Hargreaves Lansdown’s IGC report 2021

It’s unusual for an investment driven organization to be criticized for its investment strategies and performance, but that’s what Richard Butcher, Hargreaves Lansdown’s IGC chair, has done.

Butcher is new, as are four of the five members and they’ve been given a new terms of reference. The report kicks off with some philosophical musings on what Value for Money and introduces the first two of several calls to action

Ultimately, the real value from your pension will be measured by you, based on what you receive when you need or want to start taking money out of it. Two of the most significant factors that’ll influence that, however, are out of our control. They are what you and your employer pay into the scheme and the decisions you make just before you take the money – and that’s why there are two calls to action here:

I really like these calls to action and the chatty informal tone that Butcher introduces into what is (at 36 pages) a relatively short report.

The downside of this approach is that the report is lacking in some technical information.

Despite the downgrading of Investment performance and strategy, it is difficult to understand what the IGC is concerned about. Employers choose their default and the appendix explains how

and over time , the two funds appear to have delivered similar performance (we are not told if this is gross or net)

We are told that these funds are under review. There is no reason given for the review and no obvious reason to mark the funds down. What comparative data we have (thanks to Royal London and Corporate Adviser), suggests that member returns are about average.

The IGC complains insistently on the slow pace of Hargreaves Lansdown’s default fund review while displaying charts of the performance of the “A,B,C” funds. The performance is at massive variance to the benchmarks (and in the case of the real return fund- the fund’s objective).

All these charts are included at the expense of any observation of what members are actually getting as outcomes of their saving and – to its credit – the IGC recognizes this.

Our conclusion is based on performing analysis on features, benefits, service and costs and charges across all workplace personal pension plans that HL administers. It hasn’t been possible to look on a member-by-member basis. As a result, you may have a different experience of value for money compared to other members.

Some personal pension providers, including Royal London and Fidelity are offering members access to reports on their internal rates of return. Technology exists to help the IGC analyse member’s actual experience in bulk and let’s hope that the IGC finds a way to look at personal pensions in a more personal way next year.

As regards charges, we can see some evidence of employer getting discounts for their staff  , but frustratingly there is nothing to tell these employers on what basis these discounts are handed out. The FCA guidance is that employer scheme charges should be disclosed by numbers in each scheme. This is how Aegon’s IGC  reported but not how this  IGC went about it (see above).

The value for money assessment remains a mystery as regards investment performance  and charges. The more subjective areas of the VFM assessment are born out by comments of Hargreaves Lansdown users I know. Just how much influence on ESG Hargreaves Lansdown have through their platform , I don’t know. The obvious comparator is St James’ Place. The analysis of HL’s impact on funds used on its Vantage platform in this report suggests that Hargreaves Lansdown are all over the place

we conclude that in 2020 HL didn’t have formalised policies in place for ESG financial considerations, non-financial matters, stewardship and other financial considerations.

This may be a reason for the investment strategy downgrade, but the real issue is whether Hargreaves Lansdown are actually doing anything about ESG at all.

Is the IGC effective?

As you may have gathered, this new IGC has a tetchy relationship with Hargreaves Lansdown. At one point it reproves Hargreaves for creating and maintaining a misconception over the use of a reporting tool used by employers to measure engagement.

It would seem that on matters such as investments and ESG , there is little love lost between IGC and provider. I wonder whether this relationship will develop as a robust and dynamic contest or deteriorate into a stalemate

Certainly it is good to see an IGC Chair speaking as he finds and for the first year I suspect that he and the new team are laying down important markers. The IGC should be given the benefit of the doubt and merit our support and encouragement.

Conclusions

I like the tone and the member focus of the report. Though it is short on detail, it is also readable and merits a green for the way it is written.

The Value for Money assessment is a mystery to me and while I don’t contest its findings, I think it incomplete and incomprehensible. I give it an orange.

I’m prepared to accept that the IGC is engaging with Hargreaves Lansdown in a robust manner and I applaud this, but I am not sure it is fighting the right battles, more effort needs to be focused on member outcomes, so I’m giving it an orange score for its first year.