PETER HARGREAVES, the billionaire co-founder of Hargreaves Lansdown (HL), Britain’s largest retail-investment platform, is a frequent commentator on topics starting from Margaret Thatcher’s legacy to regulation to Brexit (he was one of many Depart marketing campaign’s largest funders). However he’s preserving shtum concerning the largest disaster to have struck the agency he and Stephen Lansdown began in Bristol in 1981. He now not works at HL however has a 32% stake.
HL has been such a loyal backer of Neil Woodford, a fallen star fund-manager, that its fortunes are tied to him. On the finish of March its clients owned about £2bn ($3.3bn) of the £10.6bn Mr Woodford had underneath administration, largely within the Woodford Fairness Revenue Fund (WEIF), which has lengthy featured on HL’s “Wealth 150” favourite-fund record. HL clients are additionally uncovered by way of multi-manager funds.
Now traders can not get out of WEIF. Taking part in for time to repair his portfolio, Mr Woodford on June third suspended redemptions. Finally HL clients might take losses. Chris Hill, HL’s boss, apologised to shoppers on the weekend as shares within the agency, a FTSE 100 firm with a market worth of £9bn, continued to fall. The value is down by almost a fifth this month.
What number of of HL’s 1.1m well-heeled clients are trapped is unknown, however it’s one thing that Nicky Morgan, chair of the Treasury choose committee, is demanding to know. This week she despatched Mr Hill a listing of data requests. These probe the central thriller of why WEIF was nonetheless on the favourite-fund record till final week, although it had been doing badly since late 2017 and was an apparent canine.
The official line is that Mark Dampier, HL’s head of analysis, believed Mr Woodford would flip issues round. However the suspicion is that reductions and presumably commissions additionally performed a task. Mr Woodford’s sticker value was an annual 0.75% price on whole funds managed, however he charged HL 0.6%. That’s nonetheless hefty—energetic asset administration is pricey—however the low cost left room for HL to take its personal minimize of 0.45% on high. This price is the idea for HL’s extraordinary revenue margin of 65%.
In January HL determined to chop its Wealth 150 to 60 funds and name it “Wealth 50”. The plain factor to do was to dump WEIF within the cull, however after Mr Woodford slashed his price once more, to 0.5%, Mr Dampier stored him. That now appears to be like like investor neglect. Ms Morgan has peppered HL with questions concerning the low cost it acquired from Mr Woodford. Greatest-buy lists will come underneath scrutiny once more. The Monetary Conduct Authority stated in March that no new guidelines have been wanted, however that conclusion now appears to be like unsuitable.
For a agency that underneath Messrs Hargreaves and Lansdown prided itself on slick advertising, its crisis-handling has been cack-handed. It doesn’t look good that Mr Dampier and his spouse bought £5.6m of HL shares in Might. One other poor little bit of timing was sending clients out-of-date advertising materials this weekend praising Mr Woodford with no point out of the WEIF suspension.
It should most likely take greater than that to drive plenty of clients away. Mr Hill has defined HL’s speedy progress (see chart) as all the way down to the truth that as folks tackle managing cash for retirement, they lack the data, confidence and talent to do it simply. HL’s customer support is trusted—people slightly than automated programs reply the telephone. Rival retail funding corporations might now snap up some market share. However with its juicy revenue margin HL can afford to lose some disgruntled traders and motor on.