In for a Penny details not only how Hargreaves and Stephen Lansdown turned a business that started in a spare bedroom in 1981 into a company that floated in 2007 with an £800m valuation but also what he feels were, and still are, the problems plaguing financial services.
Hargreaves feels his book stands out from other business titles on the market, pointing to the fact that he set up and co-ran a business he believes has broken the traditional model.
He says: “We broke the business rules and did not follow the trend. For example, we did not run the business on the premise of getting the highest sales commission but on doing what is best for clients.”
He saves most of his ire for life companies, which he believes have no business model left to operate with. In the book, he states: “The problem with investment bonds is they are produced by life companies and all life companies employ incompetent twerps.”
“My point about investment bonds is that incompetent twerps produce the applications for them. With an investment product all you need is the client’s name, address and how much they are going to invest, any withdrawal they might wish to take and frequency. My problem was that I didn’t understand how life companies could make that into a seven page application form,”
Hargreaves believes that life companies now face a choice of either running off their business or becoming an investment company, with Standard Life being the only one making steps in the latter direction at the moment.
Hargreaves is appalled by how much money has gone into single-premium bonds, saying the only good thing to come out of them was the fact they offered 7 per cent commission.
He says: “They all thought we were mad when we came to market. People said, why are we offering 3 per cent commission on unit-trusts when you can have 6 per cent on bonds. This is because we didn’t have to fill seven pages of application forms in and we could sell four times as many. A million at 3 per cent is far better than quarter of a million at 6 per cent.”
In for a Penny also pinpoints some of the quality fund managers he has seen in his time, namely the likes of Anthony Bolton and Neil Woodford, and their brave decisions to stick with their stocks when their funds were underperforming.
“One person asked me what they should do about their investment in Bolton’s Fidelity special situations when it was struggling. I told them to double their investment. He wrote back telling me I was stupid but I have not heard from him again.”
Turning to current events, Hargreaves says the RDR cannot be treated too seriously, given that it is a consultation paper and is still three-and-a-half years away.
Looking to the future, Hargreaves says the Hargreaves Lansdown business model has the ability to continue 50 years after he has retired. He points to the fact it would be very expensive for anyone to come and replicate the firm’s Vantage platform.
He says: “No one could go down the road we have and forgo sales. It was something we did in a bull market but it is hard to tighten belts now, given most people do not have deep pockets already.
“My future ambition is to make Hargreaves Lansdown a FTSE company. Why can’t we be the next Standard Life or Prudential? And we won’t have to do it through acquisitions. Not many can say they have created a FTSE company in their lifetime with no debt or venture capital involvement.”