Hargreaves Lansdown and St. James’s Place are two companies that have had a year to forget from a public relations point of view.
Hargreaves, the UK’s biggest trading platform, came under fire for continuing to recommend LF Woodford Equity Income on its Wealth 50 list up until the point the fund suspended trading due to liquidity issues, trapping customers who followed its advice. St. James’s Place, meanwhile, was the subject of numerous negative articles in The Sunday Times that criticised aggressive sales tactics, high fees and excessive remuneration for its staff
.
Yet, Milena Mileva (pictured) of the Baillie Gifford UK Growth trust, believes that not only will both companies brush off these scandals, they will continue to thrive over the long term.
The manager is a fan of the FTSE All Share’s numerous “platform-like businesses” which connect large groups of buyers and sellers. She said this creates powerful network effects that become self-reinforcing and lead to high barriers to entry and “exceptional financial performance”.
As a result, she said that while the Woodford scandal “wasn’t Hargreaves’ finest hour”, it does not undermine the long-term case for the business.
“It was clearly an error of judgement,” she added. “I have some sympathy with errors of judgment because as a fund manager we don’t get all our stocks right.
“Hargreaves doesn’t get all its funds right and clearly not only did it not get this one right, there were issues along the way that it could have avoided, even though there were clearly constant interactions, as has been shown.”
However, the manager said that, notwithstanding the original error, she has been impressed with the way the company reacted to the scandal.
For example, it removed a number of charges, including exit fees, while the chief executive and chief financial officer voluntarily waived bonuses. Mileva said its immediate response – it “beefed up customer service without any hesitation” – sums up one of the reasons why she finds the company such a compelling proposition.
Performance of equity over 5yrs
Source: FE Analytics
“It has always been very customer focused, particularly relative to the competition,” she continued.
“And by that it means the broader competition in financial services rather than just the other platforms.
“It has been incredibly granular in terms of analysing the various customer responses, how people are engaging with it, and what they told it to do to contain it. I think all those things are good.
“[And] remember, the financial performance of the business, including in the aftermath of the Woodford crisis, has been very strong.”
The fallout from the scandal has led to a broader debate about the use of best-buy lists. While Mileva doesn’t think the company should back away from making fund recommendations, she said it “needs to grow up”.
“I just want it to be a lot more mature and careful about how it does it,” she continued. “They clearly play a role in a market where there is a lack of affordable advice.
“The question is how it does it, and how this is managed? Over time I hope it will get to a point where this is reflective of the position, size and maturity of the company.
“Remember the opportunity for Hargreaves is much wider than the narrow direct-to-consumer market. There is a £2trn wealth management market in the UK and it wants to evolve into more of a wealth management platform over time, which will require additional investment and cost, and we support it in that.”
On the subject of wealth managers, Mileva said that she read the Sunday Times articles on St. James’s Place “with great interest”, but pointed out that the company has also taken positive steps in response to criticism, such as cancelling its luxury cruise for top sellers.
Performance of equity over 5yrs
Source: FE Analytics
The manager added there is no doubt the high starting point means its fees will eventually have to fall, but she said this is the case for the entire industry, not just St. James’s Place.
“It provides a good service to the clients that it has and clearly the evidence does support that.
“Ultimately the proof is in the pudding, it has been successful in growing customers and assets because people clearly find something of value there.”
Milena said this is why she is relatively unconcerned by the launch of Schroders Personal Wealth, which is targeting the same area of the market.
“We are following that as you might expect, but again, don’t underestimate the barriers of scaling of its model,” she finished.
Data from FE Analytics shows Baillie Gifford UK Growth is down 2.88 per cent since the current management team took charge in June 2018, compared with gains of 2.03 per cent from the FTSE All Share and losses of 1.64 per cent from its IT UK All Companies sector.
Performance of trust vs sector and index under manager tenure
Source: FE Analytics
The trust is on a discount of 9.28 per cent compared with 6.62 and 9.42 per cent from its one- and three-year averages. It has ongoing charges of 0.51 per cent and is not currently geared.