Hargreaves Lansdown Group  

Hargreaves and Woodford: What are the industry repercussions?

Hargreaves and Woodford: What are the industry repercussions?
Credit: FT Montage, Charlie Bibby, FT/Reuters

Hargreaves Lansdown is facing legal action over its role in promoting Woodford Equity Income, but questions remain over how the industry has moved on, if at all, from the fund's collapse.

The platform has declined to comment on the prospective litigation, which - coupled with Woodford's own attempted comeback, has returned the issue to the spotlight almost two years after the fund was first suspended.

What, though, has really changed for the industry? Hargreaves, for one, has made a number of changes to its best buylist practices in the aftermath of the demise of the Equity Income fund, which was suspended almost in June 2019 after proving unable to meet a series of redemption requests.

Last year, Hargreaves launched its Wealth Shortlist, a move it said was in response to client feedback and industry and market conditions. As part of this it also said it was clarifying and increasing the transparency of its selection criteria. 

It already had a number of governance arrangements in place to oversee decision-making in relation to its multi-manager funds and wealth lists, including the use of its investment committee and product governance committee. 

Then, last year, it introduced some enhancements to its governance and oversight arrangements, including: setting up a separate executive investment committee to oversee decision-making in relation to its MMFs; and a new distribution investment oversight committee that oversees investment decision-making and risk for the platform, including oversight of its Wealth Shortlist.

But how damaging has the Woodford association been for Hargreaves, and what are the wider repercussions for the industry?

The immediate aftermath

In 2019 Chris Hill, chief executive of Hargreaves Lansdown, told the Treasury Select Committee that there were 133,769 Hargreaves clients with direct exposure to the fund, then named LF Woodford Equity Income. They owned units worth £1.1bn, which represented 1.1 per cent of Hargreaves' total assets under administration. 

The average direct investor holding in Woodford was £8,152, with 50 per cent of Hargreaves' clients holding less than £4,000 and 20 per cent holding less than £1,000. 

The total number of directly and indirectly exposed Hargreaves clients was 291,520 – amounting to around a quarter of all customers. 

Indirectly exposed clients are those who own units in funds that have an underlying exposure to the Equity Income fund, including the Hargreaves multi-manager range. 

“This means 76 per cent of our clients have no direct or indirect exposure to the Woodford Equity Income fund. Collectively, the total exposure of Hargreaves' clients is £1,619m. This represents under 1.7 per cent of Hargreaves' total AUM,” Hill added.

But despite exposure to the now defunct Equity Income fund being partly to blame for the underperformance of certain Hargreaves funds, according to the platform’s assessment of value report in February, it gained a record 84,00 new customers in the second half of 2020. The boom in retail investing seen during lockdown has more than compensated for any long-term fallout from the Woodford affair - if that fallout exists at all.