Hargreaves Lansdown fiasco

bowlhead99

arnoldy wrote: »

I was looking at the Hargreaves Multi Manager Growth and Income and the Woodford fund % has dropped from 14% to 12%.

As the fund has been gated this would imply they were selling out before suspension - simultaneous to pushing it to their small investors.

Have I missed something or miss understood?

Yes you are probably missing / misunderstanding something.

Now - as of mid June - the latest available factsheet is 31 May. What you are seeing in the fund allocation percentage dropping is simply the factsheet ticking over from showing you end-of-April data when you last looked at it, to showing you end-of-May data now.
(https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/h/hl-multi-manager-income-and-growth-trust-accumulation)

You can see from a Woodford performance chart that Woodford Equity Income would have dropped in value by 10% during the month of May. Presuming the other held funds didn't also drop by as much as 10% over the month on average (e.g., Marlborough fell by a smaller percentage), the percentage of the fund made up by the Woodford holding would have declined.

Also as per the May factsheet, the Woodford holding was 12.8%, which you've rounded down by quite a lot when saying it has dropped to 12% from 14% (I don't know by how much you had also rounded the 14% up or down as I haven't looked for the old factsheet).

So, the fact that the Woodford holding within the fund has dropped by a small percentage does not mean they sold 2/14ths of their holding.

And also 'selling while simultaneously pushing it to small investors', even if it happened, is not as nefarious as it perhaps sounds - because they are also pushing their other holdings to their investors via the Wealth 50. If they had chosen to replace some Woodford within their multimanager fund with some Artemis or Marlborough or Threadneedle instead (all of whom they also promote to investors by putting them in the Wealth 50) it would just imply they had made a judgement about allocation, among all the funds that they have on the marketing list.

I'm not suggesting HL are great people, just that you might have misinterpreted what you were looking at.

dividendhero

According the this weeks Economist, HL run on a profit margin of 65% :eek:

With margins like that they could have ditched nonsense like the Wealth 50 and still had a profitable sustainable business..

bowlhead99

dividendhero wrote: »

With margins like that they could have ditched nonsense like the Wealth 50 and still had a profitable sustainable business..

What if the constant advertising copy, junk mail, handholding of customers by giving 'our best ideas', the guiding of investors towards funds where a lower management fee has been agreed making the platform fee more affordable, constant advertorial for funds which the customers 'wouldn't want to miss out on' etc etc etc... ... was the reason they are able to get so many fee-insensitive customers who like what they perceive to be a high level of service and very informative website etc.

If they dropped those 'value-added' services (ie all the advertorial content and promotion of the negotiated superclean share classes where they can get fee breaks for supplying large volumes of investors) they wouldn't make so much margin as surely that promotion work more than pays for itself in driving customer volume and AUM.

Without the sort of stuff that made them a destination of choice for newbies who needed a helping hand narrowing down 3000 choices, or for wealthy patrons who like the idea of a comprehensive website and lashings of investment "research"... they would need to drop the fees to get the customer numbers up... and then without being 'reassuringly expensive' why are they better than anyone else in the space?

Shareholders don't like initiatives that lose customers, even if they shouldn't have had the customers in the first place. They don't like it when the board plays it safe and settles for 'sustainable' revenues when the year before it was going gangbusters. Going from nice revenue and margin growth to a plateau or a drop will spook investors who fear a company to be ex-growth. So, even if overpromotion is something to reel themselves back in from, the owners of the business don't like to see it happen.

There is also the point that the profits and valuation of an investment platform is linked to financial markets and the economy generally. If the FTSE is at 4000 instead of 7000, and revenues are linked to AUM, the revenues fall, but the main costs of running a business don't. They have high operational gearing even if they don't have high financial gearing. So, high margins doesn't mean they are reliable sustainable margins. The platform business is not generally high growth, it's a numbers game that's all about economies of scale.

fun4everyone

bowlhead99 wrote: »

they are able to get so many fee-insensitive customers

Ultimately, this is what's crucial to being profitable as a fund platform (or in any business) and HL are the kings at it.

Thrugelmir

dividendhero wrote: »

According the this weeks Economist, HL run on a profit margin of 65% :eek:

With margins like that they could have ditched nonsense like the Wealth 50 and still had a profitable sustainable business..

Revenue is vanity, profit is sanity but cash is always king. Recommend a thorough read of the published accounts in particular the cash flow statement. Margins are only part of a much bigger picture.

chucknorris

bowlhead99 wrote: »

they are able to get so many fee-insensitive customers

The only reason that I am a customer of HL is because of their low fees, I have just over £1.3m invested there and pay only £245 per annum in fees for my SIPP and ISA's (plus dealing charges on my ETF's, corporate bonds and REIT).

pursuitofmoney

I've transferred my SIPP to AJ Bell due to this fiasco

bowlhead99

chucknorris wrote: »

bowlhead99 wrote: »

they are able to get so many fee-insensitive customers

The only reason that I am a customer of HL is because of their low fees, I have just over £1.3m invested there and pay only £245 per annum in fees for my SIPP and ISA's (plus dealing charges on my ETF's, corporate bonds and REIT).

I'm not suggesting they don't have smart customers such as yourself.

Really it's the advertising, hype and strategic 'hand-holding' that they offer to fee-insensitive customers which allows them to become quite receptive to anyone who comes along with a hundred grand or a million to invest in simple stock exchange-traded products - because they will hope that you might end up buying some higher margin service in due course, and if not, they have a lot of fee-insensitive people delivering them a massively higher margin with which they can subsidise the cost of any customer service they need to give you on your simple-to-administer investments.

redux

bowlhead99 wrote: »

I'm not suggesting they don't have smart customers such as yourself.

Much more modest holdings here, and they only earn single figure pounds a year from me, as fees on dividend reinvestment, after I only arrived there by chance or coincidence, on a couple of investment trust managers closing their own schemes (and a couple more happening now)

In fact I think if I switched to dividend payout they'd earn nothing at all, but I think I'll cope ok on under 0.01% reduction a year.

As for their marketing, I only look at a fraction of it, and then not necessarily all the way through, though I did go back to one email and sign up for a so-called retirement seminar soon, after someone on here went and thought it worthwhile (though it started with several Woodford questions).

jaybeetoo

pursuitofmoney wrote: »

I've transferred my SIPP to AJ Bell due to this fiasco

I don’t understand why you’ve done this.