Shortly after joining a national newspaper more than 20 years ago, my boss and I were casting around for a “nib” – news-in-brief – to fill a small last-minute hole in the personal finance section.
She picked up a press release from Hargreaves Lansdown on so-called shareholder perks and asked me to write it up. A swift fact-checking phone call later and the piece was ready.
The article gave details of one or two shares whose ownership entitled the holder to various discounts or other benefits. It then suggested that if readers wanted to know about more shares like this, they could call HL’s number for a full list.
Deep down, both my boss and HL – and I too – were aware of the unspoken mutual backscratching implicit in the write-up.
We got our quick story and HL picked up another few dozen or maybe a couple of hundred names and addresses to add to its mailing list.
Weeks or months later, those who had written in for a list of shareholder perks would receive a fat brochure full of application forms for HL’s various fund offerings, whose precise selection was a mystery.
Being cynical journalists, we suspected the list owed at least as much to the managers’ willingness to pay a marketing fee as it did to their superior investment performance.
Times have changed, but old suspicions never die. In the past few weeks Hargreaves Lansdown has come under the spotlight, yet again, over its so-called Wealth 150 funds.
Last week, the Sunday Telegraph wrote that the FCA staff have been popping in to visit various big-name brokers to find out why some recommended funds are preferred over others.
FCA director of supervision Clive Adamson was quoted as saying: “This is a growing market and so we’re taking a look at it now to see how it’s evolving and explore whether firms are putting the customers’ interest at the heart of any product or service they sell.
“This will include how firms decide which products they make available to their customers, as well as the information and tools they provide to help them choose the right investments, and buy-lists will be part of this.”
The ST also helpfully reprinted snippets of Hargreaves’ unfortunate letter to fund managers last year, in which it asked them to strongly consider offering discounts to HL clients – or face the consequences.
The magazine What Investment also published details of the same letter in June last year. Fund companies were told HL was “easily the dominant force in the UK when it comes to direct investing”, and is “under no obligation or regulatory requirement” to carry anyone’s funds.
According to What Investment, HL offered a “complete reassessment” of its Wealth 150 list of recommended funds, “to take into account the discounts that will be offered on new share classes”. Its new Core Funds would be selected from among those offering “an extremely competitive price”.
“Our considerable and rapidly expanding distribution efforts will be used to extensively present these core funds to clients well above the support we will give to the Wealth 150,” Hargreaves supposedly told fund managers.
It is perhaps as a result of all this unwelcome interest that HL was last week forced to explain to both the trade and consumer press how it selects the funds appearing in its Wealth 150 list.
On HL’s own website the company claims the list is “the product of rigorous mathematical analysis, combined with thousands of hours of interviews with leading fund managers, to ensure we only bring the very best funds to our clients’ attention”.
According to Hargreaves, its fund selection is based on their prospective, total return performance. It uses “specialist quantitative and qualitative analysis of the fund manager and their team” to do so.
HL says it judges prospective performance on investment skill first and price second.
Only members of its research team can recommend the addition or deletion of a fund from the list.
Averagely performing funds that are “cheap” are not included; funds are not guaranteed a slot on the Wealth 150, and money does not need to change hands for a fund to get on the list.
Let me put my cards on the table: I have long believed that, in cases where managers often charge much for achieving little, a fund’s costs can have a fundamental effect on overall investment returns.
I support the use of purchasing power to help bring down the cost of funds.
Moreover, one of my long-standing dislikes is over the way some advisers, resentful of the way Hargreaves has become so successful, have tended to slag off the firm – even though they are probably no more or less ethical in their business practices than HL.
The problem for me, however, is that HL’s carefully worded explanation, while helpful, still leaves open the possibility that funds stand a better chance of appearing on the Wealth 150 list because they their managers have agreed to offer them at a discount.
Nic Cicutti can be contacted at firstname.lastname@example.org