Hargreaves Landsdown’s annual results were eagerly anticipated amid the controversy surrounding the Woodford Equity Income fund, which will remain gated to investors until at least December.
Hargreaves (HL) has been dragged into the Woodford saga for keeping the under-performing equity income fund on its Wealth 50 best-buy list until after the fund manager shuttered it on June 3.
The chief executive of Britain’s largest retail investor platform, Chris Hill, reiterated apologies made in recent months and said that he and chief financial officer Philip Johnson would waive their annual bonuses. Research director Mark Dampier and Lee Gardhouse, manager of Hargreaves' Multi-Manager funds, which are heavily invested in Woodford's fund, will also not take a bonus.
Hill’s review of the year revisited some of the statements he made to the Treasury Select Committee about the Woodford saga – he defended the use of best-buy lists as a way of making fund choices easier for personal investors, and reiterated that Hargreaves Lansdown is paid by clients, rather than fund managers.
Hargreaves has waived its platform fee for clients who directly hold the Woodford Equity Income fund, but the fund itself is continuing to charge a management fee. Investors who put money in Wealth 50 funds receive discounts from Hargreaves Lansdown. That has led to accusations that Hargreaves' selection of funds has been influenced by the discounts on offer from fund managers rather than a completely objective rating of the funds' performance. For example, Terry Smith's Gold-rated Fundsmith, one of the best-performing open-ended funds of recent years, is not on the list.
Hargreaves Kept the Faith, But for How Much Longer?
The Hargreaves chief executive stopped short of backing Woodford to rebound from this crisis, and instead focused on why Hargreaves had kept faith in the fund manager in recent years despite his underperformance: “We had seen the fund manager display similar periods of underperformance in 1999, but then bouncing back strongly to 2003 and again underperforming in 2009, rallying strongly to 2016.”
While Hill said that since June Hargreaves Landsdown’s “own business flows and service levels have held up well”. But the crisis occurred at the very end of the financial year so the full impact will not be registered until future results announcements – particularly if there are substantial outflows when Woodford Equity Income re-opens in December. The company said that revenue margins on funds will be “slightly impacted” in this financial year because of the Woodford crisis, but it depends how the long the fund remains gated.
Hill said he recognised the financial and personal impact the gating of the fund had on investors and added that “our priority is to support them, keep them informed and ensure the fund re-opens as soon as is practicable.”
The chief executive also made no mention of the decision to remove two Lindsell Train funds from the Wealth 50 list because of fears these funds were starting to build significant stake in Hargreaves Lansdown itself.
Assets under management rose on the year to £99.3 billion, higher than the £91.6 billion in the previous year. Pre-tax profit rose 5% to £305.8 million.
Hargreaves said that funds remain the largest client asset class, making up 55% of assets under management, and the company’s fund revenue rose 4% in the full financial year to £206.2 million. The FTSE 100 company's shares rose 5% on the results.
