Former savers risk markets

Feb 12 2009 by Iain Laing, The Journal

INTEREST rates at an all-time low are prompting savers to pull their money out of normal accounts in search of better returns.

Investment management firm Hargreaves Lansdown said it had seen a remarkable increase in inquiries from potential clients, despite the worst year for the UK stock market since 1973.

It said with interest rates plunging to 1%, savers were looking for returns on their money.

A spokesman said: “Many are turning from cash to corporate bonds and also equities.

“People are looking around for alternatives and that’s where they are ending up.”

He said investors would definitely face a greater risk with these products, but could expect returns of 6% to 7%.

While the FTSE All Share Index tumbled 22.6% during the six months to December 31, the Bristol firm saw the value of its assets under administration fall by only 11%.

Hargreaves Lansdown said it had attracted 17,000 new clients during the half-year, although the extra funds were offset by a reduction in the value of investments it held.

The firm said that while inquiries from potential new clients had yet to translate into new business, “the volume is encouraging”.

Pre-tax profits rose to £36.5m, compared with £28.7m in the same period in 2007.

“During periods of declining stock markets in the past we have experienced investor malaise,” the firm said.

“This time the unprecedented low interest levels on deposits are driving people to find alternative investments.”

But it warned that in the aftermath of previous market collapses, trading conditions were exceptionally poor, so the opportunity for attracting new customers might be short-lived.

Hargreaves also said there was a huge opportunity before April 5 to attract new customers to its Isa and Sipps tax-free savings accounts.

“This Government has suggested the highest rates of tax will increase by 5%, but the massive accumulation of public debt may give all taxpayers the feeling their taxes will rise,” the firm said.

The firm said it was cautiously optimistic about the future and expect to outperform its peers.

Numis Securities raised its forecasts for the year ending June 30 by 13%.

Analyst James Hamilton said the results were “truly a rarity for a market-related business, given current conditions”.