Financial services company Hargreaves Lansdown said it will need to increase its assets under management by 3.5bn pounds over three years to cover the anticipated revenue shortfall resulting from the changes made to its pricing model under the Retail Distribution Review (RDR).
The group estimated new rules under the RDR would trim revenues by around £9m and would reduce client charges by £8m in the first 12 months and said it will need to gather approximately £3.5bn of new assets over the next three years to offset the impact of these declines.
Last year the group's net new business totalled £5.1bn, and in the first quarter of the current financial year net new business was £1.26bn. "Previous historical reinvestment in pricing improvements has driven increased business volumes, which have more than offset any revenue impact," it said.
The FTSE 100-listed group said the changes mean its clients will pay lower fund annual management charges (AMCs), particularly for funds on its Wealth 150 list, from March 1st 2014, at which point the average AMC for a Wealth 150 fund will fall to approximately 0.65%.
Within the Wealth 150 list, Hargreaves has also selected 27 favourite funds, the Wealth 150+, where the average annual management charge will be even lower at 0.54% (standard market AMC 0.70%, an average discount of 0.16%).
The group explained the key change being made is the introduction of a tiered fee on fund investments, which will apply to all clients, accounts, existing and new fund holdings. The changes mean that most clients will pay less for their investments when investing through the Vantage service, which offers "unbundled" and discounted funds.
Under the new system, investors will be able to see a breakdown of the charges they pay, and how much money is being kept by the fund manager.
Chief Executive, Ian Gorham, said the company was pleased with the new lower cost funds and changes to its pricing structure.
He continued: "We have always sought to share our success with clients through using our negotiating power and by continually reinvesting in our service through new technology, more staff, better information on a wider range of investments, or as we have done here, in lower charges for funds.
"In 2011 we reduced charges for holding and dealing in shares
by £9m when we launched our new low-cost stockbroking service. In 2012 we spent £7m introducing loyalty bonuses in the Vantage SIPP. We are now reducing the cost of investing in funds, saving our clients an estimated £8m per annum. As a result, most clients will be paying even less when investing through Hargreaves Lansdown."
The share price fell over 3% early on.