests have shaped
our response to the COVID-19 pandemic in the case study on
page 115 and on pages 49 to 50 of the Strategic Report.
Our regulator
The FCA regulates the financial products and services provided by
the Group. The Group’s continued compliance with its regulatory
obligations and the interests and views of the FCA are primary
considerations in decision making across the Group. The Board is
regularly briefed on regulatory developments and expectations,
and the Board’s Risk and Audit Committees receive detailed insights
into specific areas such as the ICAAP, CASS and MiFID II. The Board
also receives updates in relation to specific matters, such as the
implementation of SMCR and the FCA’s recent focus on
operational resilience.
The Group maintains regular contact with the FCA to ensure
awareness of its concerns, expectations and agenda, and this
informs the prioritisation of activities within the Group’s annual
operating plan.
Our suppliers
Fostering good relationships with the Group’s suppliers is an
important factor in ensuring it is able to continue to service its
clients effectively and efficiently over the long-term. The Group is
building on existing policies and procedures to further embed
vendor management throughout the organisation, including a
framework to promote consistency when overseeing relationships
and performance. We aim to pay our suppliers promptly and within
30 days of payment being requested. Our average payment days
during the period under review was approximately 21. We have
also taken action to support our suppliers during the COVID-19
pandemic by increasing the frequency of our payment runs to pay
smaller suppliers and those in particular need more quickly.
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Acting fairly between shareholders
Information on how we engage with our shareholders and how the
Board is made aware of shareholder sentiment and interests can be
found on pages 30 to 31 of the Strategic Report and page 59 of the
Corporate Governance Report.
The views and interests of the Company’s shareholders are key
considerations when the Board determines the level of dividend
payments (further details of which can be found on page 37 of the
Strategic Report), as well as when setting the Group’s strategy and
business priorities.
Impact on the community and the environment
The Board is conscious of the impact of the Group’s operations
on the community and environment, and understands the
importance of being a good corporate citizen. You can read
about our impact and initiatives in these areas on pages 46 to 50
of the Strategic Report.
The Chief People Officer, a member of the Group’s Executive
Committee, sponsors the Group’s Environmental, Sustainability
and Climate Change Group to promote environmental awareness
and initiatives in strategic decision making.
The Board also recognises ESG as an increasingly important
consideration, and the Chief Executive Officer has updated the
Board on the Group’s approach to date, with a full deep-dive due to
take place early in the next financial year. You can read more about
our ESG practices on pages 47 to 49 of the Strategic Report.
You can read more about how consideration of our wider
community has shaped our response to the COVID-19 pandemic
in the case study on page 115 and on pages 49 to 50 of the
Strategic Report.
Maintaining a reputation for high standards of business conduct
The Board supports the Chief Executive Officer in embedding a
culture that encourages the Group’s colleagues to live our values
and help the Group deliver on its strategic objectives. The Group
encourages colleagues to ‘do the right thing’ to ensure that, as a
business, we act with integrity in all our dealings and decisions with
the aim of being clear, fair and transparent. The Board approves and
oversees the Group’s adherence to policies that promote high
standards of conduct. You can read more about these policies
on page 52 of the Strategic Report.
The Board receives regular updates on the Group’s culture through
KPIs that form part of the Chief Executive Officer’s business
performance update. During the period, the Board also carried
out a deep-dive into the evolution of the Group’s culture and the
initiatives in progress to ensure that it continues to develop and
align to the Group’s purpose, values and strategy. You can read
more on page 59 of the Corporate Governance Report.
Key decisions and consideration of stakeholder interests
The table below summarises how the Board and the wider Group
have had regard to the duties under Section 172 when considering
specific matters.
Approval of annual
operating plan
Response to
COVID-19 pandemic
Sale of FundsLibrary
Limited
Each year the Board considers and
approves the Group’s annual operating
plan that determines the initiatives that
the Group will prioritise in the year and
the Group’s cost profile over a rolling
three-year period. In developing the
operating plan, the Group considers:
• How prioritising certain change
initiatives will promote the
achievement of the Group’s long-
term strategic objectives;
• Our clients, through the prioritisation
of initiatives that develop our
proposition and service to lead
to better client outcomes;
• The views of major shareholders as to
acceptable levels of cost in pursuing
strategic objectives;
• Our colleagues, through the
prioritisation of initiatives that improve
the colleague experience; and
• The FCA, through the prioritisation of
activities that will support the Group’s
risk management and compliance
with regulatory initiatives.
The Group acted quickly in constituting
a dedicated Crisis Management
Committee to manage our response to
the COVID-19 pandemic. In determining
that response, the Group has paid
particular regard to:
• The safety and wellbeing of our
colleagues, by facilitating home
working and by introducing new
initiatives to support colleagues in
looking after their and their families’
physical and mental wellbeing; and
• Our clients, by prioritising activities to
maintain the services that clients tell
us are most important and by making
adjustments to our services to assist
those with specific needs, such as
those without internet access;
• Our community, by introducing a
number of initiatives to support those
most in need and support the region’s
economic and social recovery.
You can read more about these
initiatives on pages 49 to 50 of the
Strategic Report.
On 29 February 2020 the Company
sold its shareholding in FundsLibrary
Limited to Broadridge Financial
Solutions. In approving the sale,
the Board considered:
• The employees of FundsLibrary,
in particular the cultural fit with the
purchaser and the opportunities
for the FundsLibrary business to
develop; and
• The long-term consequences of the
decision, it being noted that the
FundsLibrary business was not part of
the Group’s core business offering;
• The Company’s shareholders, in
particular the potential return on
investment and the benefits of
even greater focus on the Group’s
core business and its long-term
strategic objectives.
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Financial statementsOther informationGovernanceStrategic report
STATEMENT OF DIRECTORS’ RESPONSIBILITIES
The Directors are responsible for preparing the Report and Financial
Statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements
for each financial year. Under that law the Directors have prepared
both the Group and Company financial statements in accordance
with International Financial Reporting Standards (IFRS) as adopted
by the European Union. Under company law, the Directors must not
approve the financial statements unless they are satisfied they give
a true and fair view of the state of affairs of the Group and Company
and of the profit or loss of the Group and Company for that period.
In preparing the financial statements the Directors are required to:
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Each of the Directors (whose names and functions are listed in the
Directors’ profiles on pages 56 to 58 confirms that, to the best of
their knowledge:
• The Group financial statements, which have been prepared in
accordance with IFRS as adopted by the European Union, give a
true and fair view of the assets, liabilities, financial position and
profit of the Group;
• Select suitable accounting policies and then apply
them consistently;
• State whether applicable IFRS (as adopted by the European
Union) have been followed, subject to any material departures
disclosed and explained in the financial statements;
• Make judgements and accounting estimates that are reasonable
and prudent; and
• Prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Company and the Group and enable them
to ensure that the financial statements and Directors’
Remuneration Report comply with the requirements of the
Companies Act 2006 and, as regards the Group financial
statements, Article 4 of the IAS Regulation.
The Directors are responsible for safeguarding the assets of the
Company and the Group and for taking reasonable steps for the
prevention and detection of fraud and other irregularities.
• The Company financial statements, which have been prepared in
accordance with IFRS as adopted by the European Union, give a
true and fair view of the assets, liabilities and financial position and
profit of the Company; and
• The Directors’ Report and Strategic Report contained in the
Report and Financial Statements include a fair review of the
development and performance of the business and the position
of the Group, together with a description of the principal risks and
uncertainties that it faces.
The Directors consider that the Report and Financial Statements,
taken as a whole, is fair, balanced and understandable and provides
the information necessary for shareholders to assess the Group’s
position and performance, business model and strategy.
By order of the Board
Philip Johnson
Chief Financial Officer
6 August 2020
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Strategic report
Governance
Financial statements
Other information
FINANCIAL
STATEMENTS
Independent auditors’ report
Section 1: Results for the year
Section 2: Assets and liabilities
Section 3: Equity
Section 4: Consolidated statement of cash flows
Section 5: Other notes
Section 6: Company financial statements
118
125
135
145
147
149
159
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GovernanceOther informationFinancial statementsStrategic report INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HARGREAVES LANSDOWN PLC
Report on the audit of the financial statements
Opinion
In our opinion, Hargreaves Lansdown plc’s group financial statements and parent company financial statements (the “financial statements”):
• give a true and fair view of the state of the group’s and of the parent company’s affairs as at 30 June 2020 and of the group’s profit and
the group’s and the parent company’s cash flows for the year then ended;
• have been properly prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union
and, as regards the parent company’s financial statements, as applied in accordance with the provisions of the Companies Act 2006; and
• have been prepared in accordance with the requirements of the Companies Act 2006 and, as regards the group financial statements,
Article 4 of the IAS Regulation.
We have audited the financial statements, included within the Report and Financial statements 2020 (the “Annual Report”), which
comprise: the consolidated and parent company statements of financial position as at 30 June 2020; the consolidated income statement,
the consolidated statement of comprehensive income, the consolidated and parent company statements of cash flows, the consolidated
and parent company statements of changes in equity for the year then ended; and the notes to the financial statements, which include a
description of the significant accounting policies.
Our opinion is consistent with our reporting to the Audit Committee.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities
under ISAs (UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We
believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC’s Ethical Standard were not provided to
the group or the parent company.
Other than those disclosed in note 1.4 to the financial statements, we have provided no non-audit services to the group or the parent
company in the period from 1 July 2019 to 30 June 2020.
Our audit approach
Context
Hargreaves Lansdown plc is listed on the London Stock Exchange and its principal activity is the provision of regulated investor investment
services to UK retail clients. As a result, key focus areas for Hargreaves Lansdown plc are on growing assets under administration and
operating as a regulated entity within a highly regulated market. These activities provide the context for our audit.
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Overview
Materiality
Audit scope
Key audit
matters
• Overall group materiality: £18.9 million (2019: £15.2 million), based on 5% of profit
before tax.
• Overall parent company materiality: £10.7 million (2019: £9.9 million), based on 5% of profit
before tax.
• We performed a full scope audit of the complete financial information of two individually
financially significant reporting units, which together represent 89% of the Group’s profit
before tax.
• Specific audit procedures were also performed over consolidation adjustments,
balances that could be tested at a group level which included intangible assets, staff
costs, cash and cash equivalents, term deposits and material movements through the
consolidated statement of changes in equity.
• Revenue recognition.
• Impact of COVID-19
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In
particular, we looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that
involved making assumptions and considering future events that are inherently uncertain.
Capability of the audit in detecting irregularities, including fraud
Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations
related to breaches of UK and European regulatory principles, such as those governed by the Financial Conduct Authority (see page 10 of
the Annual Report), and we considered the extent to which non-compliance might have a material effect on the financial statements. We
also considered those laws and regulations that have a direct impact on the preparation of the financial statements such as the Companies
Act 2006, the Listing Rules, the Financial Conduct Authority’s Client Asset Sourcebook and the UK tax legislation. We evaluated
management’s incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of
controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue of the company.
Audit procedures performed by the engagement team included:
• Discussions with risk and compliance function, internal audit and the company’s legal counsel, including consideration of known or
suspected instances of non-compliance with laws and regulation and fraud;
• Assessment of matters reported on the company’s whistleblowing helpline and the results of management’s investigation of
such matters;
• Reading key correspondence with the Financial Conduct Authority in relation to compliance with laws and regulations;
• Reviewing relevant meeting minutes including those of the Board, Risk and Audit Committees;
• Reviewing data regarding customer complaints and the company’s register of litigation and claims, in so far as they related to non-
compliance with laws and regulations and fraud;
• Identifying and testing journal entries, in particular any journal entries posted with unusual account combinations; and
• Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing;
There are inherent limitations in the audit procedures described above and the further removed non-compliance with laws and regulations
is from the events and transactions reflected in the financial statements, the less likely we would become aware of it. Also, the risk of not
detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve
deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion.
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GovernanceOther informationFinancial statementsStrategic report INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HARGREAVES LANSDOWN PLC
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)
identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the
audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures
thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do
not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit.
Key audit matter
How our audit addressed the key audit matter
Revenue recognition (refer to the audit committee report on
page 67, and note 1.1)
Revenue is material to the group and is an important determinant of
the group’s profitability.
Asset and transaction based revenue streams
To address the risk identified in the asset and transaction-based
revenue streams calculated by the underlying administration
system, we independently re-calculated the revenue recognised.
Revenue may be misstated due to errors in system calculations or
manual processes, for example, arising from incorrect securities
prices or levels of assets held used in these calculations and
processes. Further, there are incentive schemes in place for
Directors and staff which are in part based on the group’s revenue
performance. Where there are incentives based on performance,
there is an inherent risk of fraud in revenue recognition as there is an
inherent incentive to misstate revenue.
We assessed each revenue stream for the two in-scope reporting
units and determined that there is a significant risk based on the
opportunity for errors to occur in each of these revenue streams.
Our assessment of the risks for each revenue type which we
needed to obtain evidence over is as follows:
Type of revenue
Asset and transaction-
based revenue streams
calculated by the
underlying
administration system
Management fees on
SIPPs and ISAs
Platform fees
Stockbroking commission
Other income
Description of risks, including
fraud risk factors
These revenue streams are either
calculated based on the value of
assets held or based on activities
undertaken by the client of the
group, such as stockbroking.
The value of securities and all client
activities is held in the underlying
administration system which
supports the Vantage and PMS
platforms. The rates are derived
from standard rate tables.
Unauthorised changes to, or errors
in these inputs could lead to a
misstatement of revenue.
This covered management fees, platform fees and an element of
stockbroking commission. Our calculations were based on data
extracted from the administration system.
In order to rely on the data extracted, we:
• Reconciled transactional data provided from opening positions
through to closing positions of individual securities held; and
• Tested a sample of transactions to supporting documentation
such as client instructions and a sample of security positions
to stock reconciliations and external sources (such as fund
manager statements).
This testing provided sufficient evidence for us to determine the
data extracted was reliable for the purposes of performing the
recalculations.
We tested the inputs of our recalculations by agreeing standing
data, such as fee structures, commission rates, stock movements
and security prices to supporting evidence on a sample basis. No
exceptions were noted from testing the standing data.
On the basis of this testing, we determined it was appropriate for us
to use the standing data to perform our independent recalculation
of each of the revenue streams.
We compared our independent recalculations to the amount
reported and noted differences that, in our view, were trivial and
required no further investigation.
We tested the remaining asset and transaction-based revenue
within the two in-scope reporting units which included other
income and an element of stockbroking commission on a sample
basis, agreeing each revenue item sampled back to supporting
documentation. We noted differences that, in our view, were trivial
and required no further investigation.
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Key audit matter
Type of revenue
Revenue streams
calculated by
management or
a third party
Annual management
charges (‘AMCs’) relating to
the Hargreaves Lansdown
Multi-Manager funds and
Select funds
Interest income on client
money
Description of risks, including
fraud risk factors
The AMCs are calculated by an
independent third party, based on
the net asset value of the funds
and the published AMC rate.
Gross interest on client money is
calculated by management based
on the deposit balance and the rate
agreed with the bank.
As a result, a material
misstatement of revenue could
arise from fraudulently
manipulating calculations or
spreadsheet errors.
The above key audit matter applies only to the group. The parent
company does not report revenue.
Impact of COVID-19 (Refer to page 24 (Strategic Report),
page 59 (Governance Report) and page 67 (Report of the
Audit Committee))
The outbreak of the novel coronavirus (known as COVID-19) in
many countries is rapidly evolving and the socio-economic
impact is unprecedented. It has been declared as a global
pandemic and is having a major impact on economies and
financial markets. The efficacy of government measures will
materially influence the length of economic disruption, but it is
probable there will be a recession in the United Kingdom.
In order to assess the impact of COVID-19 on the business,
management have updated their risk assessment and prepared
an analysis of the potential impact on the revenues, profits, cash
flows, operations and liquidity position of the Group for at least
12 months from date of signing and over the next three years.
The analysis and related assumptions have been used by
management in its assessment of the Group’s going concern
and viability.
The most significant impact to the financial statements has
been in relation to the impairment assessment of the carrying
value of the parent company’s investment in the subsidiaries.
Management has also modelled possible downside scenarios to
its base case forecast. As at the balance sheet date the group’s
cash balance is £235.9m and the group also has access to an
undrawn £75.0m revolving credit facility. Having considered
these models, together with an assessment of planned and
possible mitigating actions, management has concluded that
the Group remains a going concern and there is no material
uncertainty in respect of this conclusion.
How our audit addressed the key audit matter
Revenue streams calculated by management or a third party
Annual management charges (‘AMCs’) relating to the Hargreaves
Lansdown Multi-Manager funds and Select funds.
We agreed revenue samples through to cash received evidenced by
bank statements, recalculated the management fees, and tested a
control operating at the firm which independently verifies the
fund’s net asset values provided by the independent third party.
We noted differences that, in our view, were trivial and required no
further investigation.
Interest income on client money
On a sample basis, we manually recalculated the gross interest
earned on client money based on records maintained by
management and tested these records by agreeing a sample of
deposits and interest rates to documentation received from the
relevant bank. No exceptions were noted as part of our testing.
All revenue streams
As part of our testing described above, we performed procedures
to determine that revenue was recognised accurately and traced to
cash receipts. In addition, we tested a sample of journals impacting
revenue posted to the general ledger based on our assessment of
fraud risk. We understood the nature of these journals and agreed
the appropriateness of the journal to supporting documentation.
No exceptions were noted that were indicative of fraud or error.
We evaluated the Group’s updated risk assessment and analysis
and considered whether it addresses the relevant threats posed by
COVID-19. We also evaluated management’s assessment and
corroborated evidence of the operational impacts, considering
their consistency with other available information and our
understanding of the business.
We assessed the disclosures presented in the Annual Report in
relation to COVID-19 by reading the other information, including the
Principal risks and the Viability statement set out in the Strategic
Report, and assessing its consistency with the financial statements
and the evidence we obtained in our audit.
In respect of going concern, we assessed the Directors’ going
concern analysis in light of COVID-19 and obtained evidence to
support the key assumptions used in preparing the going concern
model, including assessing headroom within the base and downside
case scenarios. We challenged the key assumptions used in
preparing the analysis.
We obtained external confirmations of the cash balances held
within the group as well as the revolving credit facility.
Our conclusions relating to going concern and other information
are set out in the ‘Going Concern’ and ‘Reporting on other
information’ sections of our report, respectively, below.
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TO THE MEMBERS OF HARGREAVES LANSDOWN PLC
We determined that there were no key audit matters applicable to the parent company to communicate in our report.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a
whole, taking into account the structure of the group and the parent company, the accounting processes and controls, and the industry in
which they operate.
The group is structured as one segment, comprising 19 separate reporting units. There were 6 trading subsidiaries during the year,
including the entity FundsLibrary Limited which was sold during the year. We considered two subsidiaries to be financially significant
reporting units and on which we performed an audit of their complete financial information. Together these two financially significant
reporting units represent 89.0% of the group’s profit before tax. An entity was considered to be financially significant if it contributed more
than 15% of consolidated profit before tax. Specific audit procedures were also performed over consolidation adjustments, balances that
could be tested at a group level which included intangible assets, staff costs, cash and cash equivalents, term deposits and material
movements through the consolidated statement of changes in equity. All of the audit work was performed by the group engagement
team in the UK as all books and records were available at one location.
The parent company is a holding company with investments in subsidiaries in the Hargreaves Lansdown plc group. It does not trade
outside of the group. The only material income it received during the year was dividend income received from its subsidiaries.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These,
together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit
procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually
and in aggregate on the financial statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Overall materiality
£18.9 million (2019: £15.2 million).
£10.7 million (2019: £9.9 million).
How we determined it
5% of profit before tax.
5% of profit before tax.
Rationale for
benchmark applied
As the Group is profit orientated, we have
calculated materiality with reference to profit
before tax.
As the parent company is profit orientated,
we have calculated materiality with
reference to profit before tax.
For each component in the scope of our group audit, we allocated a materiality that is less than our overall group materiality. The range of
materiality allocated across components was between £4.2 million and £17.0 million. Certain components were audited to a local statutory
audit materiality that was also less than our overall group materiality.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £945,000 (Group
audit) (2019: £760,000) and £533,000 (Parent company audit) (2019: £495,000) as well as misstatements below those amounts that, in our
view, warranted reporting for qualitative reasons.
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to in
respect of the directors’ statement in the financial statements about whether the
directors considered it appropriate to adopt the going concern basis of accounting
in preparing the financial statements and the directors’ identification of any
material uncertainties to the group’s and the parent company’s ability to continue
as a going concern over a period of at least twelve months from the date of
approval of the financial statements.
We are required to report if the directors’ statement relating to Going Concern in
accordance with Listing Rule 9.8.6R(3) is materially inconsistent with our knowledge
obtained in the audit.
Outcome
We have nothing material to add or to draw
attention to.
However, because not all future events or conditions
can be predicted, this statement is not a guarantee
as to the group’s and parent company’s ability to
continue as a going concern.
We have nothing to report.
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Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report
thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other
information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form
of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise
appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform
procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other
information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we
are required to report that fact. We have nothing to report based on these responsibilities.
With respect to the Strategic Report and Directors’ report, we also considered whether the disclosures required by the UK Companies Act
2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006 (CA06), ISAs
(UK) and the Listing Rules of the Financial Conduct Authority (FCA) require us also to report certain opinions and matters as described
below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’
report for the year ended 30 June 2020 is consistent with the financial statements and has been prepared in accordance with applicable
legal requirements (CA06).
In light of the knowledge and understanding of the group and parent company and their environment obtained in the course of the
audit, we did not identify any material misstatements in the Strategic Report and Directors’ report. (CA06)
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of
the group
We have nothing material to add or draw attention to regarding:
• The directors’ confirmation on page 25 of the Annual Report that they have carried out a robust assessment of the principal risks
facing the group, including those that would threaten its business model, future performance, solvency or liquidity.
• The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
• The directors’ explanation on page 112 of the Annual Report as to how they have assessed the prospects of the group, over what
period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a
reasonable expectation that the group will be able to continue in operation and meet its liabilities as they fall due over the period of
their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report having performed a review of the directors’ statement that they have carried out a robust assessment of the
principal risks facing the group and statement in relation to the longer-term viability of the group. Our review was substantially less in
scope than an audit and only consisted of making inquiries and considering the directors’ process supporting their statements;
checking that the statements are in alignment with the relevant provisions of the UK Corporate Governance Code (the “Code”); and
considering whether the statements are consistent with the knowledge and understanding of the group and parent company and their
environment obtained in the course of the audit. (Listing Rules)
Other Code Provisions
We have nothing to report in respect of our responsibility to report when:
• The statement given by the directors, on page 116, that they consider the Annual Report taken as a whole to be fair, balanced and
understandable, and provides the information necessary for the members to assess the group’s and parent company’s position and
performance, business model and strategy is materially inconsistent with our knowledge of the group and parent company obtained
in the course of performing our audit.
• The section of the Annual Report on page 67 describing the work of the Audit Committee does not appropriately address matters
communicated by us to the Audit Committee.
• The directors’ statement relating to the parent company’s compliance with the Code does not properly disclose a departure from a
relevant provision of the Code specified, under the Listing Rules, for review by the auditors.
Directors’ Remuneration
In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the
Companies Act 2006. (CA06)
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
123
GovernanceOther informationFinancial statementsStrategic report INDEPENDENT AUDITORS’ REPORT
TO THE MEMBERS OF HARGREAVES LANSDOWN PLC
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Statement of Directors’ responsibilities set out on page 116, the directors are responsible for the preparation
of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The
directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements
that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to continue
as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the
directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level
of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when
it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at: www.frc.org.uk/
auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the parent company’s members as a body in accordance with
Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume
responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where
expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received from
branches not visited by us; or
• certain disclosures of directors’ remuneration specified by law are not made; or
• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with
the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Appointment
Following the recommendation of the audit committee, we were appointed by the members on 25 October 2013 to audit the financial
statements for the year ended 30 June 2014 and subsequent financial periods. The period of total uninterrupted engagement is 7 years,
covering the years ended 30 June 2014 to 30 June 2020.
Alex Bertolotti (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
London
6 August 2020
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 1: RESULTS FOR THE YEAR
CONSOLIDATED INCOME STATEMENT
for the year ended 30 June 2020
Revenue
Fair value gains on derivatives
Operating costs
Operating profit
Finance income
Finance costs
Other gains
Profit before tax
Tax
Profit for the financial year
Attributable to:
Owners of the parent
Non-controlling interest
Earnings per share
Basic earnings per share (pence)
Diluted earnings per share (pence)
Underlying basic earnings per share (pence)
Underlying diluted earnings per share (pence)
The results relate entirely to continuing operations.
Note
1.1
1.3
1.6
1.7
4.1
1.8
1.9
1.9
1.9
1.9
Year ended
30 June 2020
£m
550.9
1.7
(214.9)
337.7
2.8
(1.0)
38.8
378.3
(65.1)
313.2
313.1
0.1
313.2
66.1
65.9
57.9
57.8
Year ended
30 June 2019
£m
480.5
2.2
(179.4)
303.3
2.8
(0.3)
–
305.8
(58.2)
247.6
247.4
0.2
247.6
52.1
52.0
52.1
52.0
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 30 June 2020
Profit for the financial year
Total comprehensive income for the financial year
Attributable to:
Owners of the parent
Non-controlling interest
The results relate entirely to continuing operations.
Year ended
30 June 2020
£m
313.2
313.2
313.1
0.1
313.2
Year ended
30 June 2019
£m
247.6
247.6
247.4
0.2
247.6
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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NOTES TO THE GROUP FINANCIAL STATEMENTS
INCOME STATEMENT
1.1 Revenue
Revenue represents fees receivable from financial services provided to clients, net interest income on client money and management fees
charged to clients. It relates to services provided in the UK and is stated net of value added tax.
Revenue is measured at the fair value of the consideration received or receivable, and represents amounts receivable for services
provided in the normal course of business, net of commission payable, discounts, VAT and other sales-related taxes.
Recurring
Recurring revenue is the largest source of income for the Group encompassing: platform fees, fund management fees, interest on
client money, ongoing adviser charges and renewal commission.
Platform fees are received for the provision of custody and administration of products on the HL platform and are charged monthly in
arrears for the service provided in the period, recognised on an accruals basis as they fall due. The consideration due is based on the
value of clients’ underlying assets under administration.
Fund management fees are calculated as a proportion of the net asset value of the funds under management in each of the HL
Multi-Manager and Select funds for the management services provided by the Group’s fund management subsidiary. They are charged
monthly in arrears and are recognised on an accruals basis in the period during which the service is provided.
Interest earned on client money is the net interest margin earned on money held within Group products by clients and is accrued on a
time basis, based on the client money balances under administration and by reference to the effective interest rate applicable.
Renewal commission is earned on third-party agreements entered into by clients, as a result of advice provided to them and is
recognised on an accruals basis as it becomes due and payable to the Group.
Ongoing adviser charges are levied monthly in arrears for the period during which the service is provided and are calculated as a
percentage of the assets under management within the Group’s portfolio management service.
The portfolio management service is provided to clients who prefer a managed service. This service encompasses the HL platform
custody and administration, fund management and ongoing advice services. All revenue streams are as described above. Additionally
initial advice charges are levied on taking the product up or on any advised deposit into the product, as described in transactional
revenue below. Each stream is separately charged in relation to the product. Each stream can also be taken by HL clients who do not use
the portfolio management service, either as separate services or in any combination as required.
Although most recurring revenue is based on the value of underlying benefits, these are not considered to constitute variable income in
which significant judgement or estimation is involved. The calculations are based on short timelines or point in time calculations that
represent the end of a quantifiable period, in accordance with the contract. These are charged to and paid by the client on the same
value, constituting the transaction price for the specified period. At any time during the period a client may choose to remove their
assets from a service and no further revenue is received.
All obligations to the customer are satisfied at the end of the period in which the service is provided for recurring revenue, with payment
being due immediately,
Transactional
Transactional revenue is mainly comprised of fees on stockbroking transactions and initial adviser charges. The price is determined in
relation to the specific transaction type and are frequently flat fees or based on a charge over assets. There is no variable consideration
in relation to transactional revenue.
The Group earns fees on stockbroking transactions entered into on behalf of clients. The fee earned is recorded in the accounts on the
date of the transaction, being the date on which services are provided to clients and the Group becomes entitled to the income.
Initial adviser charges are made to clients for providing advice to clients on specific financial matters or in relation to amounts deposited
into the portfolio management service. This can take the form of ad-hoc advice on a specific pool of assets or initial advice about taking
managed services. Transaction price is determined at the point advice is accepted based on the final value of assets that are being
advised upon. Revenue is recognised at the point at which acceptance of the advice is made by the client and payment is taken on the
implementation of advice. The average time between acceptance and implementation is 30 days, if advice is not accepted then no
charge will be taken. If the client is advised to take a managed service, ongoing adviser charges are levied separately.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Other
Other revenue is made up entirely of the provision of funds data services and research to external parties through Funds Library. Billing
is either carried out in advance or in arrears with transactional amounts determined in advance and agreed in line with the contract for
services. For those amounts billed in advance, the income is deferred over the contract period. Those amounts billed in arrears are
accrued for over the performance period of the contract, in line with the estimated usage of services.
Timing and significant judgements made in relation to revenue.
As at year end, the Group has discharged all of its obligations in relation to contracts with customers, other than in relation to those
services that are billed in advance or arrears. These amounts are not material and where an obligation still exists at year end and the
payment exceeds the services rendered a contract liability is recognised, as deferred income in trade payables and spread across the
period of the transaction evenly. At the end of the period the longest period of liability in relation to deferred income is 3 months.
None of the revenue streams contain financing components.
There are no significant judgements made in relation to the timing or determination of transaction price of any revenue streams.
Recurring Revenue
Platform Fees
Fund Management Fees
Ongoing Adviser Fees
Interest earned on client money
Renewal commission
Transactional Revenue
Fees on stockbroking transactions
Initial adviser charges
Other transactional income
Other Revenue
Other revenue
Total Revenue
1.2 Segmental reporting
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
234.4
63.6
10.2
91.2
4.9
127.3
8.6
4.2
6.5
550.9
228.2
68.3
11.5
73.5
5.8
67.1
9.1
8.1
8.9
480.5
Under IFRS 8, operating segments are required to be determined based upon the Group’s internal organisation and management
structure and the primary way in which the Chief Operating Decision Maker (CODM) is provided with financial information. In the case of
the Group, the CODM is considered to be the Executive Committee.
It is the view of the Board and of the Executive Committee that there is only one segment, being the Group – a direct-to-investor
investment service administering investments in ISA, SIPP, Fund and Share accounts and Active Savings, providing services for individuals
and corporates. It is considered that segmental reporting does not provide a clearer or more accurate view of the reporting within the
Group. Given that only one segment exists, no additional information is presented in relation to it, as it is disclosed throughout these
financial statements.
The Group does not rely on any individual customer and so no additional customer information is reported.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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NOTES TO THE GROUP FINANCIAL STATEMENTS
INCOME STATEMENT
1.3 Operating costs
Operating costs
Operating costs represent those arising as a result of our operations and include depreciation and amortisation. All amounts are
recognised on an accruals basis.
Leasing
Leases that are considered short-term or low value under IFRS 16 are charged to the income statement on a straight-line basis over
the term of the relevant lease. Benefits received and receivable as an incentive to enter into a lease are also spread on a straight-line
basis over the lease term. This is in contrast to the prior year, where all leases were classified as operating leases – see section 5.1
for further details.
Marketing and distribution costs
Marketing and distribution costs include the advertising and marketing costs, as well as the cost of providing statements and
information to clients.
Operating profit has been arrived at after charging:
Depreciation of owned plant and equipment and rights of use assets (note 2.3)
Amortisation of other intangible assets
Marketing costs
Operating lease rentals payable – property
Office running costs – excluding operating lease rents payable
FSCS costs
Other operating costs
Staff costs (note 1.5)
Operating costs
1.4 Auditors’ remuneration
The analysis of auditors’ remuneration is as follows:
Audit fees
Fees payable to the Company’s auditors for the statutory audit of the Company’s
annual financial statements
Fees payable to the Company’s auditors and its associates for the audits of the
Company’s subsidiaries
Audit related assurance services
Year ended
30 June 2020
£m
8.4
5.2
23.9
0.1
4.3
13.7
58.1
101.2
214.9
Year ended
30 June 2019
£m
5.4
4.6
12.7
3.4
3.4
6.8
45.9
97.2
179.4
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
–
0.2
0.2
0.4
–
0.1
0.3
0.4
Audit fees for the year for the Company are below £50,000 and due to rounding are not shown in full in the above table.
Audit and related services provided by the auditor are discussed further in the Audit Committee Report on page 70.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
1.5 Staff costs
Staff costs represent amounts paid to employees and NEDs in respect of services provided in the year including wages and salaries,
share-based payment expenses, bonuses, payments to a defined contribution retirement benefit scheme and related social security
costs. Amounts are recognised on an accruals basis as the services are provided.
The Group aims to attract, motivate and retain high calibre employees by rewarding them with competitive salaries and benefit
packages, which may be linked to the creation of long-term shareholder value. Salary ranges are established by reference to those
prevailing in the employment market generally for employees of comparable status, responsibility and skills. All employees are eligible to
be considered for an annual discretionary bonus. In addition to cash bonuses, the Group operates various share-based remuneration
schemes as described in note 1.10. Other pension costs relate wholly to defined contribution schemes.
The average monthly number of employees of the Group
(including Executive Directors) was:
Operating and support functions
Administrative functions
Their aggregate remuneration comprised:
Wages and salaries
Social security costs
Share-based payment expenses
Other pension costs
Total costs paid for staffing
Capitalised in the year
Staff costs
Year ended
30 June 2020
No.
Year ended
30 June 2019
No.
1,175
424
1,599
£m
84.9
6.8
3.6
10.0
105.3
(4.1)
101.2
1,163
411
1,574
£m
79.8
8.5
3.8
9.7
101.8
(4.6)
97.2
The staff costs of £105.3 million (2019: £101.8 million) include costs capitalised under intangible assets. In total, £3.4 million of wages
and salaries (2019: £3.8 million), social security costs of £0.4 million (2019: £0.5 million) and pension costs of £0.3 million; (2019: £0.3 million)
were capitalised. See note 2.2 for further detail of the amounts capitalised.
1.6 Finance income
Interest income is accrued on a time basis by reference to the principal balance and the effective interest rate applicable for the office
bank accounts..
Interest on bank deposits
Year ended
30 June 2020
£m
2.8
Year ended
30 June 2019
£m
2.8
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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SECTION 1: RESULTS FOR THE YEAR
NOTES TO THE GROUP FINANCIAL STATEMENTS
INCOME STATEMENT
1.7 Finance costs
Commitment fees
Interest incurred on lease payables
Finance costs
Year ended
30 June 2020
£m
0.3
0.7
1.0
Year ended
30 June 2019
£m
0.3
–
0.3
The finance costs relate to the commitment fees paid in respect of a revolving credit facility taken up in the prior year. The facility allows the
Group to draw up to £75 million (2019: £75 million) and is undrawn as at 30 June 2020. The facility incurs interest charges, consisting of a
margin of 0.85% plus LIBOR per annum when drawn.
Interest incurred on lease payables is in relation to the right-of-use assets arising due to the leases of the Group accounted for under
IFRS16 and the incremental borrowing rate implied in the lease. The incremental borrowing rate for each lease is considered based on the
relevant terms of the lease taking into account factors such as length of lease, the location and economic factors impacting the asset and
the credit rating of the Group company entering into the lease. The rates range between 2.5% and 4.4%, with a weighted average
incremental borrowing rate of 2.8%.
1.8 Tax
Taxation
The tax expense represents the sum of the tax currently payable and deferred tax. The tax currently payable is based on taxable profit
for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense
that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for
current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in
the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the
balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax
assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary
differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of
goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects
neither the tax profit nor the accounting profit.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except
where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the year when the liability is settled or the asset is realised.
Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in
which case the deferred tax is also dealt with in equity. Deferred tax assets and liabilities are offset when there is a legally enforceable
right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation
authority and the Group intends to settle its current tax assets and liabilities on a net basis.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Current tax: on profits for the year
Current tax: adjustments in respect of prior years
Deferred tax (note 2.8)
Deferred tax: adjustments in respect of prior years (note 2.8)
Year ended
30 June 2020
£m
64.9
0.3
0.4
(0.5)
65.1
Year ended
30 June 2019
£m
58.4
0.1
(0.2)
(0.1)
58.2
Corporation tax is calculated at 19% of the estimated assessable profit for the year to 30 June 2020 (2019: 19%).
In addition to the amount charged to the consolidated income statement, certain tax amounts have been charged or (credited) directly
to equity as follows:
Deferred tax relating to share-based payments
Current tax relating to share-based payments
Year ended
30 June 2020
£m
0.7
(0.9)
(0.2)
Year ended
30 June 2019
£m
0.6
(1.0)
(0.4)
Factors affecting tax charge for the year
It is expected that the ongoing effective tax rate will remain at a rate approximating to the standard UK corporation tax rate in the medium
term, except for the impact of deferred tax arising from the timing of exercising of share options which is not under our control. Following
the enactment of Finance Act 2020 the standard UK corporation tax rate will now remain at 19% rather than reducing to 17%. Accordingly,
the Group’s profits for this accounting year are taxed at 19%. Deferred tax has been recognised at 19%, being the rate expected to be in
force at the time of the reversal of the temporary difference. This is an increase from the rate of 17% used in the prior year. A deferred tax
asset in respect of future share option deductions has been recognised based on the Company’s share price as at 30 June 2020. In the
current year the Group qualified as very large, under the HMRC rules and is required to pay corporation tax quarterly in advance. As a result
the Group has ended up with a current tax asset in relation to overpayment in the preceding period.
The charge for the year can be reconciled to the profit per the income statement as follows:
Profit before tax
Tax at the standard UK corporation tax rate of 19.0% (2019: 19.0%)
Non-taxable income
Non-taxable gain on disposal of subsidiary
Items not allowable for tax
Adjustments in respect of prior years
Impact of the change in tax rate
Tax expense for the year
Effective tax rate
Year ended
30 June 2020
£m
378.3
71.9
–
(7.4)
0.7
0.1
(0.2)
65.1
17.2%
Year ended
30 June 2019
£m
305.8
58.1
(0.1)
–
–
–
0.2
58.2
19.0%
Factors affecting future tax charge
Any increase or decrease to the share price of Hargreaves Lansdown plc will impact the amount of tax deduction available in future years
on the value of shares acquired by staff under share incentive schemes.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
131
GovernanceOther informationFinancial statementsStrategic report
SECTION 1: RESULTS FOR THE YEAR
NOTES TO THE GROUP FINANCIAL STATEMENTS
INCOME STATEMENT
1.9 Earnings per share (EPS)
Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number
of ordinary shares in free issue during the year, including ordinary shares held in the Hargreaves Lansdown Employee Benefit Trust (HL
EBT) and Hargreaves Lansdown SIP Trust (SIP) reserve which have vested unconditionally with employees.
Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion
of all potentially dilutive ordinary shares.
The weighted average number of anti-dilutive share options and awards excluded from the calculation of diluted earnings per share was nil
at 30 June 2020 (2019: nil).
Earnings
Earnings for the purposes of basic and diluted EPS – net profit attributable to equity holders
of parent company
Number of shares
Weighted average number of ordinary shares
Weighted average number of shares held by HL EBT and SIP
Weighted average number of shares held by HL EBT and SIP that have vested unconditionally
with employees
Weighted average number of ordinary shares for the purposes of basic EPS
Weighted average number of dilutive share options held by HL EBT and SIP that have not vested
unconditionally with employees
Weighted average number of ordinary shares for the purposes of diluted EPS
Earnings per share
Basic EPS
Diluted EPS
Underlying basic EPS1
Underlying diluted EPS1
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
313.1
247.4
474,318,625
(527,322)
474,318,625
(125,270)
44,555
473,835,858
382,065
474,575,420
989,475
474,825,333
1,189,428
475,764,848
Pence
66.1
65.9
57.9
57.8
Pence
52.1
52.0
52.1
52.0
1 Underlying earnings are defined as the net profit attributable to equity holders of the parent company allowing for deduction of one-off items. For the year ended 30 June 2020
the one-off items deducted are the gains on disposal of Funds Library and the related costs.
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Hargreaves Lansdown ⁄ Report and Financial Statements 2020
1.10 Share-based payments
The Group issues equity-settled share-based payments to certain employees. Equity-settled share-based payments are measured at
fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. Share options are expensed on a straight-
line basis over the vesting period, based on management’s best estimate of awards vesting and adjusted for the impact of non-market-
based vesting conditions. Annual revisions are made to the estimate of awards vesting, based on non-market-based vesting conditions.
The impact of the revision is recognised in the income statement such that the cumulative expense reflects the revised estimate, with
a corresponding adjustment to reserves.
Fair value is measured by use of the Black-Scholes model. The expected life used in the model has been adjusted, based on
management’s best estimate, for the effects of non-transferability, exercise restrictions and behavioural considerations.
Any gains or losses on the sale of the Company’s own shares held by the EBT are credited or debited directly to the EBT reserve and are
treated as non-distributable profits.
Equity-settled share option scheme
The Group seeks to facilitate equity ownership by employees, principally through schemes that encourage and assist the purchase
of the Company’s shares.
The Group operates three share option and share award plans: the Employee Savings-Related Share Option Scheme (SAYE),
the Hargreaves Lansdown plc Share Incentive Plan (SIP) and the Hargreaves Lansdown Company Share Option Scheme (the Executive
Option Scheme).
Awards granted under the SAYE scheme vest over three or five years. Awards granted under the Employee Share Incentive Plan vest over
a three-year period. Awards granted under the Executive Option Scheme range between vesting at grant date and a maximum of 10 years.
Options are exercisable at a price equal to the market value of the Company’s shares on the date of grant. There are currently no
performance conditions attached to any options granted under any of the schemes, with the exception of the Sustained Performance
Plan (SPP) – an Executive Option Scheme, although options are forfeited (in most circumstances) if the employee leaves the Group before
the options vest. Unless otherwise stated there have been no lapsed or forfeited options during the year.
Details of the share options and share awards outstanding during the year are as follows:
SAYE
Outstanding at beginning of the year
Granted during the year
Exercised during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at the end of the year
Executive Option Scheme
Outstanding at beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Forfeited during the year
Outstanding at the end of the year
Exercisable at the end of the year
SIP
Outstanding at beginning of the year
Exercised during the year
Outstanding at the end of the year
Exercisable at the end of the year
Year ended 30 June 2020
Year ended 30 June 2019
Share options
No.
Weighted average
exercise price
Pence
Share options
No.
Weighted average
exercise price
Pence
891,943
472,607
(376,102)
(162,442)
826,006
38,015
1,838,711
137,104
(304,841)
(33,036)
(112,496)
1,525,442
425,224
34,885
–
34,885
34,885
1,191.4
1,163.0
998.5
1,315.5
1,238.6
992.8
759.6
–
655.3
1,329.0
1,150.6
674.9
902.7
23.5
23.5
23.5
23.5
856,927
263,238
(197,460)
(30,762)
891,943
24,057
2,524,947
194,277
(583,217)
–
(297,296)
1,838,711
230,354
37,235
(2,350)
34,885
34,885
1,093.2
1,384.0
1,044.2
1,048.0
1,191.4
1,067.6
957.3
–
1,116.2
–
1,239.3
759.6
642.2
23.5
23.5
23.5
23.5
The weighted average market share price at the date of exercise for options exercised during the year was 1,806.8 pence
(2019: 2,037.4 pence).
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
133
GovernanceOther informationFinancial statementsStrategic report SECTION 1: RESULTS FOR THE YEAR
NOTES TO THE GROUP FINANCIAL STATEMENTS
INCOME STATEMENT
1.10 Share-based payments continued
The share options outstanding at the end of each year have exercise prices and expected remaining lives as follows:
Weighted average expected remaining life
0-1 years
1-2 years
2-3 years
3-4 years
4-5 years
Year ended 30 June 2020
Year ended 30 June 2019
Share options
No.
1,279,819
332,321
615,820
71,948
86,425
2,386,333
Weighted
average options
exercise price
Pence
927.9
952.0
891.1
0.0
0.0
860.1
Share options
No.
1,285,819
895,004
414,037
98,731
71,948
2,765,539
Weighted
average options
exercise price
Pence
865.0
1,021.2
1,046.3
0.0
0.0
889.3
The fair value at the date of grant of options awarded during the year ended 30 June 2020 and the year ended 30 June 2019 has been
estimated by the Black-Scholes methodology and the principal assumptions required by the methodology were as follows:
Weighted average share price
Expected dividend yields
SAYE
Weighted average exercise price
Expected volatility
Risk-free rate
Expected life
Fair value
Executive scheme
Weighted average exercise price
Expected volatility
Risk-free rate
Expected life
Fair value
At 30 June
2020
1,764.9p
3.05%
1,163p
34%
0.12%
3 years
294.0p
0.00p
30%
0.37%
4.7 years
1,806.1p
At 30 June
2019
1,974.3p
1.81%
1,384.0p
28%
0.80%
3 years
814.9p
0.00p
30%
1.45%
4.6 years
2,046.0p
The expected volatility
The expected Hargreaves Lansdown plc share price volatility was determined by calculating the historical volatility of the Group’s share
price since flotation in May 2007.
Prior to 15 May 2007, the Company’s shares were not listed on a stock exchange and therefore no readily available market price existed for
the shares. Since 15 May 2007, a quoted market price has been available for the Company’s shares.
The Group recognised total expenses related to equity-settled share-based payment transactions as shown in note 1.5.
134
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 2: ASSETS AND LIABILITIES
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
as at 30 June 2020
ASSETS
Non-current assets
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax assets
Current assets
Investments
Derivative financial instruments
Trade and other receivables
Cash and cash equivalents
Current tax assets
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Derivative financial instruments
Current tax liabilities
Net current assets
Non-current liabilities
Provisions
Non-current liabilities
Non-current lease liabilities
Total liabilities
Net assets
EQUITY
Share capital
Shares held by EBT reserve
EBT reserve
Retained earnings
Total equity, attributable to the owners of the parent
Non-controlling interest
Total equity
Note
At 30 June 2020
£m
At 30 June 2019
£m
2.1
2.2
2.3
2.8
2.4
2.5
2.6
2.7
2.9
2.5
2.10
2.9
2.11
3.1
3.1
1.3
28.0
33.2
3.1
65.6
0.6
0.1
973.2
235.9
0.7
1,210.5
1,276.1
696.7
0.1
–
696.8
513.7
0.8
1.0
19.9
718.5
557.6
1.9
(6.3)
(1.9)
564.6
558.3
(0.7)
557.6
1.3
23.0
16.0
3.8
44.1
1.1
0.1
748.6
179.3
–
929.1
973.2
485.7
–
27.5
513.2
415.9
0.7
–
–
513.9
459.3
1.9
(3.4)
1.5
457.9
457.9
1.4
459.3
The consolidated financial statements on pages 125 to 158 were approved by the Board and authorised for issue on 6 August 2020 and
signed on its behalf by:
Philip Johnson
Chief Financial Officer
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
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GovernanceOther informationFinancial statementsStrategic report
2.1 Goodwill
Goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the
identifiable assets and liabilities of a subsidiary at the date of acquisition. Goodwill is initially recognised as an asset at cost and is
subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired
in a business combination is allocated to the cash-generating unit expected to benefit from the synergies of the combination.
Cash-generating units to which goodwill has been allocated are reviewed for impairment at least annually as a matter of course, and
whenever an event or change in circumstances occurs which indicates potential impairment. The carrying value of goodwill is compared
to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised
immediately in profit or loss and is not subsequently reversed.
On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Cost – at beginning and end of year
Accumulated impairment losses
At beginning and end of year
Carrying amount – at end of year
Year ended
30 June 2020
£m
1.5
Year ended
30 June 2019
£m
1.5
0.2
1.3
0.2
1.3
The net carrying value of goodwill relates entirely to the acquisition of Hargreaves Lansdown Pensions Direct Limited (HLPD) now named
Hargreaves Lansdown Advisory Services Limited (HLAS).
The Group has prepared financial forecasts for the business for the period to June 2023 that show the Group as a whole and HLAS,
will remain profitable and cash generative. HLAS made a small loss in the financial year, but has a net asset position as at 30 June 2020.
As a result there are no significant indicators that goodwill is impaired.
136
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 2: ASSETS AND LIABILITIESNOTES TO THE GROUP FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF FINANCIAL POSITION 2.2 Other intangible assets
Other intangible assets comprise customer lists, computer software and the Group’s key operating system, which are stated at cost
less amortisation and any recognised impairment loss. Amortisation is provided, where material, on all intangible assets excluding
goodwill at rates calculated to write off the cost or valuation, less estimated residual value, of each asset evenly using a straight-line
method over its estimated useful life as follows:
Customer list – eight years
The customer list relates to acquired books of business and does not include internally generated client lists. The carrying value of the
assets is reviewed for impairment at least every 12 months, or when events or changes in circumstances indicate that the carrying value
may not be recoverable.
Computer software – over three to eight years
Computer software relates to purchases of licences and software, in line with the requirements of IAS 38. The carrying values of
computer software are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not
be recoverable. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales
proceeds and the carrying amount of the asset and is recognised in the consolidated income statement.
Internally developed software – eight years
IT development costs are capitalised only to the extent that they have led to the creation of enduring assets, which deliver benefits at
least as great as the amount capitalised and in accordance with the recognition criteria of IAS 38 intangible assets.
When assessing projects for capitalisation we apply IAS 38’s recognition and measurement criteria for internally generated intangible
assets to development expenditure that is both propositional in nature (as opposed to regulatory or administrative), and which is, or is
expected to be, material over the life of the project.
Development work has been undertaken in-house by IT staff and management to enhance the key operating system. The key
operating system is fundamental to the operation of the platform, which holds client assets, enabling revenue to be earned.
In-house development work has also been undertaken in Hargreaves Lansdown Savings Limited to develop a digital cash savings
product. Development commenced in the year to 30 June 2016. The Group launched the service in December 2018 to a limited number
of clients and is committed to providing the financial resources required to see it through to expected profitability, having since grown
the number of clients to approximately 28,000.
Costs relating to an asset that is not yet fully available for use by the business, are classified as internally developed software and are
reviewed for impairment at least annually. No issues have been noted in the current year. In accordance with the provisions of IAS 38 the
costs are capitalised as an intangible asset and subsequently amortised over the estimated useful life of the systems of eight years,
starting from the date at which the assets are put into use.
Impairment of intangible assets excluding goodwill
At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether
there is any indication that those assets have suffered an impairment loss. If any indication exists, the recoverable amount of the asset
is estimated in order to determine the extent of the loss. Where the asset does not generate cash flows, independent from other
assets, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. Recoverable amount is
the higher of fair value, less costs to sell, and value in use.
If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its
recoverable amount and an impairment loss is recognised as an expense immediately.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
137
GovernanceOther informationFinancial statementsStrategic report 2.2 Other intangible assets continued
Cost
At 1 July 2018
Additions
At 30 June 2019
Additions
At 30 June 2020
Accumulated amortisation
At 1 July 2018
Charge
At 30 June 2019
Charge
At 30 June 2020
Carrying amount
At 30 June 2020
At 30 June 2019
At 1 July 2018
Customer
list
£m
Computer
software
£m
Internally
developed
software
£m
1.0
2.8
3.8
0.8
4.6
0.2
0.1
0.3
0.5
0.8
3.8
3.5
0.8
13.8
3.6
17.4
0.7
18.1
9.0
2.6
11.6
2.3
13.9
4.2
5.8
4.8
14.6
3.1
17.7
8.7
26.4
2.1
1.9
4.0
2.4
6.4
20.0
13.7
12.5
Total
£m
29.4
9.5
38.9
10.2
49.1
11.3
4.6
15.9
5.2
21.1
28.0
23.0
18.1
The amortisation charge above is included in other operating costs in the income statement.
The customer lists are a separately acquired intangible asset and do not include any internally generated element. The remaining
amortisation period for these assets is six to eight years.
Computer software includes externally acquired licences and internally generated system improvements.
Commitments in respect of intangible assets are shown in note 5.3.
2.3 Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation and any recognised impairment loss. Cost includes
the original purchase price of the asset and the costs attributable to bringing the asset to working condition for its intended use.
Property, plant and equipment now includes both owned and leased assets. Owned assets are measured initially at cost and
subsequently at cost less accumulated depreciation. Leased, or right-of-use, assets are measured initially at the present value of
all future lease payments, less any prepaid or accrued rent or incentives and any expected dilapidation cost being the initial value.
Subsequently, leased assets are measured at initial value less accumulated depreciation.
Depreciation is charged based on the estimates of useful economic lives and expected residual values, which are reviewed annually, for
all plant and equipment, except for leased assets which are depreciated on a straight-line basis over their economic lives. Management
determines the useful lives and residual values for assets when they are acquired, based on experience with similar assets and taking
into account other relevant factors, such as any expected changes in technology. The charge is calculated to write off the cost or
valuation, less estimated residual value, of each asset evenly using a straight-line method over its estimated useful life as follows:
Computer hardware – over three to ten years.
Office equipment (includes fixtures and leasehold improvements) – over three to ten years.
Right-of-use assets – over the term of the associated lease.
The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the
carrying value may not be recoverable. The gain or loss arising on the disposal or retirement of an asset is determined as the difference
between the sales proceeds and the carrying amount of the asset and is recognised in the income statement.
138
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 2: ASSETS AND LIABILITIESNOTES TO THE GROUP FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF FINANCIAL POSITION Property, plant and equipment
Cost
At 1 July 2018
Additions
At 30 June 2019
Additions
Assets recognised on initial implementation of IFRS 16
Disposals
At 30 June 2020
Accumulated depreciation
At 1 July 2018
Charge
At 30 June 2019
Charge
Disposal
At 30 June 2020
Carrying amount
At 30 June 2020
At 30 June 2019
At 1 July 2018
Leases recognised in property, plant and equipment
Right-of-use assets (see note 5.1)
Buildings
Leases expenses recognised in the consolidated income statement
Depreciation charge on right-of-use assets
Buildings
Lease expense recognised in finance costs
Right-of-use
assets
£m
Computer
hardware
£m
Office
equipment
£m
–
–
–
–
20.8
(0.6)
20.2
–
–
–
2.9
–
2.9
17.3
–
–
29.3
6.7
36.0
5.1
–
(1.2)
39.9
20.7
4.1
24.8
4.4
(1.2)
28.0
11.9
11.2
8.6
10.4
0.9
11.3
0.3
–
–
11.6
5.2
1.3
6.5
1.1
–
7.6
4.0
4.8
5.2
Note
1.3
1.7
Total
£m
39.7
7.6
47.3
5.4
20.8
(1.8)
71.7
25.9
5.4
31.3
8.4
(1.2)
38.5
33.2
16.0
13.8
Year ended
30 June 2020
£m
17.3
Year ended
30 June 2020
£m
2.9
0.7
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
139
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2.4 Investments
Investments are recognised in the Group’s statement of financial position, on trade date, when the Group becomes party to the
contractual provisions of an instrument and are initially measured at fair value.
Investments by default are designated as being held at fair value through profit or loss and are subsequently measured at fair value. Fair
value being the quoted market price of the listed investment, with any gain or loss reported within the income statement. An
investment is classified in this category if it is held principally for the purpose of selling in the short-term mandatorily, in accordance with
IFRS 9.
The Group derecognises financial assets only when the contractual rights to the cash flows, or substantially all of the risks and rewards
of ownership from the asset are transferred or expire. On derecognition of a financial asset in its entirety, the difference between the
asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss.
At beginning of year
Purchases
Disposals
At end of year
Comprising:
Current asset investment – UK listed securities valued at quoted market price
Year ended
30 June 2020
£m
1.1
–
(0.5)
0.6
Year ended
30 June 2019
£m
1.5
–
(0.4)
1.1
0.6
1.1
£0.6 million (2019: £1.1 million) of investments are classified as held at fair value through profit and loss, being deal-related short-term
investments.
2.5 Derivative financial instruments
The Group enters into short-term derivative financial instruments as a result of the currency service and overseas trading services
offered to its clients. Derivatives are initially recognised at fair value at the date a derivative contract is entered into, and are
subsequently remeasured to their fair value at the end of each reporting period, if applicable. The resulting gain or loss is recognised
immediately in the income statement.
A derivative with a positive fair value is recognised as a financial asset whereas a derivative with a negative fair value is recognised as a
financial liability. Derivatives are not offset in the financial statements unless the Group has both legal right and intention to offset.
Assets
Liabilities
Year ended
30 June 2020
£m
0.1
0.1
Year ended
30 June 2019
£m
0.1
–
Derivative contracts are short-term counterparty positions between the Group, its clients and third parties in the market. As a result there
are derivative liabilities and derivative assets presented in the statement of financial position in respect of open positions at year end.
All derivative positions are recognised as current assets or liabilities.
£1.7 million (2019: £2.2 million) of gains have been made, on a net basis, as a result of the fair value movements on derivatives in the year.
140
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 2: ASSETS AND LIABILITIESNOTES TO THE GROUP FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF FINANCIAL POSITION
2.6 Trade and other receivables
Financial assets are recognised in the Group’s statement of financial position when the Group becomes a party to the contractual
provisions of the instrument and are initially measured at fair value.
Trade and other receivables
Trade and other receivables are subsequently measured at amortised cost using the effective interest method less any expected credit
losses. The financial assets are held in order to collect the contractual cash flows and those cash flows are payments of interest and
principal only. The Group recognises Expected Credit Losses (ECLs) relating to trade receivables in line with the simplified approach per
IFRS 9 and calculated based on the historic information available from the preceding years alongside factors impacting the individual
debtors, economic conditions and forecast expectations. Impairment losses are recognised immediately in the Income Statement.
Term deposits
Term deposits comprise cash deposits held by UK licensed banks for a period of greater than three months, over which there is no recall
during the term of the deposit. The amounts are measured at amortised cost using the effective interest method in line with IFRS 9.
Accrued income
Accrued income relates to balances for which the Group has provided services, but balances are billed in arrears and as such are not yet
due. The amount relates to fund management fees, interest on deposits and services direct to clients. The revenue is recognised evenly
over the period during which services are provided, with initial recognition occurring at commencement of the agreement period.
Financial assets:
Trade receivables
Term deposits
Accrued income
Other receivables
Non-financial assets:
Prepayments
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
663.8
230.0
64.6
2.6
961.0
12.2
973.2
461.4
215.0
59.1
4.5
740.0
8.6
748.6
In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling
£642.0 million (2019: £429.3 million) are included in trade receivables. These balances are presented net where there is a legal right of
offset and the ability and intention to settle net. The gross amount of trade receivables is £865.8 million (2019: £524.8 million) and the gross
amount offset in the statement of financial position with trade payables is £223.8 million (2019: £95.5 million). Other than counterparty
balances, trade receivables primarily consist of fees and amounts owed by clients and renewal commission owed by fund management
groups. There are no balances where there is a legal right of offset but not a right of offset in accordance with accounting standards, and
no collateral has been posted for the balances that have been offset.
Given the short-term nature of the Group’s receivables and the expectation of the Group in relation to its counterparties, there has been
no material expected credit loss recognised in the period – see note 5.7 for further details.
The Group does not have any contract assets in respect of its revenue contracts with customers (2019: nil).
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
141
GovernanceOther informationFinancial statementsStrategic report 2.7 Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and demand deposits that are readily convertible to a known amount of cash,
subject to insignificant changes in value and are considered to be holdings of less than three months or those over which the Group
has an immediate right of recall. The carrying amount of these assets is approximately equal to their fair value.
Deposits held by the Group on unbreakable terms greater than three months are classified as receivables.
Cash and cash equivalents:
Group cash and cash equivalent balances
Restricted cash – balances held by HL EBT
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
232.8
3.1
235.9
179.0
0.3
179.3
At 30 June 2020, segregated deposit amounts held by the Group on behalf of clients in accordance with the client money rules of the
Financial Conduct Authority amounted to £7,506 million (2019: £5,398 million). In addition, there were pension trust and currency service
cash accounts held on behalf of clients not governed by the client money rules of £6,254 million (2019: £5,424 million). The client retains the
beneficial interest in both these deposits and cash accounts, and accordingly, they are not included in the statement of financial position of
the Group.
Restricted cash balances relate to the balances held within the HL Employee Benefit Trust. These are strictly held for the purpose of
purchasing shares to satisfy options under the Group’s share option schemes.
.
2.8 Deferred tax assets
Deferred tax assets arise because of temporary differences only. The following are the major deferred tax assets recognised and
movements thereon during the current and prior reporting years. Deferred tax has been recognised at 19%, being the rate expected to be
in force at the time of the reversal of the temporary difference.
At 1 July 2018
Credit to income
Charge to equity
At 30 June 2019
Credit / (charge) to income
Credit / (charge) to equity
At 30 June 2020
Deferred tax expected to be recovered or settled:
Within 1 year after reporting date
>1 year after reporting date
Fixed asset
tax relief
£m
0.1
0.2
–
0.3
(0.2)
–
0.1
0.1
–
0.1
Share-based
payments
£m
3.8
0.1
(0.6)
3.3
0.3
(1.2)
2.4
1.4
1.0
2.4
Other deductible
temporary
differences
£m
0.2
–
–
0.2
(0.1)
0.5
0.6
0.5
0.1
0.6
Total
£m
4.1
0.3
(0.6)
3.8
–
(0.7)
3.1
2.0
1.1
3.1
142
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 2: ASSETS AND LIABILITIESNOTES TO THE GROUP FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF FINANCIAL POSITION
2.9 Trade and other payables
Financial liabilities are classified according to the substance of the contractual arrangements entered into.
Trade payables are measured at amortised cost using the effective interest method. In accordance with market practice, certain
balances with clients, Stock Exchange member firms and other counterparties are included as creditors.
Current elements of lease liabilities are included within other payables, being initially calculated in line with IFRS 16. On inception a lease
liability is measured as the present value of future lease payments, discounted at the incremental borrowing rate implied within the
lease. The future lease payments of the Group are fixed, except for those that relate to leases in a currency other than GBP, which may
vary due to exchange rate movements.
Financial liabilities
Trade payables
Current lease liabilities
Accruals
Other payables
Non-financial liabilities
Deferred income
Social security and other taxes
Non-current financial liabilities
Other payables
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
637.1
3.3
22.3
26.3
689.0
0.4
7.3
696.7
433.9
–
23.8
19.6
477.3
1.1
7.3
485.7
Year ended
30 June 2020
£m
1.0
Year ended
30 June 2019
£m
–
In accordance with market practice, certain balances with clients, Stock Exchange member firms and other counterparties totalling
£634.8 million (2019: £425.6 million) are included in trade payables, similar to the treatment of trade receivables. As stated in note 2.6 above,
where we have a legal right of offset and the ability and intention to settle net, trade payable balances have been presented net.
Other payables principally comprise amounts owed to staff as a bonus and rebates due to the regulated funds operated by the Group.
Accruals and deferred income principally comprise amounts outstanding for trade purchases and receipts from clients, where cash is
received in advance for certain services. The decrease in the current year is in relation to the sale of Funds Library, which was responsible
for the majority of the deferred income balance.
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2.10 Provisions
Provisions are recognised when the Group has a present obligation as a result of a past event, and it is probable that the Group will be
required to settle that obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the
obligation at the end of the reporting period, and are discounted to present value where the effect is material.
Provisions are recognised for future committed property lease payments when the Group receives no benefit from the property
through continuing usage and future receipts from any sub-letting arrangements are not in excess of the Group’s future
committed payments.
Included within non-current liabilities – property costs
At 1 July 2018
Charged during the year
At 30 June 2019
Charged during the year
At 30 June 2020
£m
0.7
–
0.7
0.1
0.8
The provision on property-related costs represents the Group’s future committed lease payments on non-cancellable leases and other
contractual obligations that arise on the surrendering of operating leases, in relation to the head office in Bristol. These property provisions
are not expected to be fully utilised until 2026.
2.11 Long-term liabilities
Lease liabilities are included within current other payables and non-current lease liabilities, being initially calculated in line with IFRS 16. On
inception a lease liability is measured as the present value of future lease payments, discounted at the incremental borrowing rate implied
within the lease. The future lease payments of the Group are fixed, except for those that relate to leases in a currency other than GBP,
which may vary due to exchange rate movements.
Interest expense is incurred in relation to these leases, which is recognised as an expense in the period to which payment relates, on an
accruals basis.
See note 5.1 for further details
Lease liabilities greater than 12 months
Year ended
30 June 2020
£m
19.9
144
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 2: ASSETS AND LIABILITIESNOTES TO THE GROUP FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF FINANCIAL POSITION
SECTION 3: EQUITY
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2020
Attributable to the owners of the Parent
EBT
reserve
£m
6.2
–
Retained
earnings
£m
399.4
247.4
At 1 July 2018
Total comprehensive income1
Employee Benefit Trust
Shares sold in the year
Shares acquired in the year
HL EBT share sale
Reserve transfer on exercise
of share options
Employee share option scheme
Share-based payments expense
Current tax effect of share-based
payments (note 1.8)
Deferred tax effect of share-based
payments (note 1.8)
Dividend paid (note 3.2)
At 30 June 2019
Impact of change in accounting
policy (note 5.1)
Revised balance as at 1 July 2019
Total comprehensive income1
Change to non-controlling interest
Employee Benefit Trust
Shares sold in the year
Shares acquired in the year
HL EBT share sale
Reserve transfer on exercise
of share options
Employee share option scheme
Share-based payments expense
Current tax effect of share-based
payments (note 1.8)
Deferred tax effect of share-based
payments (note 1.8)
Dividend paid (note 3.2)
At 30 June 2020
Share
capital
£m
1.9
–
–
–
–
–
–
–
–
–
1.9
_
1.9
–
–
–
–
–
–
–
–
–
–
1.9
Shares
held by EBT
reserve
£m
(3.5)
–
15.1
(15.0)
–
–
–
–
–
–
(3.4)
_
(3.4)
–
–
11.9
(14.8)
–
–
–
–
–
–
(6.3)
1 Total comprehensive income includes profit after tax for the year and are the same figure.
–
–
(7.3)
2.6
–
–
–
–
1.5
_
1.5
–
–
–
–
(6.2)
2.8
–
–
–
–
(1.9)
Non-
controlling
interest
£m
1.2
0.2
–
–
–
–
–
–
–
–
1.4
–
1.4
0.1
(2.2)
–
–
–
–
–
–
Total
£m
404.0
247.4
15.1
(15.0)
(7.3)
–
3.8
1.0
(0.6)
(190.5)
457.9
(3.5)
454.4
313.1
–
11.9
(14.8)
(6.2)
–
3.6
0.9
Total
equity
£m
405.2
247.6
15.1
(15.0)
(7.3)
–
3.8
1.0
(0.6)
(190.5)
459.3
(3.5)
455.8
313.2
(2.2)
11.9
(14.8)
(6.2)
–
3.6
0.9
–
–
–
(2.6)
3.8
1.0
(0.6)
(190.5)
457.9
(3.5)
454.4
313.1
–
–
–
–
(2.8)
3.6
0.9
(1.3)
(203.3)
564.6
(1.3)
(203.3)
558.3
–
–
(0.7)
(1.3)
(203.3)
557.6
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
145
GovernanceOther informationFinancial statementsStrategic report 3.1 Share capital
Authorised: 525,000,000 (2019: 525,000,000) ordinary shares of 0.4p each
Issued and fully paid: ordinary shares of 0.4p each
Issued and fully paid: number of ordinary shares of 0.4p each
Year ended
30 June 2020
£m
2.1
1.9
Year ended
30 June 2019
£m
2.1
1.9
Shares
Shares
474,318,625
474,318,625
The Company has one class of ordinary shares which carry no right to fixed income.
The shares held by the EBT reserve represents the cost of shares in Hargreaves Lansdown plc purchased in the market and held by the
Hargreaves Lansdown EBT to satisfy options under the Group’s share option schemes.
The EBT reserve represents the cumulative gain on disposal of investments held by the HL EBT. The reserve is not distributable by the
Company as the assets and liabilities of the EBT are subject to management by the Trustees in accordance with the EBT trust deed.
Non-controlling interests in the net assets of consolidated subsidiaries are identified separately from the Group’s equity therein.
Non-controlling interests consist of the minority’s proportion of the net fair value of the assets and liabilities acquired at the date of the
original business combination and the non-controlling interest’s change in equity since that date. The non-controlling interest represents
a 7.5% shareholding in Hargreaves Lansdown Savings Limited, which is a subsidiary of the Company.
3.2 Dividends
Dividend recognition
Dividend distributions to the Company’s shareholders are recognised in the accounting period in which the dividends are declared and
paid, or, if earlier, in the accounting period when the dividend is approved by the Company’s shareholders at the Annual General Meeting.
Amounts recognised as distributions to equity holders in the year:
2019 final dividend of 23.4p (2018 second interim dividend: 22.1p) per share
2019 special dividend of 8.3p (2018: 7.8p) per share
2020 interim dividend of 11.2p (2019: 10.3p) per share
Total dividends paid during the year
Year ended
30 June 2020
£m
110.9
39.3
53.1
203.3
Year ended
30 June 2019
£m
104.7
37.0
48.8
190.5
After the end of the reporting period, the Directors declared a final ordinary dividend of 26.3 pence per share and a special dividend of
17.4 pence per share payable on 16 October 2020 to shareholders on the register on 25 September 2020. Dividends are required to be
recognised in the financial statements when paid, and accordingly the declared dividend amounts are not recognised in these financial
statements, but will be included in the 2021 financial statements as follows:
2020 final dividend of 26.3p (2019 final dividend: 23.4p) per share
2020 special dividend of 17.4p (2019 special dividend: 8.3p) per share
Total dividends
£m
124.6
82.4
207.0
The payment of these dividends will not have any tax consequences for the Group.
Under an arrangement dated 30 June 1997, the Hargreaves Lansdown Employee Benefit Trust, which held the following number of ordinary
shares in Hargreaves Lansdown plc at the date shown, has agreed to waive all dividends.
Number of shares held by the Hargreaves Lansdown Employee Benefit Trust
Representing % of called-up share capital
146
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Year ended
30 June 2020
No. of shares
571,856
0.12%
Year ended
30 June 2019
No. of shares
387,684
0.08%
SECTION 3: EQUITYNOTES TO THE GROUP FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF CHANGES IN EQUITY
SECTION 4: CONSOLIDATED STATEMENT OF CASH FLOWS
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 30 June 2020
Net cash from operating activities
Profit for the year after tax
Adjustments for:
Income tax expense
Gain on disposal of subsidiary
Depreciation of plant and equipment
Amortisation of intangible assets
Share-based payment expense
Interest accrual on lease liabilities
Increase in provisions
Operating cash flows before movements in working capital
Increase in receivables
Increase/(decrease) in payables
Increase in derivative liabilities
Cash generated from operations
Income tax paid
Net cash generated from operating activities
Investing activities
(Increase)/decrease in term deposits
Purchase of property, plant and equipment
Purchase of intangible assets
Proceeds on disposal of subsidiary
Proceeds on disposal of investments
Net cash generated from/(used in) investing activities
Financing activities
Purchase of own shares in EBT
Proceeds on sale of own shares in EBT
Payment of principal in relation to lease liabilities
Dividends paid to owners of the parent
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (including restricted cash)
Note
4.1
4.1
2.7
2.7
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
313.2
65.1
(38.8)
8.4
5.2
3.6
0.7
0.1
357.5
(209.6)
208.9
0.1
356.9
(91.5)
247.6
58.2
–
5.4
4.6
3.9
–
–
319.7
(128.4)
121.0
–
312.3
(50.8)
265.4
261.5
(15.0)
(5.8)
(10.1)
38.2
0.5
7.8
(14.8)
5.8
(4.3)
(203.3)
(216.6)
56.6
179.3
235.9
7.0
(7.6)
(9.5)
–
0.4
(9.7)
(15.0)
7.7
–
(190.5)
(197.8)
54.0
125.3
179.3
The adoption of IFRS 16 and adjustments made in relation to the adoption of that standard have had no impact on cash flows. As a result,
the value of current lease liabilities included in other payables does not impact the change in payables in the current period.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
147
GovernanceOther informationFinancial statementsStrategic report 4.1 Disposal of subsidiary
On 28 February 2020 the Group disposed of its interest in FundsLibrary Limited (Funds Library) to Broadridge Financial Systems Inc. The
Group held 78% of the total share capital of FundsLibrary Limited and received £48.8 million for its holding. As part of the half-year report
dated 31 December 2019, the assets of FundsLibrary Limited were shown as held for sale on the balance sheet.
The carrying amount of the assets and liabilities of Funds Library at the date of disposal were as follows:
Tangible fixed assets
Intangible assets
Cash
Trade receivables
Current liabilities
Non-current liabilities
Net assets disposed of
Non-controlling interest
Net assets controlled by Group
Total consideration received by Group
Costs to sell
Gain on disposal included in Consolidated Income Statement
Total consideration
Satisfied by:
Cash and cash equivalents
Net cash inflow arising on disposal:
Consideration received in cash and cash equivalents
Less: cash and cash equivalents disposed of
Less: cash paid in relation to costs to sell
The results of Funds Library which have been included in the profit for the year, were as follows:
Revenue
Expenses
Profit before tax
Attributable tax expense
Net profit attributable to Funds Library (attributable to the owners of the Company)
Net profit attributable to Non-Controlling Interests
Net profit attributable to Owners of the parent
28 February 2020
£m
0.7
0.1
9.3
3.6
(2.4)
(0.5)
10.8
(2.1)
8.7
48.8
(1.3)
38.8
28 February 2020
£m
48.8
48.8
9.3
1.3
38.2
28 February 2020
£m
6.5
(4.7)
1.8
(0.3)
1.5
0.3
1.2
148
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 4: CONSOLIDATED STATEMENT OF CASH FLOWSNOTES TO THE GROUP FINANCIAL STATEMENTSCONSOLIDATED STATEMENT OF CASH FLOWS SECTION 5: OTHER NOTES
NOTES TO THE GROUP FINANCIAL STATEMENTS
OTHER
5.1 General information
Hargreaves Lansdown plc (the “Company” and ultimate parent of the Group) is a company incorporated and domiciled in the United
Kingdom under the Companies Act 2006 whose shares are publicly traded on the London Stock Exchange. The address of the registered
office is One College Square South, Anchor Road, Bristol BS1 5HL, United Kingdom. The nature of the Group’s operations and its principal
activities are set out in the Operating and Financial Review as part of the Strategic Report.
These financial statements are presented in millions of pounds sterling (£m) which is the currency of the primary economic environment
in which the Group operates.
Basis of preparation
The consolidated financial statements of Hargreaves Lansdown plc have been prepared in accordance with International Financial
Reporting Standards (IFRS) and IFRS Interpretation Committee (IFRS IC) interpretations as adopted by the European Union (EU), and with
those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The financial statements are prepared on a going
concern basis as discussed on page 95.
The financial statements have been streamlined and presented to allow users to understand the primary statements and the related
balances that make them up better. It is our aim to ensure that the information provided is pertinent and indicates the balances of most
importance, while ensuring conformity with IFRS. In order to do this, we have aligned the notes to the financial statements with the
relevant primary statements; where there is an associated accounting policy, it is clearly denoted by a box presented at the beginning
of the note.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires
management to exercise its judgement in the process of applying the Company’s accounting policies. The areas involving a higher degree
of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 5.2.
Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and subsidiary undertakings controlled by
the Group made up to 30 June 2020. The Group controls a subsidiary when it has power over an investee, is exposed, or has rights, to
variable returns from its involvement with the subsidiary and has the ability to affect those returns through its power over the investee.
The Group reassesses whether it controls a subsidiary when facts and circumstances indicate that there are changes to one or more
elements of control.
The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective
date of acquisition or up to the effective date of disposal, as appropriate.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with
those used by the Group. All intra-Group transactions, balances, income and expenses are eliminated on consolidation.
Business combinations
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the
fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange
for control of the acquired entity. The acquired entity’s identifiable assets, liabilities and contingent liabilities that meet the conditions for
recognition under IFRS 3 ‘Business Combinations’ are recognised at their fair value at the acquisition date.
The Group recognises any non-controlling interest in the acquired entity at the non-controlling interest’s proportionate share of the
recognised amounts of acquired entity’s identifiable net assets.
Application of new standards
In the current year, the following new and revised standards and interpretations have been adopted but do not materially affect the
amounts reported or the accounting policies in these financial statements other than as described below:
Changes in accounting policy
In the year, the Group has adopted one new accounting standard, IFRS 16 ‘Leases’, which became applicable for the accounting period
commencing 1 July 2019. The standard replaces IAS 17 ‘Leases’. It fundamentally changes the way the Group accounts for leases, as
previously unrecognised operating leases are now recognised on balance sheet as lease liabilities and right-of-use assets.
The Group has adopted the modified retrospective approach to application of the standard and as a result there has been no restatement
of the prior period figures, but opening reserves have been adjusted. The opening liabilities in relation to these leases have been calculated
as the present value of the future lease payments, at the point of adoption, discounted at the incremental borrowing rate as at 1 July 2019.
The incremental borrowing rate for each lease is considered based on the relevant terms of the lease taking into account factors such as
length of lease, the location and economic factors impacting the asset and the credit rating of the Group company entering into the lease.
The rates range between 2.5% and 4.4%, with a weighted average incremental borrowing rate of 2.8%.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
149
GovernanceOther informationFinancial statementsStrategic report 5.1 General information continued
A reconciliation of the presented minimum lease payments under operating leases presented in the prior year, under IAS 17, to the liabilities
under IFRS 16 are below:
Operating lease commitments as at 30 June 2019
Impact of treatments for VAT
Effect of discounting at relevant incremental borrowing rate
Short term lease
Lease Liabilities recognised on adoption
30 June 2019
£m
23.9
3.8
(2.1)
(0.2)
25.4
On the date of adoption, the Group entered into another lease for property that has been accounted for under IFRS 16, but which did not
impact the reconciliation upon adoption from operating lease commitments to the lease liabilities under IFRS 16. The value of this asset
was £2.8 million. It is included in the opening value of lease liabilities, but does not form part of the reconciliation to the operating lease
commitments presented at 30 June 2019.
The right-of-use assets recognised in the period were initially measured on a retrospective basis, as though the standard had always been
applied. The new lease entered into at the start of the period was measured as the value of the lease liability adjusted for the amounts of
any prepaid or accrued lease payments and any dilapidation costs that were likely to be incurred.
All of the leases and the related right-of-use assets recognised in the period relate to property, being the offices of Group companies. As a
result they have been accounted for as a part of property, plant and equipment, due to the other assets held under this classification by the
Group are complementary in nature. The total value of assets recognised as at 1 July 2019 was £20.8 million. In the year the Group disposed
of Funds Library, a subsidiary company and as part of the disposal disposed of leases and right-of-use assets with initial value of £0.6m and
£0.6 million respectively.
Upon adoption of the standard, the following adjustments were made to the Statement of Financial Position as at 1 July 2019
• Right-of-use assets, presented in Property, Plant and Equipment of £20.8 million were recognised;
• Lease liabilities of £28.2 million were recognised, in respect of the leases entered into up to and including 1 July 2019 and recognised in
lease liabilities and other payables for non-current and current balances respectively;
• Accruals for lease incentives decreased by £3.3 million;
• Opening reserves were adjusted by £3.5 million, including a deferred tax impact of £0.6 million.
In the year to 30 June 2020 the adoption of IFRS 16 has led to an increase in expenses in the period of £0.3 million.
The standard affords a number of practical expedients upon transition to IFRS 16 and the Group has taken advantage of the following:
• No reassessment has taken place of contracts previously identified as leases under IAS 17 and IFRIC 4;
• Reliance on assessments performed prior to adoption of whether or not a lease is onerous;
• Accounting for leases with a remaining life of less than 12 months as at the date of transition as short-term leases;
• Exclusion of initial direct costs from the measurement of right-of-use asset at the date of initial application.
The impact of the adoption of the standard on the accounting policies of the company are as follows:
Property, plant and equipment
Property, plant and equipment now includes both owned and leased assets. Owned assets are measured initially at cost and subsequently
at cost less accumulated depreciation.
Leased right-of-use assets are measured initially at the present value of all future lease payments, less any prepaid or accrued rent or
incentives and any expected dilapidation cost being the initial value. Subsequently, leased assets are measured at initial value less
accumulated depreciation.
Depreciation is charged in a straight-line across the useful economic life for both owned and leased assets, where the useful economic life
is determined by management upon purchase for owned assets and is the lease term for all leased assets.
150
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 5: OTHER NOTESNOTES TO THE GROUP FINANCIAL STATEMENTSOTHER Other payables
Lease liabilities are included within current other payables and non-current lease liabilities, being initially calculated in line with IFRS 16. On
inception a lease liability is measured as the present value of future lease payments, discounted at the incremental borrowing rate implied
within the lease. The future lease payments of the Group are fixed, except for those that relate to leases in a currency other than GBP,
which may vary due to exchange rate movements.
Interest expense is incurred in relation to these leases, which is recognised as an expense in the period to which payment relates, on an
accruals basis.
The Group has other short-term leases, which are leases with a remaining life of less than twelve months upon adoption of IFRS 16.
Expenses in relation to rent are accounted for on a straight-line basis, with expenses recognised in profit or loss.
The following standards have also been adopted in the current period, but do not have a material impact on these financial statements.
• Amendments to IFRS 9 ‘Prepayment Features with Negative Compensation’;
• Amendments to IAS 28 ‘Long-term Interests in Associates and Joint Ventures’;
• Annual Improvements to IFRS Standards 2015–2017 Cycle:
– Amendments to IFRS 3 Business Combinations,
– IFRS 11 ‘Joint Arrangements’,
– IAS 12 ‘Income Taxes’ and
– IAS 23 ‘Borrowing Costs’
• Amendments to IAS 19 ‘Employee Benefits Plan Amendment, Curtailment or Settlement’;
• IFRIC 23 ‘Uncertainty over Income Tax Treatments’.
At the date of authorisation of these financial statements, the Group has not applied the following new and revised IFRS Standards that
have been issued but are not yet effective:
• IFRS 17 – ‘Insurance Contracts’;
• IFRS 10 and IAS 28 (amendments) ‘Sale or Contribution of Assets between an Investor and its Associate or Joint Venture’;
• Amendments to IFRS 3 ‘Definition of a business’;
• Amendments to IAS 1 and IAS 8 ‘Definition of material’;
• Conceptual Framework Amendments to References to the Conceptual Framework in IFRS Standards
The Directors do not expect that the adoption of the Standards listed above will have a material impact on the financial statements of the
Group in future periods.
Accounting policies
The financial statements have been prepared on the historical cost basis, except for the revaluation of financial assets and liabilities at fair
value through profit and loss. The principal accounting policies adopted are set out at the start of each note to which they relate.
Accounting policies as shown in these notes have been consistently applied throughout the current and prior financial year. In the prior
annual report a table was presented showing ‘Interests in unconsolidated structured entities’. In both the current and prior year the Group
had no such interests and as such the note has been removed.
5.2 Key sources of judgements and estimation uncertainty
The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount
of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. If, in the future, such estimates and assumptions,
which are based on management’s best judgement at the date of preparation of the financial statements deviate from actual
circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.
There are no assumptions made about the future, or any other major sources of estimation uncertainty at the end of the reporting period,
that have a significant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next financial year.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
151
GovernanceOther informationFinancial statementsStrategic report 5.3 Contingencies and commitments
Operating lease commitments – as lessee
Minimum lease payments under operating lease recognised as an expense in the year
At the end of the reporting period, the Group had outstanding commitments for future minimum
lease payments under the remaining term of non-cancellable operating leases, which fall due
as follows:
Within one year
In the second to fifth years inclusive
After five years
Total minimum lease payments
Year ended
30 June 2020
£m
0.1
Year ended
30 June 2019
£m
3.4
0.1
–
–
0.1
3.7
14.3
5.9
23.9
Operating lease payments represent rentals payable by the Group for its office properties. The Group leases various offices under
non-cancellable operating lease agreements. The leases have varying terms, escalation values and renewal rights. The decline in the year
is due to the adoption of IFRS 16, which has meant that the majority of leases are accounted for under that standard. The maturity of these
balances can be seen in Note 5.7.
Capital commitments
At the end of the reporting period, the Group had capital commitments of £0.1 million (2019: £0.1 million) for IT equipment.
Contingencies
The Group operates in a highly regulated environment and, in the ordinary course of business, is required to provide information to various
authorities as part of informal and formal requests and enquiries. While there are inherent uncertainties in the outcome of such enquiries,
it is not practicable to estimate the financial impact, if any, on the Group’s results or net assets at the year end.
5.4 Subsidiaries
A list of the investments in subsidiaries included in the consolidated results of Hargreaves Lansdown plc is shown in note 6.4 to the Parent
Company financial statements. Also included in the Group Consolidated Financial Statements are ‘The Hargreaves Lansdown Employee
Benefit Trust’ and ‘The Hargreaves Lansdown plc SIP Trust’.
5.5 Events after the reporting period
On 6 August 2020 the Directors proposed a final ordinary dividend payment of 26.3 pence per ordinary share and a special dividend of 17.4
pence per share, payable on 16 October 2020 to all shareholders on the register at the close of business on 25 September 2020 as detailed
in note 3.2.
5.6 Related party transactions
The Company has a related party relationship with its subsidiaries, its Directors and members of the Executive Committee (the ‘key
management personnel’). Transactions between the Company and its key management personnel are disclosed below. Details of
transactions between the Company and other related parties are also disclosed below.
Trading transactions
The Company entered into the following transactions with Directors within the Hargreaves Lansdown Group and related parties who are
not members of the Group:
During the years ended 30 June 2020 and 30 June 2019, the Company has been party to a lease with Peter Hargreaves, a significant
shareholder and former Director, for rental of the old head office premises at Kendal House. A 10 year lease was signed on 6 April 2011 for a
rental of part of the building, to be used for a small number of staff and for disaster recovery purposes at a market rate rent of £0.1 million
per annum. No amount was outstanding at either year end.
152
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 5: OTHER NOTESNOTES TO THE GROUP FINANCIAL STATEMENTSOTHER
Throughout the year, the non-controlling interest in HL Savings Limited has been held by Stuart Louden, an employee of the Group.
There has been no change in the holdings in the current period – see note 6.4 for further details.
During the years ended 30 June 2020 and 30 June 2019, the Group has provided a range of investment services in the normal course
of business to shareholders on normal third-party business terms. Directors and staff are eligible for a slight discount on some of the
services provided.
Remuneration of key management personnel
The remuneration of the key management personnel of the Group, being those personnel who were either a member of the Board of a
Group company or a member of the Executive Committee during the relevant year shown below, is set out below in aggregate for each
of the categories specified in IAS 24 Related Party Disclosures.
Short-term employee benefits
Post-employment benefits
Share-based payments
Year ended
30 June 2020
£m
10.3
0.2
2.2
12.7
Year ended
30 June 2019
£m
5.9
0.1
2.3
8.3
In addition to the amounts above, four key management personnel (2019: eight) received gains of £0.6 million (2019: £1.6 million) as a result of
exercising share options. During the year, awards were made under executive option schemes for 9 key management personnel (2019: 10).
Included within the previous table are the following amounts paid to Directors of the Company who served during the relevant year.
Full details of Directors’ remuneration, including numbers of shares exercised, are shown in the Directors’ remuneration report.
Short-term employee benefits
Share-based payments
Year ended
30 June 2020
£m
4.7
0.6
5.3
Year ended
30 June 2019
£m
1.4
0.9
2.3
In addition to the amounts above, Directors of the Company received gains of £0.2 million relating to the exercise of share options
(2019: £0.2 million).
Emoluments of the highest paid Director
Number of Directors who exercised share options during the year
Number of Directors who were members of money purchase pension schemes
Year ended
30 June 2020
£m
2.7
Year ended
30 June 2019
£m
0.61
No.
1
1
No.
1
1
1 The highest paid Director was the Chief Executive Officer and full details of his emoluments can be found in the audited ‘Remuneration payable’ table in the Directors’
remuneration report.
Any amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received in
respect of amounts outstanding. No provisions have been made for doubtful debts in respect of the amounts owed by the related parties.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
153
GovernanceOther informationFinancial statementsStrategic report
5.7 Financial instruments
Financial instruments include both assets and liabilities. Financial assets principally comprise trade and other receivables, cash and cash
equivalents, current asset listed investments and derivative financial instruments. Financial liabilities comprise certain provisions, trade
and other payables, and derivative financial instruments.
At 30 June
Financial assets
Investments:
Equity investments
Derivative financial instruments
Trade and other receivables:
Trade receivables
Other receivables
Accrued income
Cash and cash equivalents
Term deposits
Total financial assets
Financial liabilities
Derivative financial instruments
Trade payables
Accruals
Other payables including current
lease liabilities
Non-current lease liabilities
Non-current provisions
Total financial liabilities
Financial assets and liabilities
at fair value through profit
and loss
Financial assets
at amortised cost
Financial liabilities measured
at amortised cost
2020
£m
2019
£m
2020
£m
2019
£m
2020
£m
2019
£m
Total
2020
£m
0.5
0.1
–
–
–
–
–
0.6
0.1
–
–
–
–
–
0.1
1.1
0.1
–
–
–
–
–
1.2
–
–
–
–
–
–
–
–
–
663.8
2.6
64.6
235.9
230.0
1,196.9
–
–
–
–
–
–
–
–
–
461.4
4.5
59.1
179.3
215.0
919.3
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
637.1
22.3
30.6
19.9
0.8
710.7
–
–
–
–
–
–
–
–
–
433.9
23.8
19.6
–
0.7
478.0
0.5
0.1
663.8
2.6
64.6
235.9
230.0
1,197.5
0.1
637.1
22.3
30.6
19.9
0.8
710.8
Fair value hierarchy
The table below sets out the classifications of each class of financial asset and liability and their fair values.
At 30 June 2020
Financial assets at fair value through profit or loss
Trading derivatives:
Foreign exchange Assets
Foreign exchange Liabilities
At 30 June 2019
Financial assets at fair value through profit or loss
Trading derivatives:
Foreign exchange Assets
Foreign exchange Liabilities
Level 1
Quoted prices
for similar
instruments
£m
Level 2
Directly observable
market inputs
other than
Level 1 inputs
£m
Level 3
Inputs not based
on observable
market data
£m
0.5
–
–
0.5
1.1
–
–
1.1
–
0.1
(0.1)
–
–
0.1
–
0.1
–
–
–
–
–
–
–
–
2019
£m
1.1
0.1
461.4
4.5
59.1
179.3
215.0
920.5
–
433.9
23.8
19.6
–
0.7
478.0
Total
£m
0.5
0.1
(0.1)
0.5
1.1
0.1
–
1.2
There were no transfers between Level 1 and Level 2 assets during the year (2019: £nil). The fair value of financial instruments traded in
active markets is based on quoted market prices at the end of the reporting period.
Instruments included in Level 1 comprise primarily equity investments and fund units entered into on a counterparty basis. As such there is
no recurring valuation of financial instruments between reporting periods.
154
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 5: OTHER NOTESNOTES TO THE GROUP FINANCIAL STATEMENTSOTHER
The fair value of financial instruments not traded in an active market (for example, over-the-counter derivatives) is determined by using
valuation techniques. These valuation techniques maximise the use of observable market data where it is available and rely as little as
possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included
in Level 2. The valuation techniques employed in the valuation of over-the-counter derivatives rely on market forward rates as quoted at
the end of the period used as inputs into an appropriate pricing model.
Nature and extent of risks arising from financial instruments
Financial risk management
The main risks arising from financial instruments are market risk (including interest rate risk, foreign exchange risk and price risk), liquidity
risk and credit risk. Each of these risks is discussed in detail below.
The Group monitors financial risks on a consolidated basis. Hargreaves Lansdown’s financial risk management is based upon sound
economic objectives and good corporate practice. No hedging transactions have taken place during the years presented. The Group has
designed a framework to manage the risks of its business and to ensure that the Directors have in place risk management practices
appropriate to a listed company. The management of risk within the Group is governed by the Board.
Market risk
• Interest rate risk
Interest rate risk is the risk that the Group will sustain losses from adverse movements in rates associated with interest-bearing assets.
There is an exposure to interest rates on banking deposits held in the ordinary course of business. At 30 June 2020, the value of financial
instruments on the Group Statement of Financial Position exposed to interest rate risk was £465.9 million (2019: £394.3 million) comprising
cash, cash equivalents and term deposits.
This exposure is continually monitored to ensure that the Group is maximising its interest earning potential within accepted liquidity and
credit constraints. The Group has no external borrowings and as such is not exposed to interest rate or refinancing risk on borrowings.
Cash at bank, including restricted cash, earns interest at floating rates based on daily bank deposit rates. Term deposits are also made for
varying periods of between one day and 13 months, depending on the immediate cash requirements of the Group, and earn interest at the
respective fixed-term deposit rates.
Given that a source of revenue is based on the value of client cash under administration, the Group has an indirect exposure to interest rate
risk on cash balances held for clients, the balance of which was £13,760 million at 30 June 2020 (2019: £10,822 million). These amounts are
not included in the Group statement of financial position.
Impact of change in interest rates on interest on client money and finance income in the Consolidated Income Statement.
Interest on client money +50bps (0.5%)
Interest on client money -50bps (0.5%)
Finance income +50bps (0.5%)
Finance income -50bps (-0.5%)
2020
£m
28.0
(28.0)
2.3
(2.3)
2019
£m
24.2
(24.2)
1.9
(1.9)
This assumes the interest income has been earned evenly over the period and that rates have remained constant over the period.
• Foreign exchange translation and transaction risk
Foreign currency risk is the risk that the Group will sustain losses through adverse movements in currency exchange rates. With
substantially all of the Group’s businesses currently operating within the UK, and therefore with minimal net assets and transactions of the
Group denominated in foreign currencies, the Group is not exposed to significant foreign exchange translation or transaction risk and as
such does not hedge any foreign current assets or liabilities. The Group deals in foreign currencies on a matched basis on behalf of clients,
limiting foreign exchange exposure.
• Price risk
Price risk is the risk that a decline in the value of assets adversely impacts on the profitability of the Group as a result of an asset not
meeting its expected value. The Group is exposed to price risk on investments, in corporate entities, held on the Group statement of
financial position. At 30 June 2020, the fair value of investments recognised on the Group statement of financial position was £0.5 million
(2019: £1.1 million). A 20% move in equity prices, in isolation, would have an impact of £0.1 million (2019: £0.2 million).
As a main source of revenue is based on the value of client assets under administration, the Group has an indirect exposure to price risk on
investments held on behalf of clients. These assets are not on the Group statement of financial position. The risk of lower revenues is
partially mitigated by asset class diversification. The Group does not hedge its revenue exposure to movements in the value of client
assets arising from these risks, and so the interests of the Group are aligned to those of its clients.
In addition, the Group acts as a private client investment manager, unit trust manager and agency stockbroker on a matched basis so its
exposure to market price movements in this capacity is limited to when there is a trade mismatch or error, or if one matched counterparty
fails to fulfil its obligations. The impact of these risks is minimised by limits and monitoring controls.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
155
GovernanceOther informationFinancial statementsStrategic report
5.7 Financial instruments continued
Liquidity risk
The Group is exposed to liquidity risk, namely the risk that it may be unable to meet its payment obligations as they fall due. The Group is
highly cash generative and holds significant liquid assets. The Group actively maintains a proportion of cash balances on short-term
deposit to ensure that the Group has sufficient available funds for operations.
The table below analyses the maturities of the undiscounted cash flows relating to financial liabilities of the Group based on the remaining
period to the contractual maturity date at the end of the reporting period.
Trade and other payables:
Trade payables
Other payables, including current
lease liabilities
Non-current lease liabilities
Accruals
Derivative liabilities at fair value
through profit and loss
Non-current provisions
At 30 June 2020
At 30 June 2019
0-3 months
£m
3-12 months
£m
Over 1 year
£m
Total
£m
0-3 months
£m
3-12 months
£m
Over 1 year
£m
637.1
26.5
–
22.3
0.1
–
686.0
–
3.1
–
–
–
–
3.1
–
637.1
433.9
1.0
19.9
–
–
0.8
21.7
30.6
19.9
22.3
0.1
0.8
710.8
19.6
–
23.8
–
–
477.3
–
–
–
–
–
–
–
–
–
–
–
–
0.7
0.7
Total
£m
433.9
19.6
–
23.8
–
0.7
478.0
The group has access to a revolving credit facility, with a UK bank. The facility allows the Group to draw up to £75 million (2019: £75 million)
and is undrawn as at 30 June 2020. The facility incurs interest charges, consisting of a margin of 0.85% plus LIBOR per annum when drawn.
Included in the trade and other payables and the lease liabilities above are figures in respect of leases for under IFRS 16. These include
discounted cash flows in relation to leases over property as outlined in note 2.11. The undiscounted maturity profiles of these amounts
is as below:
Within one year
In the second to fifth years inclusive
After five years
Total minimum lease payments
Year ended
30 June 2020
£m
4.7
17.2
3.9
25.8
Credit risk
The Group’s credit risk is spread over a large number of counterparties and customers.
The Group is exposed to credit risk from counterparties to securities transactions during the period between the trade date and the
ultimate settlement date if the counterparty fails either to deliver securities or to make payment. Settlement risk is substantially mitigated
as a result of the delivery versus payment mechanism whereby if a counterparty fails to make payment the securities would not be
delivered to the counterparty. Therefore the risk exposure is to an adverse movement in market prices between the time of trade and
settlement. Conversely, if a counterparty fails to deliver securities, no payment would be made.
The trade receivables presented in the statement of financial position are net of expected credit losses.
Also included within trade and other receivables in the statement of financial position are term deposits. These are deposits with UK
licensed banks for a period of three months or greater, where the Group does not have immediate recall on the cash. The maximum
amount of time that these deposits are outstanding at year end is 13 months.
Cash is held with UK licensed banks. The credit risk on liquid funds is minimised by only depositing with UK-regulated banks and the Group
takes a conservative approach to treasury management, carrying out regular reviews of all its banks’ and custodians’ credit ratings.
156
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 5: OTHER NOTESNOTES TO THE GROUP FINANCIAL STATEMENTSOTHER
As at the end of the reporting period, no financial assets were individually determined to be impaired. The following table discloses the
Group’s maximum exposure to credit risk on financial assets.
Financial assets at amortised cost
Cash and cash equivalents (including restricted cash)
Trade and other receivables
Accrued income
Term deposits
Financial assets at fair value through profit or loss
Financial investments
Derivative financial assets
At 30 June 2020
£m
At 30 June 2019
£m
235.9
666.4
64.6
230.0
0.5
0.1
1,197.5
179.3
465.9
59.1
215.0
1.1
0.1
920.5
The following table contains an analysis of financial assets that are past due but not impaired at the end of the reporting period. An asset is
past due when the counterparty has failed to make a payment when contractually due.
The Group applies the simplified approach to providing for expected credit losses for receivables, allowing the use of lifetime expected loss
provisions to be made. To determine expected credit losses financial assets have been grouped based on shared credit risk characteristics,
being the number of days past due.
At 30 June 2020
Trade and other receivables:
Trade receivables
Other receivables
Accrued income
Term deposits
Derivative assets
Investments held at fair value
At 30 June 2019
Trade and other receivables:
Trade receivables
Other receivables
Accrued income
Term deposits
Derivative assets
Investments held at fair value
Not due
£m
0-3 months
past due
£m
3-6 months
past due
£m
6-12 months
past due
£m
Over 12 months
past due
£m
656.6
2.6
64.6
230.0
0.1
953.9
0.6
954.5
452.2
4.5
59.1
215.0
0.1
730.9
1.1
732.0
2.6
–
–
–
–
2.6
–
2.6
6.0
–
–
–
–
6.0
–
6.0
2.1
–
–
–
–
2.1
–
2.1
1.6
–
–
–
–
1.6
–
1.6
1.3
–
–
–
–
1.3
–
1.3
0.8
–
–
–
–
0.8
–
0.8
1.2
–
–
–
–
1.2
–
1.2
0.8
–
–
–
–
0.8
–
0.8
Total
£m
663.8
2.6
64.6
230.0
0.1
961.1
0.6
961.7
461.4
4.5
59.1
215.0
0.1
740.1
1.1
741.2
During the year, the Group has provided £nil (2019: £nil) in respect of receivables that are not expected to be recovered. At the end of the
reporting period, £0.1 million (2019: £0.1 million) of receivables are impaired, all of which have been provided for in full. As a result, the
carrying amount of impaired receivables is £nil (2019: £nil).
The expected loss in relation to receivables is considered to be immaterial, due to the short-term nature of the receivable balance and the
small value of assets that are outstanding for long periods, without any potential recourse allowing the Group to reclaim the balance.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
157
GovernanceOther informationFinancial statementsStrategic report 5.7 Financial instruments continued
The following table shows the credit quality of financial assets that are neither past due nor impaired using the following counterparty grading:
• Financial institutions
In respect of trade receivables, £263.3 million (2019: £154.9 million) is due from financial institutions regulated by the FCA in the course of
settlement as a result of daily trading and £5.2 million (2019: £3.9 million) relates to revenue items due from financial institutions regulated
by the FCA.
• Individuals
In respect of trade receivables, the balance is related to amounts due from individual clients in the course of settlement as a result of
daily trading.
The table below shows the credit category of financial assets that are neither past due nor impaired.
At 30 June 2020
Trade receivables
Other receivables
Accrued income
Term deposits
Derivative assets
Investments held at fair value through profit and loss
At 30 June 2019
Trade receivables
Other receivables
Accrued income
Term deposits
Derivative assets
Investments held at fair value through profit and loss
Financial
institutions
£m
Corporate
clients
£m
Individuals
£m
194.0
2.6
42.4
230.0
0.1
0.6
469.7
154.9
4.5
38.0
215.0
0.1
1.1
413.6
0.1
–
–
–
–
–
0.1
0.2
–
–
–
–
–
0.2
462.5
–
22.2
–
–
–
484.7
297.1
–
21.1
–
–
–
318.2
Total
£m
656.6
2.6
64.6
230.0
0.1
0.6
954.5
452.2
4.5
59.1
215.0
0.1
1.1
732.0
Capital management
The Group’s objectives when managing capital are: i) to safeguard the Group’s ability to continue as a going concern so that it can continue
to provide returns for shareholders and benefits for other stakeholders; ii) to maintain a strong capital base and utilise it efficiently to
support the development of its business; and iii) to comply with the regulatory capital requirements set by the FCA. Capital adequacy and
the use of regulatory capital are monitored by the Group’s management and Board.
Regulatory capital is determined in accordance with the requirements of the Capital Requirements Directive IV prescribed in the UK by the
FCA. The Directive requires continual assessment of the Group’s risks in order to ensure that the higher of Pillar 1 (Minimum Capital
Requirements) and Pillar 2 (Supervisory Review) requirements is met.
Pillar 1 imposes a minimum capital requirement on investment firms which is calculated as the higher of the sum of the credit and market
risk capital requirements and the fixed overheads requirement (FOR). The FOR equates to 25% of the fixed overheads reported in the most
recent audited financial statements.
Pillar 2 requires investment firms to assess firm-specific risks not covered by the formulaic requirements of Pillar 1, the objective of this
being to ensure that investment firms have adequate capital to enable them to manage their risks. The Group completes its assessment
of regulatory capital requirements using its ICAAP under Pillar 2, which is a forward looking exercise that includes stress testing on major
risks, such as a significant market downturn, and identifying mitigating action.
As required by the FCA, Hargreaves Lansdown holds capital based on a multiple of Pillar 1 and maintains a significant surplus over this
requirement at all times.
The Group manages its retained earnings and share capital which total £566.5 million as at 30 June 2020 (2019: £459.8 million). Surplus
regulatory capital was maintained throughout the year at both a consolidated Group level, as well as at an individual regulated entity level.
Under the requirements of Pillar 3 (Disclosure), the Group is required to disclose regulatory capital information, and has done so by making
the disclosures available in the Group’s website at https://www.hl.co.uk/investor-relations/key-financial-data/pillar-3-disclosures2.
158
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
SECTION 5: OTHER NOTESNOTES TO THE GROUP FINANCIAL STATEMENTSOTHER SECTION 6: COMPANY FINANCIAL STATEMENTS
PARENT COMPANY STATEMENT OF FINANCIAL POSITION
ASSETS
Non-current assets
Investments in subsidiaries
Current assets
Trade and other receivables
Cash and cash equivalents
Current tax asset
Total assets
LIABILITIES
Current liabilities
Trade and other payables
Net current assets
Total liabilities
Net assets
EQUITY
Share capital
Share premium
Capital redemption reserve
Retained earnings
Total equity
Note
At 30 June 2020
£m
At 30 June 2019
£m
6.4
6.5
6.6
6.7
6.9
6.9
6.9
6.9
60.0
60.0
393.1
86.1
–
479.2
539.2
250.4
250.4
228.8
250.4
288.8
1.9
–
–
286.9
288.8
51.7
51.7
242.3
22.5
1.0
265.8
317.5
43.2
43.2
222.6
43.2
274.3
1.9
–
–
272.4
274.3
The Company recorded a profit for the financial year ended 30 June 2020 of £214.2 million (2019: £199.4 million).
The financial statements of Hargreaves Lansdown plc, registered number 02122142, on pages 159 to 164, were approved by the Board and
authorised for issue on 7 August 2020.
Philip Johnson
Chief Financial Officer
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
159
GovernanceOther informationFinancial statementsStrategic report SECTION 6: COMPANY FINANCIAL STATEMENTS
PARENT COMPANY STATEMENT OF CHANGES IN EQUITY
for the year ended 30 June 2020
At 1 July 2018
Profit and total comprehensive income
Increase in investment in subsidiaries
Dividend paid
At 30 June 2019
Profit and total comprehensive income
Increase in investment in subsidiaries
Dividend paid
At 30 June 2020
Details of the Company’s dividends are as set out in note 3.2 to the consolidated financial statements.
Share capital
£m
1.9
–
–
–
1.9
–
–
–
1.9
Retained
earnings
£m
259.6
199.4
3.9
(190.5)
272.4
214.2
3.6
(203.3)
286.9
Total
equity
£m
261.5
199.4
3.9
(190.5)
274.3
214.2
3.6
(203.3)
288.8
PARENT COMPANY STATEMENT OF CASH FLOWS
Net cash from operating activities
Cash generated from operations
Net cash from operating activities
Investing activities
Increase in term deposits
Purchase of investment in subsidiary
Proceeds on disposal of subsidiary
Net cash from / (used) in investing activities
Financing activities
Dividends paid to owners of the parent
Net cash used in financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
160
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Note
6.8
6.4
6.6
6.6
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
239.1
239.1
(15.0)
(6.0)
48.8
27.8
(203.3)
(203.3)
63.6
22.5
86.1
209.8
209.8
(8.0)
(4.0)
–
(12.0)
(190.5)
(190.5)
7.3
15.2
22.5
SECTION 6: COMPANY FINANCIAL STATEMENTS
NOTES TO THE COMPANY FINANCIAL STATEMENTS
6.1 General information
Hargreaves Lansdown plc (the “Company”) is a company incorporated and domiciled in the United Kingdom under the Companies Act
2006 whose shares are publicly traded on the London Stock Exchange. The address of the registered office is One College Square South,
Anchor Road, Bristol BS1 5HL, United Kingdom. The Company is the parent company of the Group, and the nature of the Group’s
operations and its principal activities are set out in the Operating and Financial Review.
The Company financial statements are presented in millions of pounds sterling which is the currency of the primary economic
environment in which the Company operates.
Basis of preparation
The separate financial statements of the Company have been prepared in accordance with International Financial Reporting Standards
(IFRS) and IFRS Interpretation Committee (IFRS IC) interpretations as adopted by the European Union (EU), and with those parts of the
Companies Act 2006 applicable to companies reporting under IFRS.
The Company financial statements are prepared on a going concern basis. The Directors believe that they have a reasonable
expectation that the Company has adequate resources to continue in operational existence for 12 months from the date the financial
statements are adopted.
The financial statements have been prepared on the historical cost basis. Accounting policies have been applied consistently throughout
the current and prior financial year.
6.2 Significant accounting policies
The accounting policies of the Company are the same as those of the Group which are set out in the relevant notes to the consolidated
financial statements, except that it has no policy in respect of consolidation and investments in subsidiaries are carried at historical cost,
less any provisions for impairment.
6.3 Profit for the year
As permitted by Section 408 of the Companies Act 2006, no income statement or statement of comprehensive income is presented for
the Company. The Company’s profit after tax for the year was £214.2 million (2019: £199.4 million).
The Auditors’ remuneration for audit and other services is disclosed in note 1.4 to the consolidated financial statements.
6.4 Investment in subsidiaries
Investments in subsidiaries
At beginning of year
Increase in investment in subsidiaries
Disposal of subsidiary
At end of year
Comprising:
Non-current investments – Investments in subsidiaries valued at cost less impairment
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
51.7
9.6
(1.3)
60.0
60.0
43.8
7.9
–
51.7
51.7
A list of the investments in subsidiaries is shown below, along with their country of incorporation and principal activity. Investments in
subsidiaries are shown at cost, which is the fair value of the consideration paid. Unless otherwise disclosed below, all subsidiaries have one
ordinary class of share only and all shares are held by Hargreaves Lansdown plc.
On 28 February 2020, the Company sold its 78% holding in FundsLibrary Limited for a consideration of £48.8 million , the carrying value of
the investment at the date of disposal was £1.3 million and costs to the company to sell were £0.3 million. As a result, the Company has
recognised a gain of £47.2 million in relation to the sale. Further details regarding the sale can be found in Note 4.1 on page 148.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
161
GovernanceOther informationFinancial statementsStrategic report 6.4 Investment in subsidiaries continued
Subsidiary
company name
Hargreaves Lansdown Advisory Services Limited
Hargreaves Lansdown Asset Management Limited
Country of
incorporation
and principal
UK1
UK1
UK1
UK1
UK1
UK1
UK1
UK1
UK1
UK1
Hargreaves Lansdown Fund Managers Ltd.
Hargreaves Lansdown Stockbrokers Ltd
Hargreaves Lansdown (Nominees) Limited (100%
shares held by Hargreaves Lansdown Asset
Management Limited)
Hargreaves Lansdown Insurance Brokers Limited
Hargreaves Lansdown Investment Management
Limited (100% shares held by Hargreaves Lansdown
Fund Managers Ltd)
Hargreaves Lansdown Savings Limited
Hargreaves Lansdown Savings (Nominees) Limited
(100% shares held by Hargreaves Lansdown
Savings Limited)
Hargreaves Lansdown Pensions Limited
(100% shares held by Hargreaves Lansdown Advisory
Services Limited)
Hargreaves Lansdown Pensions Trustees Limited
Hargreaves Lansdown EBT Trustees Limited
Hargreaves Lansdown Trustee Company Limited
HL Tech Sp. Z O. O
(100% shares held by Hargreaves Lansdown Asset
Management Limited)
Company purpose/
function
Advisory services
Unit trust and equity broking,
investment fund management,
life and pensions consultancy
Unit trust management
Trading company*
Nominee services*
Dormant company*
Dormant company*
Cash services
Nominee services*
Percentage
ownership
100%
100%
100%
100%
100%
100%
100%
Voting
rights
100%
100%
100%
100%
100%
100%
100%
92.5% – Ordinary
100% – Class A
92.5%
92.5%
100%
Dormant company*
100%
100%
UK1
UK1
UK1
Poland2
Trustee of the HL SIPP*
100%
Trustee of the Employee Benefit Trust† 100%
Trustee of the Share Incentive Plan†
100%
100%
Service Company
100%
100%
100%
100%
* Exempt from the requirements for audit under s394A and s448A of Companies Act 2006.
† Exempt from the requirement for audit under s479A of the Companies Act 2006.
1 Registered address: One College Square South, Anchor Road, Bristol BS1 5HL.
2 Registered address: Pl. Europejski 1, Warsaw, 00-844, Poland.
6.5 Trade and other receivables
Financial assets
Amounts receivable from subsidiaries and EBT
Term deposits
Non-financial assets
Prepayments
162
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
162.2
230.0
392.2
0.9
393.1
26.6
215.0
241.6
0.7
242.3
SECTION 6: COMPANY FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS 6.6 Cash and cash equivalents
Cash and cash equivalents
Company cash and cash equivalent balances
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
86.1
22.5
Cash and cash equivalents comprise cash and institutional cash funds with near-instant access.
No disclosures for financial instruments have been made in respect of the Company as the only significant financial instruments held by
the Company are cash and term deposit balances as shown above.
6.7 Trade and other payables
Financial liabilities
Amounts payable to subsidiaries
Other payables
Deferred income and accruals
Year ended
30 June 2020
£m
Year ended
30 June 2019
£m
247.2
1.0
2.2
250.4
39.1
2.1
2.0
43.2
Amounts payable to subsidiaries comprise short-term borrowing from subsidiaries, repayable on demand. The fair values of amounts
owed to subsidiaries are equal to their carrying amounts.
6.8 Notes to the company statement of cash flows
Profit for the year after tax
Adjustments for:
Income tax credit
Gain on disposal of subsidiary
Operating cash flows before movements in working capital
(Increase) / decrease in trade receivables
Increase / (decrease) in trade payables
Cash generated from operations
Year ended
30 June 2020
£m
214.1
Year ended
30 June 2019
£m
199.4
0.7
(47.2)
167.6
(135.8)
207.3
239.1
(1.1)
–
198.3
13.5
(2.0)
209.8
6.9 Share capital
Details of the Company’s share capital are as set out in note 3.1 to the consolidated financial statements.
The share premium account represents the difference between the issue price and the nominal value of shares issued and was unchanged
at £8,000 throughout the 2019 and 2020 financial years.
The capital redemption reserve relates to the repurchase and cancellation of the Company’s own shares and was unchanged at £12,000
throughout the 2019 and 2020 financial years.
Details of the movements in retained earnings are set out in the parent company statement of changes in equity.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
163
GovernanceOther informationFinancial statementsStrategic report
6.10 Related party transactions
The key management personnel of the Group and the Company are the same. The relevant disclosures are given in note 5.6 to the
consolidated financial statements. These are the only staff costs incurred by the Company in the year. The Company has two employees
(2019: two), being the Executive Directors. The cost of providing share scheme benefits to the employees of the subsidiaries is not charged
directly to the subsidiaries. Instead, the Company provides a capital contribution to its subsidiaries in respect of these schemes.
The Company entered into the following transactions with subsidiaries and the Employee Benefit Trust, which are related parties.
Dividends received from subsidiaries
Management charges to subsidiaries
Capital contribution to subsidiaries
Amounts owed by related parties at 30 June
Amounts owed to related parties at 30 June
Year ended
30 June 2020
£m
172.0
0.5
9.6
162.2
247.2
Year ended
30 June 2019
£m
204.0
0.7
7.9
26.6
39.1
Any amounts outstanding with related parties are unsecured and will be settled in cash. No guarantees have been given or received in
respect of amounts outstanding. No provisions have been made for doubtful debts in respect of the amounts owed by the related parties.
6.11 Events after the reporting period
Events after the reporting period are shown in note 5.5 of the consolidated financial statements on page 152.
6.12 Financial risk management
Note 5.7 to the consolidated financial statements includes the Group’s policy on capital management, its exposure to financial risks and its
policies and processes to manage those risks. There are financial instruments in the Company made up of amounts receivable from
subsidiaries and the Employee Benefit Trust and amounts payable to subsidiaries. The nature and extent of risks arising from these
financial instruments are as follows:
Liquidity risk
The Company is exposed to liquidity risk, namely the risk that it may be unable to meet its payment obligations as they fall due.
The payment obligations primarily relate to amounts payable to subsidiaries which are more than offset by the amounts owed from
subsidiaries. In addition, the Company holds significant cash balances on short-term deposit to ensure that it has sufficient available
funds to meet its obligations and fund its operations.
At the end of the reporting period, none of the liabilities of the Company are past due or represent a significant long-term liability.
Credit risk
Credit risk is the risk that a counterparty fails to perform its financial obligations, resulting in financial loss; however, the amounts owed to
the Company are primarily from its own subsidiaries. Given the profitability and net assets of the majority of subsidiaries, credit risk is
considered minimal. As per the wider Group, cash is held with UK licensed banks. The credit risk on liquid funds is minimised because the
counterparties are banks with strong credit ratings assigned by international credit rating agencies. The Group takes a conservative
approach to treasury management and selection of banking counterparties, and carries out regular reviews of all its banks’ and custodians’
credit ratings. As at the end of the reporting period, no financial assets were individually determined to be impaired. The balance of assets
past due is immaterial.
The following table discloses the Company’s maximum exposure to credit risk on financial assets.
Financial assets at amortised cost
Cash and cash equivalents
Included within trade and other receivables:
Term deposits
Amounts receivable from subsidiaries and EBT
164
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
At 30 June 2020
£m
At 30 June 2019
£m
86.1
230.0
162.2
478.3
22.5
215.0
26.6
264.1
SECTION 6: COMPANY FINANCIAL STATEMENTSNOTES TO THE COMPANY FINANCIAL STATEMENTS
Strategic report
Governance
Financial statements
OTHER
INFORMATION
Directors, company secretary, advisers and
shareholder information
Five-year summary
Glossary of alternative financial performance measures
Glossary of terms
166
167
168
170
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
165
Other information DIRECTORS, COMPANY SECRETARY,
ADVISERS AND SHAREHOLDER INFORMATION
Executive Directors
Chris Hill
Philip Johnson
Non-Executive Directors
Deanna Oppenheimer
Fiona Clutterbuck
Shirley Garrood
Dan Olley
Roger Perkin
Stephen Robertson
John Troiano
Company Secretary
Alison Zobel
Independent auditors
PricewaterhouseCoopers LLP, London
Solicitors
Osborne Clarke LLP, Bristol
Principal bankers
Lloyds Bank Plc, Bristol
Brokers
Barclays
Numis Securities Limited
Registrars
Equiniti Limited
Registered office
One College Square South Anchor Road
Bristol BS1 5HL
Website
www.hl.co.uk
Company number
02122142
166
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
FIVE YEAR SUMMARY
Gross revenue
Commission payable/loyalty bonus
Net revenue1
Fair value gains on derivatives
Operating costs
Operating profit
Finance income
Finance costs
Other gains
Profit before tax
Tax
Profit after tax
Non-controlling interests
Profit for the financial year attributable
to owners of the parent company
Equity shareholders’ funds
Weighted average number of shares for
the purposes of diluted EPS (million)
Equity dividends per share paid during year
Basic earnings per share
Diluted earnings per share
Underlying basic earnings per share
Underlying diluted earnings per share
2020
£m
550.9
–
550.9
1.7
214.9
337.7
2.8
(1.0)
38.8
378.3
(65.1)
313.2
(0.1)
313.1
558.3
475.70
Pence
42.9
66.1
65.9
57.9
57.8
2019
£m
480.5
–
480.5
2.2
(179.4)
303.3
2.8
(0.3)
–
305.8
(58.2)
247.6
(0.2)
247.4
457.6
475.76
Pence
40.2
52.1
52.0
52.1
52.0
2018
£m
447.6
(0.1)
447.5
2.3
(158.7)
291.1
1.5
(0.2)
–
292.4
(55.7)
236.7
(0.4)
235.3
404.0
475.41
Pence
30.5
49.7
49.6
49.7
49.6
2017
£m
385.7
(0.1)
385.6
2.2
(126.7)
261.1
1.2
–
3.5
265.8
(53.8)
212.0
(0.3)
211.7
306.9
474.73
Pence
34.8
44.7
44.6
44.7
44.6
2016
£m
388.3
(61.8)
326.5
0.0
(108.2)
218.3
0.6
–
–
218.9
(41.6)
177.3
(0.4)
176.9
253.7
474.72
Pence
33.5
37.4
37.3
37.4
37.3
1 Following the implementation of the Retail Distribution Review in March 2014, the gross reported revenue was boosted by a new revenue stream and at the same time loyalty
bonuses paid to Vantage clients were significantly increased. In order to better compare revenue performance across the five years above, net revenue which is total revenue
less the commission payable and loyalty bonus has been shown.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
167
Strategic reportGovernanceFinancial statementsOther information GLOSSARY OF ALTERNATIVE FINANCIAL PERFORMANCE MEASURES
Within the Report and Financial Statements various alternative financial performance measures are referred to, which are non-GAAP
(Generally Accepted Accounting Practice) measures. They are used in order to provide a better understanding of the performance
of the Group and the table below states those which have been used, how they have been calculated and why they have been used.
Measure
Dividend pay-out ratio (%)
Dividend per share (pence per share)
Operating profit margin
Percentage of recurring revenue (%)
Revenue margin (bps)
Revenue margin from cash (bps)
Revenue margin from funds (bps)
Revenue margin from HL Funds (bps)
Revenue margin from shares (bps)
Calculation
The total dividend per share divided by the
earnings per share (EPS) for a financial year.
Total dividend payable relating to a
financial year divided by the total number
of shares eligible to receive a dividend.
Note ordinary shares held in the
Hargreaves Lansdown Employee Benefit
Trust have agreed to waive all dividends.
Profits after deducting operating costs but
before the impact of finance income and
other gains or losses divided by revenue.
The total value of renewal commission
(after deducting loyalty bonuses), platform
fees, management fees and interest
earned on client money divided by the
total revenue.
Total revenue divided by the average value
of assets under administration which
includes the Portfolio Management
Services assets under management held
in funds on which a platform fee is charged.
Revenue from cash (net interest earned
on the value of client money held on the
platform divided by the average value of
assets under administration held as
client money).
Revenue derived from funds held by clients
(platform fees, initial commission less
loyalty bonus) divided by the average value
of assets under administration held as
funds, which includes the Portfolio
Management Services assets under
management held in funds on which
a platform fee is charged.
Management fees derived from HL Funds
(but excluding the platform fee) divided
by the average value of assets held in the
HL Funds.
Revenue from shares (stockbroking
commissions, management fees where
shares are held in a SIPP or ISA, less
the cost of dealing errors) divided by
the average value of assets under
administration held as shares.
Why we use this measure
Provides a measure of the level of profits
paid out to shareholders and the level
retained in the business.
Dividend per share is pertinent information
to shareholders and investors and provides
them with the ability to assess the dividend
yield of Hargreaves Lansdown plc shares.
Provides a measure of profitability of the
core operating activities and excludes
non-core items.
Provides a measure of the quality of
our earnings. We believe recurring
revenue provides greater profit resilience
and hence is of higher quality than
non-recurring revenue.
Provides the most comparable means
of tracking, over time, the margin earned
on the assets under administration and
is used by management to assess
business performance.
Provides a means of tracking, over time,
the margin earned on cash held by
our clients.
Provides the most comparable means
of tracking, over time, the margin earned
on funds held by our clients.
Provides a means of tracking, over time,
the margin earned on HL Funds.
Provides a means of tracking, over time,
the margin earned on shares held by
our clients.
168
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Measure
Recurring revenue
Transactional revenue
Underlying profit before tax
Underlying earnings
Underlying basic earnings per share
Underlying diluted earnings per share
Calculation
Why we use this measure
Revenue that is received every month
depending on the value of assets held
on the platform, including platform fees,
management fees and interest earned
on client money.
Revenue that is non-recurring in nature
and dependent on a client instruction
such as a deal to buy or sell shares or
take advice.
Profit before tax excluding other gains
outside of the normal course of business.
Profit after tax attributable to equity
holders of the parent company adjusted
for the existence other gains outside of
the normal course of business, such as the
disposal of subsidiaries.
Underlying earnings divided by the
weighted average number of ordinary
shares for the purposes of basic EPS.
Underlying earnings divided by the
weighted average number of ordinary
shares for the purposes of diluted EPS.
We believe recurring revenue provides
greater profit resilience and hence is of
higher quality than non-recurring revenue.
Such revenue is not as high quality as
recurring revenue but helps to show the
diversification of our revenue streams.
Provides the best measure for
comparison of profit before tax
between financial years.
The unadjusted profit after tax includes
gains from transactions that are not
repeated annually or that may not indicate
the true performance of the business.
The calculation of basic earnings per share
using unadjusted profit after tax includes
those gains that are not consistent from
year to year.
The calculation of diluted earnings per
share using unadjusted profit after tax
includes those gains that are not
consistent from year to year.
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
169
Strategic reportGovernanceFinancial statementsOther information GLOSSARY OF TERMS
A
D
K
AGM Annual General Meeting
D2C Direct to Consumer
AIFMD Alternative Investment Fund
Managers Directive
DEFRA Department for Environment Food
& Rural Affairs
KPI Key Performance Indicator
L
AML Anti Money Laundering
Diluted EPS Diluted earnings per share
LISA Lifetime ISA
API Application Programming Interface
DR Disaster Recovery
Asset retention rate Based on the monthly
lost AUA as a percentage of the opening
month’s AUA and averaging for the year
AUA Assets Under Administration. This
is the value of all assets administered or
managed by Hargreaves Lansdown on
behalf of its clients
AUM Assets Under Management is the
value of all assets managed by Hargreaves
Lansdown Fund Managers
B
Basic EPS Basic earnings per share
BCP Business Continuity Plan
Board The Board of Directors of
Hargreaves Lansdown plc
C
CASS Client Assets Sourcebook
Client retention rate Based on the monthly
lost clients as a percentage of the opening
month’s total clients and averaging for
the year
CODM Chief Operating Decision Maker
Company Hargreaves Lansdown plc
Corporate Schemes This related to
HL Workplace Solutions which allows
employers to offer the benefits of the
Hargreaves Lansdown Vantage service
to employees via the workplace
DTR The FCA’s Disclosure Guidance and
Transparency Rules sourcebook
DWP Department of Work and Pensions
E
EBT Employee Benefit Trust
ESG Environmental, social and governance
F
FCA Financial Conduct Authority, regulator
of the UK financial services industry
FRC Financial Reporting Council
FSCS Financial Services
Compensation Scheme
FTE Full-time equivalent employees
FVTPL Fair value through profit or loss
G
GAAP Generally Accepted
Accounting Principles
Group Hargreaves Lansdown plc and its
controlled entities
H
HL Hargreaves Lansdown
HMRC HM Revenue and Customs
I
CRD IV Capital Requirements Directive IV
IAS International Accounting Standards
CRO Chief Risk Officer
CSDR Central Securities
Depositories Regulation
ICAAP Internal Capital Adequacy
Assessment Process
IFRS International Financial
Reporting Standards
ISA Individual Savings Account
IT Information Technology
Listing Rules Regulations subject to
the oversight of the FCA applicable to
companies listed on a UK stock exchange
Loyalty bonus A reward to customers for
holding certain collective investments
within the Vantage wrapper. This is paid
on a regular basis as a percentage
of qualifying assets
LTIP Long-term incentive plan
M
Material Risk Takers persons identified as
meeting the criteria of “material risk takers”
as set out in the European Banking
Authority regulatory technical standard and
consequently subject to the requirements
of the Remuneration Code.
MiFID II Markets in Financial Instruments
Directive II
MLRO Money Laundering Reporting Officer
Multi-Manager funds A range of funds
offered by Hargreaves Lansdown which are
managed under the Fund of Funds format
N
Net new business (NNB) Represents
subscriptions, cash receipts, cash and stock
transfers in less cash withdrawals, cash and
stock transfers out
Net new clients Represents the net of new
clients less lost clients in the period
Number of new clients Unique number
of clients holding at least one account (PMS,
ISA, SIPP or Fund and Share Account) with
a value greater than £100 at the year end
NPS Net Promoter Score
Net revenue Total revenue less
commission paid, which is primarily
the loyalty bonus paid to clients
170
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
O
U
UCITS Undertakings for Collective
Investment in Transferable Securities
UK Corporate Governance Code
A code published by the FRC which sets out
standards for best boardroom practice with
a focus on Board leadership and
effectiveness, remuneration, accountability
and relations with shareholders
W
W50 Wealth 50, our curated selection
of funds available to UK investors
Y
Year end/financial year Our financial year
starts on 1 July and ends on 30 June
ONS Office for National Statistics
Organic growth Growth in assets under
administration can be attributed to two
main causes. The first is growth due to the
appreciation in the value of existing assets
and the second is organic growth through
additional contributions
P
Pillar 1 and 2 capital requirements
The Basel Committee on Banking
Supervision set out certain capital
requirements which must be met
by qualifying financial institutions
Pillar 3 A set of disclosure requirements
which enable the market to assess
information on a firm’s risks, capital and
risk management procedures
Platforum The advisory and research
business specialising in investment
platforms which compiles the Direct
Platform Guide
PMS Portfolio Management Service
PSD2 The second Payment
Services Directive
R
RDR Retail Distribution Review
S
SAYE scheme Save As You Earn scheme
SIPP Self-invested Personal Pension
SMCR Senior Managers and
Certification Regime
SREP The FCA’s supervisory review and
evaluation process
STAR Speedy Transfer and Re-registrations
T
Treating clients fairly A central concept
to the FCA’s retail regulatory agenda, which
aims to ensure an efficient and effective
market and thereby help consumers
achieve a fair deal
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
171
Strategic reportGovernanceFinancial statementsOther information 172
Hargreaves Lansdown ⁄ Report and Financial Statements 2020
Designed by
FleishmanHillard Fishburn
www.fhflondon.co.uk
Hargreaves Lansdown plc
One College Square South
Anchor Road
Bristol BS1 5HL
Tel: 0117 900 9000
Registered number: 02122142
www.hl.co.uk
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