It’s been a testing few weeks for Hargreaves Lansdown. But Thursday will be make or break. That’s when it’s due to report its annual results.
Analysts are expecting a rise of almost 5% in pre-tax profits to £306.8m on revenue up 8% to £484m. That’s despite the fact that the period includes the first few weeks of the Neil Woodford fiasco.
Woodford’s cheerleader-in-chief
Hargreaves Lansdown has been Woodford’s cheerleader-in-chief. It’s benefited hugely from the popularity of his flagship Equity Income fund, which it continued to promote right up until the day the fund suspended trading and blocked withdrawals.
Mark Dampier, HL’s former head of research, pictured above, has done more than anyone to promote the fund. Days before the scandal erupted, he and his family sold shares in the broker to the value of more than £5 million. At around the same time, Stephen Lansdown, one of the company’s founders, sold £130 million worth of stock.
The company will doubtless face some searching questions when it announces its results. Why did it recommend the fund so enthusiastically? Why didn’t it spot the serious problems it was facing? Why won’t it drop its exit fees to allow clients who now want shot of Hargreaves Lansdown to take their custom elsewhere?
But perhaps the most awkward question for Hargreaves Lansdown will be this: Will it still pay bonuses to Mark Dampier and chief executive Chris Hill as if nothing had happened? Haven’t they already been amply rewarded richly? Hill, for example, was paid a total of £2.5 million in salary and bonuses last year.
True, the latest bonuses have been “deferred” until the Woodford situation is resolved. But, as Oliver Shah wrote in the Sunday Times, that is surely a fudge. “You either take a bonus or you don’t,” he wrote. “If you defer it, you’re taking it.”
A fortune built on publicity
The vast fortune that Hargreaves Lansdown has earned for its founders and shareholders was built on public relations. But publicity isn’t a one-way street. If you live by it, you can die by it too.
HL and the financial media were made for each other. For many years, journalists loved the steady stream of stories the company provided. They also loved the idea that HL was able to identify star fund managers in advance — something that academics have consistently shown is virtually impossible. Mark Dampier’s opinions were printed in the national papers almost every weekend. The Independent on Sunday even gave him a regular column.
It was the oxygen of such publicity that allowed Hargreaves Lansdown to grow into the dominant force in UK investing it is today.
The problem now is that journalists are finally waking up to the fact that they and their readers were effectively sold a lie. Only a tiny proportion of fund managers beat the market after costs, and although any old numpty can tell you who has beaten it in the past, nobody can reliably tell you who the winners are going to be in the future.
I’m not surprised that the likes of Al Brummer and Jeff Prestridge at the Daily Mail and Mail on Sunday have turned their ire on both Woodford and Hargreaves Lansdown.
Brummer, who himself has money trapped in Woodford Equity Income, wrote the other day: “Woodford has become super-wealthy — with the houses, cars and a lifestyle to match — on the back of ordinary savers, and he is still able to get his hands on resources.
“The muggins in his main fund, however, are totally trapped. They are unable to release funds to pay their tax bills, meet social care costs for a family member, organise a wedding or buy a house.
“They are the innocent victims of the unscrupulous greed of Woodford and his sponsors, Hargreaves Lansdown.”
I don’t expect Hargreaves to take advice from me, but I shall offer it anyway — not least because I still believe that, even now, it has the potential to mend its ways and become a force for good in UK investing.
My advice is this: Please persuade the likes of Hill and Dampier to show some humility and forgo their bonuses. If you don’t, it’ll be a PR disaster that Messrs Shah, Brummer and Prestridge won’t let you forget.
Come on, Hargreaves Lansdown. There is still time to do the decent thing.
Robin is a journalist and campaigner for positive change in global investing. He runs Regis Media, a niche provider of content marketing for financial advice firms with an evidence-based investment philosophy. He also works as a consultant to other disruptive firms in the investing sector.
