Nothing wrong with being contrarian – the Hargreaves Lansdown 2018 IGC report

HL Workplace solutiosn

There’s a compelling logic to the HL IGC Chair’s introduction

Since they all relate to value for money for scheme members, our findings and progress are set out in the following analysis of value for money.

Value for Money is not only the measure, improving it is the objective and that objective leads to increased contributions. This is the conclusion of the HL IGC and it is one that HL would undoubtedly sign up to. Higher contributions equals higher shareholder value from the HL Workplace SIPP. Wins all round.

I buy into this vision, where the customers are engaged in saving and investment and HL has a very special type of customer, it has customers that not only can – but want to “do it themselves”.

Evidence of the utilisation of non-default funds can be seen in the number of members making alternative investment choices. 29%of members (28% last year) invest outside of the default funds and 53% of HL’s workplace pension scheme assets (51% last year) are outside of the default funds. This reflects a high level of member engagement.

This is the contrarian world of Hargreaves Lansdown, a firm that demonstrates what can be done by knowing your customers. But highly engaged customers can be vulnerable too, there is a fiduciary responsibility on HL and its IGC and the challenge for HL is to make sure that when focussing on greater engagement (and contributions) HL do no take advantage of the position it has built up – and rip-off its customer base.

My worry is that the HL IGC are a little in awe of the reputation of Hargreaves Lansdown and forget that their primary responsibility is to the member.

The good news for HL customers is that the default workplace options available to employers and members are currently delivering the goods

hl perf

The not so good news is that when it comes to the “money” side of things, the HL IGC is rather short on detail.

The real issue is whether the entire proposition represents value for money and the IGC continues to keep all dimensions of the offering under close review; at present the IGC is happy to confirm the services provided within the platform fee do represent good value for members

This would be fine if there was evidence of how HL’s charges compare with other similar providers. “At present”, suggests that the IGC has it in mind to demand improvements in member charges as HL’s proposition grows in shareholder value.

The (otherwise pretty boring) findings of the member survey , includes this conclusion about HL satisfaction scores

Most were rated as either good or excellent. However, one area the IGC were concerned with was the relatively high number of ‘I don’t know’ responses to the cost of the plan

You would have thought that the IGC would have used the opportunity of the Chair report to explain how HL is making its money and give members the transparency they claim they lack.

But the report fails to do this. Though we have tables on communication metrics (how long does it take HL to respond to an email) we do not have tables on how much members are really paying for their funds and how much less they would be paying, if HL was passing on the full value of the investment management agreements it is negotiating with fund managers.

This is particularly the case with regards the passive default fund, the “BlackRock Consensus 85 fund”. If I was an experienced investor reading the IGC report, I would be particularly interested to see a transparent assessment of the money that HL are making from promoting this fund (as well s the other defaults).

There is not enough in the IGC report for me to be frustrated,  but the absence of close analysis of HL’s charging structure is now a priority. I’m giving the IGC an amber for its analysis of value for money and an amber for the effectiveness of its work. But I will give the report a green as a read, it is a very engaging document.

In conclusion

The report reads well , but there is too much missing. I am not happy to see no mention of HL’s attitude (or lack of one) to ESG management , I am not convinced that life styling ordinary people to cash, is a good at retirement strategy and (as talked of in this article) I’m worried that the HL IGC is not asking awkward questions about the commercials of the HL Workplace SIPP.

 

 

About henry tapper

Founder of the Pension PlayPen, Director of First Actuarial, partner of Stella, father of Olly . I am the Pension Plowman
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