A cautionary tale

It has been a difficult year for Hargreaves Lansdown’s IGC and they have launched their Chair’s statement without a Chair. This unusual state of affair followed the departure of David Grimes with clearly no succession plan in place. Indeed his job has been advertised on Linked in and by Reed Personnel since January, but no appointment has been made.

The empty Chair’s Statement for 2020, is also unusual as it follows the debacle of “Woodford” in whose funds many workplace savers had been invested. In July, David Grimes conceded in an interview with the Financial Times that his committee did not spend enough time reviewing the selection process used to choose investments on the Wealth 50 list of Hargreaves Lansdown’s favoured funds.

It turned out that “enough time” was an hour and that the majority of his time had been spent ensuring that the default for Hargreaves’ workplace pension was working properly. This was not what the 2019 Chair’s Statement had said.

The IGC spent time this year meeting with HL’s research team to discuss the selection and de-selection processes, governance and due diligence frameworks for this range of funds. The IGC is satisfied that the same rigorous and robust processes and frameworks are in place for the Wealth 50 funds as for the default funds and ABC funds.

Grimes told the FT he should have selected his words more carefully. Around 1700 workplace pension savers who invested in Woodford’s funds would agree.

The 2020 report is in lockdown on these matters

The report is not signed by anyone and makes no mention of their being no Chair other than it shows only four committee members.Presumably the Committee will at some stage have to declare itself in breach of its statutory obligations. Since its business is governance, this is a serious matter. Of the two company representatives, one is Rob Byett, Group Director of Risk and Compliance. Hargreaves Lansdown is a publicly quoted company.

Although the Woodford issue is mentioned, no mention is made of the IGC’s role and no apology is made. The report is in lockdown mode.

Determined to be effective?

The report does not pull punches. On the matters that their member survey shows matter most to members – performance and charges, the report is brutal

HL offers employers three choices of default- an actively managed Schroder fund , a passive equivalent and (strangely) a cash fund. We don’t get to know latest splits , but last year it was reported that 65% of employers chose passive . If you’d chosen BlackRock (as at the end of 2019)  you’d have seen defaulting staff doing substantially better in this fund.

The red marker for a second year in  a row suggests that the IGC are not happy about the default options. But it’s unclear whether it’s the delay in HL reviewing or a more fundamental concern that is driving these red flags.

The IGC have demanded – and succeeded in getting an agreement to do away with what HL call their ABC options (aggressive- balanced- conservative). In the 2019 report the IGC had been told the Lindsell Train “A” fund did not represent a “conflict” by holding considerable HL stock, in this report the fund has been replaced on ABC. Again the report is cagey about what actually happened.

There was yet another incident last year when thousands of policyholders found themselves invested in the wrong fund class. The report is matter of fact and doesn’t downgrade its score for administration

But most of the moans from members are reserved for charges.  The report has an extremely good section where this feedback is revealed. The report drily observes•

Feedback on charges from some members remains consistent with previous years – suggesting further improvements are needed to highlight value-added aspects of the service

This may be what lies behind those two red dots. The defaults are far from cheap.

I have spoken to Paul Black – who has oversight of the funds and suggested that the IGC look at the experienced returns “members” are getting. The total cost of ownership of the Schroder fund is not 0.75% but nearly 1% and I wonder if these funds are giving workplace savers value for money.

Clearly all is not well at the IGC and HL are probably fighting many fires more urgent, but that the IGC is currently down to four members with no Chair suggests to me that is cannot be as effective as it should be. I am giving them an amber in this regard, though I am worried that at this very difficult time, they don’t have a full compliment.

Value for Money assessment

Of all the VFM assessments I’ve read this year, this is the best. It is so, because it listens to what Vantage members tell the IGC.

These members are active and interested  and the IGC is in touch with what they are up to.

And they are not shy in coming forward (as has been noted above).

Less than half of respondents thought they were getting value for money from their plan.

The Committee’s view is

Ultimately, the real value from a pension will be determined by the member and will be based on what they receive when they retire or more specifically, the point at which they need or want to start taking money out of their pension. In this context, we will consider what HL is offering employers and scheme members now, which will influence what members may receive in the future. We see this as the way in which HL is working towards outcomes for members in retirement. This is the lens through which we will assess value for money for members

This is entirely right. An outcomes based approach to VFM assessment reflects what members see as important.

This alignment between what the IGC is saying and what the members are saying makes HL’s IGC assessment real.  I give it a green

Tone and structure

I liked the structure of the report. It has done away with the summary and report approach and is now focussing just on one document. The report mixes simple explanations of what it is analysing with meaningful analysis.

It doesn’t talk down to its readership but it does do its explaining as it goes along (there is no glossary at the end).

It uses helpful summaries at the end of each section and it signposts actions to be taken as it goes along, recapitulating at the end of the report

It took me a long time to read the report because it was full of really interesting and pertinent information. I felt that when i had finished reading it, I properly understood what the IGC were about and how they were doing their work.

For all these reasons, I am happy to give this report a green for tone and structure.