Woodford taint spreads
SCANDAL, like misery, loves company. In any debacle in the City, there is wide collateral damage as regulators, auditors and associates are dragged through the mud.
The Woodford affair is no exception, and the main casualty alongside the fallen star himself is Hargreaves Lansdown, one of the UK’s most popular investment supermarkets.
Chief executive Chris Hill will be full of contrition about Woodford when HL presents its full-year results later this week – he appears genuinely shaken by it and has said he will defer his £2.1m bonus so long as the fund remains suspended.
Far better to have given it up entirely, though at least the gesture is a nod in the right direction and contrasts favourably with Neil Woodford’s bull-headed refusal to waive his multi-million-pound fees.
Apologies, however, are not enough. HL’s customers want answers. Why did it support Woodford with such gusto, and why did it continue to back him for so long?
My suspicion is that when Woodford launched his own company in 2014, he was a marketing dream for HL. Investment funds are, frankly, very boring. But with Woodford, HL could bypass the tedious business of explaining investment strategies to savers and simply promote the man as a guru and a genius.
The Woodford worship continued until the brink of disaster. The excuse is that he had, while at Invesco, endured periods of poor performance and bounced back.
What this fails to take into account was that at Invesco, Woodford was part of a large company with compliance processes in place, whereas at his own firm he was unfettered. Listings in Guernsey and transfers of illiquid assets between funds ought to have acted as alarm signals.
HL’S results this week will not show a huge crater, because the collapse came at such a late stage in its financial year. Nick Train, the manager of Lindsell Train funds, is among the biggest shareholders in HL and took advantage of the stock price fall post Woodford to buy more, betting the firm’s reputation will recover over time. Perhaps – but it could be a rocky road.
City regulators are conducting a probe that will look at whether the links between HL and Woodford were unduly close. Watchdogs are also looking into HL’s practice of
touting a ‘best buy’ list of funds – its socalled Wealth 50. Questions have also been raised over whether firms that did deals with HL on fees were included on the list while those which refused were not.
Woodford’s disgrace and HL’s role in it has shed a light on some truths about the fund management industry.
One is that, at a time when people have to take responsibility for their retirement and care costs, there is an unfulfilled need for trustworthy advice. Individual guidance is expensive and best-buy lists do not fill the gap.
The second is that it is foolish to follow a cult of the star manager. However brilliant they may be, they are all fallible.
The third is that HL is astonishingly profitable, with an operating margin of nearly 65pc.
The business made billionaires of its founders, Peter Hargreaves and Stephen Lansdown, neither of whom work there any longer. Lower down the tree are multimillionaires such as Chris Hill and Woodford’s number one fan boy, head of research Mark Dampier. So HL does make people rich – just not the customers.