Hargreaves Lansdown CEO Chris Hill to give up £2.1 million in bonuses to save face after Woodford scandal

At the beginning of this week, FinanceFeeds made the comparison between the way in which financial markets regulators view traditional wealth management firms and modern OTC FX companies.

We pointed out that whilst regulators and commentators across Europe busy themselves in curtailing the way that perfectly legitimate and well organized regulated OTC firms can offer products to their clients, limelight-hungry asset managers with Knighthoods from Her Majesty can manage to get away with the sort of corporate collapse costing clients astronomical sums with very little consequence.

Simply, the subconscious of everyone from regulators to banks trusts the hedge fund and wealth management business and yet gives an undeserved cold shoulder to the large and well regulated FX firms.

The woes that currently plague Woodford Asset Management which have affected customers who cannot withdraw and have not been able to for some time as well as large companies that believed that they would be doing business with a very solid organization.

Hargreaves Lansdown, one of the world’s largest retail financial services firms has been one of the affected entities, and being a publicly listed company, it has to make amends somehow in order to avoid a shareholder backlash should its profits be affected by the exposure to the Woodford scandal.

Hargreaves Lansdown is set to unveil a rise in profits today, however that has been largely made possible by the decision which has been made in the advent of the announcement of the executive board to give up their bonuses over the Neil Woodford saga.

The firm, which has more than 1 million customers across the UK in financial products ranging from ISAs to CFDs via its proprietary Vantage system and is Britain’s largest retail financial services provider, is expected to publish an annual profit of £304.8 million for the year to June 30, up from £292.4million in 2018.

However, in an attempt to recognise customer and shareholder discourse over Neil Woodford’s decision to ban withdrawals from his flagship fund, Hargreaves chief executives are set to give up as much as £3.6million in lucrative bonus payouts.

One such executive is Chris Hill, CEO of Hargreaves Lansdown. Mr Hill joined Hargreaves Lansdown from IG Group where he was CFO just two years ago, replacing Ian Gorham. IG Group’s relationship with Hargreaves Lansdown is extensive and lengthy, Hargreaves Lansdown’s HL Markets FX and CFD firm being a white label of IG Group.

Mr Hill has agreed to forego £2.1 million in bonuses for this year. A severe price to pay indeed.

It is odd indeed that during Mr Hill’s tenure at IG Group, the European Securities and Markets Authority (ESMA) were hectoring and lobbying the large high quality companies to reduce leverage on OTC products, to change the way CFDs – a core business activity for UK based providers – were sold or advertised when absolutely no customer had been affected by any activity of the firm.

At the time, this was viewed by many FX industry executives as a lobbying attempt by the exchanges who quite simply have not been able to compete with the dynamism, innovation and entrepreneurial spirit of FX and CFD firms over the past 30 years and want to get all the retail business back onto exchanges by forcing the OTC firms down, as they have no other means of competing.

This has been also demonstrated by the number of acquisitions of institutional and retail FX companies by major exchanges, such as 360T, FastMatch and Hotspot FX, among many more. FinanceFeeds has been very much aware of this direction.

Finance chief Philip Johnson, who could have received £1.5million, investment chief Lee Gardhouse and research director Mark Dampier are expected to follow suit.

The impact of the Woodford crisis on Hargreaves is not expected to be felt in its annual results as the period covered by the financials only stretches to June 30, just a few weeks after Woodford’s fund was shut on June 3.

Analysts at Exane BNP Paribas said the fiasco could affect how savers view Hargreaves’ recommendations, potentially hitting the income it earns.

In a note to clients, they wrote: ‘Given the Woodford incident, we sense that the power of Hargreaves in directing their clients flows may be somewhat diminished.’

It comes as the crisis at Woodford’s fund rumbles on, with the fund manager still controversially refusing to waive fees for customers. What an outrage. Can anyone imagine what would happen if an OTC FX brokerage refused withdrawals for months and then refused to waive customer fees?

They would not be on the golf course with their buddies at the FCA, that is for sure.

By contrast to the pillorying that would ensue an FX broker if it blocked withdrawals of client capital, Woodford Asset Management’s founder, Neil Woodford CBE, knighted for ‘services to the economy’, has managed to remain relatively unharmed by the direction his company has taken.

The stand off between Woodford refusing to waive fees and the effect on bonuses for Hargreaves Lansdown executives who are doing what they can to preserve their own standing in front of loyal customers and constantly content shareholders is telling indeed.

One rule for one, and another for another…..