The Scottish Mail on Sunday
Stop fiddling, Hargreaves... and fix your best-buy lists
NERO fiddled, while Rome burned. Or to put the expression in a modern day investment context, Christopher Hill (chief executive of Hargreaves Lansdown) fiddles while investors get burnt.
There is no more appropriate way, I would say, to describe Mr Hill’s lack of action over reform of his company’s ‘Wealth 50’ list since the Woodford investment scandal exploded on its Bristol doorstep in June last year. He dithers and dithers some more.
In his defence, last June, he promptly waived his company’s platform fees for those invested in Woodford Equity Income when the fund was suspended (a shame and an outrage that Mr Woodford didn’t follow suit – despite huge pressure from the MoS). But Mr Hill has yet to act decisively to make its persuasive and powerful ‘Wealth
50’ – a list of the company’s recommended investment fund buys – truly fit for purpose.
After all, it was this list that Woodford Equity Income had sat on right up until its suspension, despite mounting evidence that the fund’s risk profile was edging ever closer to alarm bell time.
It was also this best-buy list that six months before the Equity Income fallout had drawn stinging criticism from Fundsmith’s Terry Smith. He accused the company of choosing funds for ‘Wealth 50’ mainly on the basis of managers’ ‘willingness to comply with a charging structure which enables Hargreaves Lansdown to maximise its own profitability, and not because they perform well for investors’.
For the record, Smith’s Fundsmith Equity, a multi-billion pound top-performing global fund, had somehow been (and still is) excluded from ‘Wealth 50’ – and yes, Hargreaves Lansdown (par for the course) vehemently denied Smith’s allegations.
A few days ago, the Financial Conduct Authority heaped pressure on Mr Hill – and for that matter the bosses of all fund platform operators – by reminding them of their duty to construct best-buy lists ‘impartially’.
In its letter, it said fund selections should be based on ‘objective criteria’ and not be corrupted by preferences for ‘funds offering discounts’ (the very point Mr Smith made just over a year ago). It also said there should be a clear process in place – including governance – detailing how funds get on to a best-buy list, how they are then monitored, and subsequently deselected.
Earlier this month Mr Hill said that Hargreaves Lansdown was planning to ‘reform’ its best-buy list, but gave little more away other than a ‘greater focus on transparency’ and ‘new functionality’. He went on to say an announcement would be made in due course.
All rather tardy and complacent, methinks, especially when compared with some competitors who are now making their bestbuy lists more robust than ever – even though they were not recommending Woodford at the time Equity Income went wrong.
Interactive Investor is among those leading the way. It has set up a governance committee – just what the regulator is calling for in its letter – to ensure its best-buy lists (‘Super 60’ and the ethical fund related ‘Ace 30’) are rigorously compiled, focused on the needs of investors, and not compromised by conflicts of interest. The committee comprises non-executive directors drawn from Interactive Investor’s boardroom, so they are independently minded and not involved in the company’s day-today running.
Where Interactive Investor goes, Hargreaves Lansdown should follow. Wealth 50 needs a makeover like no makeover before, with proper independent oversight. While it’s about this task, it should also end its infatuation with open ended investment funds and extend ‘Wealth 50’ to include investment trusts. It’s time to stop fiddling Mr Hill.
I TRUST Joe Garner’s handsome remuneration as boss of Nationwide will be ‘adjusted’ this year to reflect its latest cock-up on bank charges.
The country’s largest society has just been ordered by the Competition and Markets Authority to refund £900,000 to 70,000 customers who were not warned
(as they should have been) that they would be charged for going overdrawn without its agreement. This comes after it was required to refund £6million in August last year – for exactly the same rulebreak. Once is naughty. Twice smacks of incompetence.
For the record, Mr Garner earned £2,372,000 in the year to April 2019, £1million of which was ‘performance based’. This year’s performance fee should be trimmed accordingly. No room for excess fat.