Peter Hargreaves stands tall, publicly attacks Woodford for withdrawal chaos

Hargreaves Lansdown is a company that most certainly could be considered a reference point for the online financial services sector.

It is not only the largest financial services company in the UK by a substantial margin, but has operated its business since its establishment in 1982 by concentrating solely on British domestic market customers who operate their online accounts themselves with no reliance on partners or affiliates.

Ever since Peter Hargreaves and Stephen Lansdown CBE founded the firm as a small independent insurance brokerage in Clifton, Bristol, the firm has been evolving, taking itself from humble beginnings as an intermediary to its standing today, complete with proprietary platform called Vantage, from which investors can manage their entire portfolio from mortgages, to ISAs to FX and CFD trading accounts with the company’s HL Markets division, a white label of IG Group.

Peter Hargreaves is a major voice in British financial services, and today his outspoken stance on the situation that surrounds Neil Woodford and his troubled asset management firm that has caused Hargreaves Lansdown and its customers significant anguish has been vocal indeed.

Today, Mr Hargreaves, who is furious that Woodford continued to operate which caused Hargreaves Lansdown to continue to provide the fund to its clients even though the fund was experiencing problems, leaving Hargreaves Lansdown with the customer-facing issues that have ensued from clients not being able to withdraw, has publicly expressed his opinion, citing that Mr Woodford had not been ‘truthful’ about the situation.

“The problem was Hargreaves Lansdown had too much with him” said Mr Hargreaves, referring to Neil Woodford.

“The clients have been stuffed in this horrible Woodford fund. I’ve drawn this big dividend. Nothing to do with me and I’ve been very successful. What do they want me to do? Give the dividend back to the unit holders?” said Mr Hargreaves in defence of the £64 million dividend he received from the company that he is entitled to as he is a 32% shareholder.

“It’s annoyed the hell out of me that it would appear he (referring to Neil Woodford) has not been truthful with Hargreaves Lansdown. But it’s also annoyed me that they let it go on so long” said Mr Hargreaves publicly.

It is refreshing to hear such a direct opinion from the founder of what is now a huge publicly listed company with a loyal client base.

This demonstrates, however, that even the most astute companies in the business can fall foul of perceived quality, as withdrawal issues are usually subconsciously associated with low-end bucket shops on islands or in the Middle East, not long-established plate-glass hedge fund managers who hold themselves out as financial gurus and court the media.

FinanceFeeds is an absolute advocate of the need for FX firms to move into the professional trading and hedge fund sector, largely because many good quality FX brokerages along with their associated prime of prime liquidity providers and technology vendors that integrate platforms into a multi-asset market are more than capable of providing a highly efficient direct market access solution for wealth managers with a diversified asset requirement at low cost with efficient execution.

This industry is, after all, a massively entrepreneurial and innovative sector, far more than the traditional hedge funds are.

Over recent years, Woodford Asset Management has been championed by so many commentators that it must be impossible to count how many laurel leaves are now under the firm’s reputation.

This week’s revelations demonstrate that it is far from prudent to assume superiority based on name and classification.

The company has been in the spotlight for continuing to recommend Woodford’s equity income fund until he blocked withdrawals on June 3 this year. The suspension of the fund affected more than 290,000 Hargreaves customers, about a quarter of the company’s investors, with savings likely to be trapped for six months, resulting in a massive public spotlight honing in and Hargreaves Lansdown left to clear the mess with its customers, and executives including Hargreaves Lansdown CEO Chris Hill who moved to the company from IG Group to take the lead spot, having docked his own annual bonus.

Imagine the furore should a retail FX broker do something like this, even affecting 1000 clients let alone 200,000!

By contrast to the pillorying that would ensue toward 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.

In March 2019, after two years of poor performance during which fund assets contracted by more than £5 billion, the Sunday Times carried out an investigation into the

It found the fund held less than 20% of assets in FTSE 100 companies compared to over 50% when it was created, and over 20% of assets were in small Alternative Investment Market companies.

On 4 June 2019 trading in Woodford Investment Management’s largest fund (the Woodford Equity Income fund) was suspended. There had been large withdrawals of funds by many investors. Following this, St. James’s Place plc which is one of the UK’s largest network of hedge funds and has connections to Allied Dunbar and Abbey Life founder Mark Weinberg, terminated Woodford’s contract to manage three of its funds, valued at £3.5 billion.

The FCA launched a formal investigation into the suspension back in June, and at that time a Woodford spokesperson said: “We can confirm we have been contacted by the FCA, regarding its investigation relating to the events that led to the suspension … and will be co-operating fully with its investigation.”

Suspension in this case is a box-ticking exercise. The old boy network well and truly at work.

Why the diatribe, you may ask?

Well, this affects our industry directly, yet Woodford Asset Management continues to be viewed as a professional hedge fund and therefore part of the elite compared to the retail FX industry, which is a totally inaccurate assumption.

Hargreaves Lansdown, the largest retail financial services firm in the UK, which is led by CEO Chris Hill, former CFO of IG Group (Hargreaves Lansdown’s HL Markets FX brand is a white label of IG Group) has been massively affected by Woodford’s issues.

This demonstrates a form of total trust that no firm would give an FX broker. We all know what some of the profit sharing antics of so-called liquidity providers have led to, yet Woodford Investment Management holds its head high after decimating Hargreaves Lansdown’s share prices.

Hargreaves Lansdown will soon report results after a disastrous week for Woodford, who had been held out as a star fund manager and favourite of retail investors. The equity income fund’s administrator said it would probably take until early December for the fund to reopen as Woodford disposes of difficult-to-sell stakes.

Woodford was also revealed to have sold more than half his shares in a separate publicly traded fund whose board is considering terminating his position as the asset manager.

Chris Hill, Hargreaves’s CEO, issued an apology to his customers a few days after the fund’s suspension. “We all share their disappointment and frustration,” he said, as he also came to terms with the loss of his bonus of as much as £2.1m until the matter is resolved, and at the commercial impact having had to waived Hargreaves’s fees for Woodford investors.

Hargreaves’s results at the end of the last trading period were the the first time the company actually commented about the impact of the Woodford affair on its business and reputation. Mr Hill at that time answered questions from the Treasury committee but these concentrated on his company’s dealings with Woodford and how it decides which funds to recommend.

Mr Hill’s commentary was very corporate and polite, compared to Mr Hargreaves who fired his anger directly into the public domain.

All of the analysts that have skirted around this issue and had to mind their Ps and Qs on televised news or in large financial markets newspapers is effectively white noise. FX firms in Australia, the US and Britain have been wound up by regulators, their responsible officers criminally prosecuted and assets seized time and time again for practices far less grim than this. Yes, they should pay the price, but everyone should pay the price, not just retail FX brokers.

Hargreaves Lansdown, whose Vantage system allows retail investors and traders to manage their accounts from endowments and ISAs to FX and CFD trading in one place, has been getting more into the FX and CFD space and expanding its range, having recently launched a product which is aimed squarely at the self-directed retail investor.

This is offered via Hargreaves Lansdown’s IG Group white label HL Markets, wrapped into Hargreaves’ highly sophisticated proprietary infrastructure.

The company, which has £85.9 billion assets under administration all from direct retail customers, has diversifed its asset base since.

So why did a company this astute trust Woodford Asset Management? It would not have trusted dodgy dealers such as AFX Group or ILQ, both of which had engaged in profit sharing and mixing client funds with operational capital, but to a far lesser extent, however the end result is exactly the same.

Look at the NFA’s treatment of Drew Niv, founder and former CEO of FXCM, which at one time was the world’s largest FX firm. He personally prevented any damage to client withdrawals during the Swiss National Bank’s removal of the EURCHF peg which plunged FXCM’s resources into massive decline (as it did with many other firms) yet the regulators would not let him go. FXCM has been absolutely decimated, whilst Woodford carries on. Of course, FXCM’s alleged false statements that it was A-booking trades when it was sharing them with a market maker is not excusable, but customers were not affected, and nobody complained. Therefore the Woodford situation is worse.

Woodford’s reach has even been notable in the firm’s aspirations toward challenging the banks. Neil Woodford’s venture capital fund enabled Atom bank, the UK’s first bank built exclusively for mobile, to raise £50 million in a fundraising round with participation from BBVA, Toscafund, Woodford Patient Capital Trust and funds advised by Perscitus LLP.

The funds raised were set to used to finance further growth and to continue the bank’s investment in technology.

Atom continues to be a fast-growing challenger in the UK’s lending markets. The bank says its total lending, for homeowners and small businesses, has grown by 76% in the past year to £2.4 billion. At present, Atom is welcoming up to £20 million of business and £10 million of residential mortgage applications each week.

Woodford Patient Capital is now the target of an aggressive potential takeover, purely because of its instability.

It depends who you play golf with as to whether all retail FX and CFD firms should be under massive scrutiny and hedge funds should be allowed to create havoc with minimal consequences.

It is time for the FX industry to challenge the traditional hedge funds. Surely the good quality firms in the FX and CFD sector could easily connect to Hargreaves Lansdown via API and are more aligned technologically and ideologically.

Image: Clifton, Bristol. The original location of Hargreaves Lansdown