From zero to hero – the Hargreaves Lansdown IGC report

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How Hargreaves clients see their workplace pensions.

Hargreaves Lansdown’s (HL) 2015 -16 IGC report was embarrassingly bad. I got cross that a successful funds platform didn’t put its back into independent governance. Hargreaves’ Vantage product (now HL Workplace Pension)  was at the time being widely promoted as a workplace pension for medium sized employers engaging with auto-enrolment. What made HL above the law?

Three reports later and the same team are producing a high quality report which provides insight not just into HL’s product, but into the people who invest into it.-

The chair’s statement is written in  a formal business language which is pitched at the experienced investor. HL’s clients are used to this style of communication, HL is not a populist organisation and while this tone might be considered over- formal in some reports (Royal London’s for instance), it is right in the context of the content presented.

As would be expected in a business conversation, the IGC does not admonish  HL where it feels it is failing (for instance in providing management information) but uses a  quiet censure in the style perfected by David Hare of Phoenix.

The effect is to draw us into the conversation and the governance process. It does so effectively. I am giving the report a green for its tone.


The Value for Money Assessment

The HL framework is set out clearly in this table. I think it a good model .

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I am not sure I agree with the colour of all the boxes but that is a matter of interpretation. HL is a highly commercial organisation which works on relatively high margins.

There is considerable debate about the charges being taken and I would have liked to see a more robust position than that adopted by the IGC

The IGC notes the platform charge is higher than many other workplace pension providers. However, members also benefit from HL’s considerable buying power, which enables the default and ABC funds to be offered at significant discounts to members.

The result is the overall charges (platform fee and fund charges together) are not out of line with the market and the IGC is content that both the default funds and the ABC funds offer good value for money.

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.

When phrases like “not out of line with” creep into reports , it is usually because there is a degree of nervousness about the statement. Similarly the rather strained formulation “the IGC is content that” suggests that the usually assured tone is being tested to the limit.

Of course there is scope for pushback on fees but this would be highly contentious (as HL are holding the thin blue line on over £85bn of which workplace is a very small part.

I am genuinely sorry that the IGC aren’t pushing back on HL and platform charges for workplace which are , in my opinion, too high. Put another way, if the IGC is not pushing on charges – who is? The HL juggernaut rushes on unimpeded and those in the cab are worried about what happens when they apply the break?

I like the Value for Money Assessment framework but I would like the HL IGC to be a lot tougher in its interpretation of what constitutes value for money. I will give the VFM assessment an amber and suggest that the management and shareholders of HL aren’t given quite such an easy ride next year!

From the results of its “member” survey – I suspect that the IGC know that many of its members agree with me!

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From the setting of previous charts (see top) we should read the right hand wheel as relating to 2017 rather than 2018  (a deterioration of sentiment)


Effective?

One of the problems with the inscrutable style of this report is working out where the IGC has been at work.

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Following through on each of these references suggests that there is a reasonable dialogue between IGC and HL.

The report sensibly allows us to review the areas where it was focussing last year – right at the start – as we would read the minutes of a previous meeting.

It also allows us to view the areas where it will focus next year (next steps).

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So I feel comfortable that the day to day business of the IGC is going ahead as it should

And I’m extremely encouraged by the way that the IGC is going beyond BAU to get to grips with the issues of members

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It’s great to see the numbers of respondents to this survey increasing and for HL to now be sending this to 50,000 policyholders.

This is effective work for the IGC to be doing and I urge anyone who wants to know where to develop their workplace proposition to read what follows.

I am extremely impressed with the work that the HL IGC is doing in this area and give it a green for being effective in helping HL and others understand what should be done going forward.

The report gets a green for being effective


In conclusion

This is a very good report and does both the IGC and HL credit.

I would warn against complacency, the two wheels that look at investor sentiment towards their HL Workplace Pension Value for Money suggests that it decreased markedly in 2018. This may just be because the markets did not do as hoped or it may indicate a more fundamental issue with cost – return – service.

In any event, the IGC can only be faulted for not pushing back on HL over the cost of its plan (which is as the IGC confirm – “toppy”).

I hope that in 2018-19, the IGC will keep pushing for members and keep up this very good work.

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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