Hargreaves Lansdown’s (HL.) latest update on asset manager Lindsell Train is a bit of a puzzle. The platform criticises the company’s investment risk framework and questions its ability to “provide strong independent oversight and challenge of the investment team”. And it highlights the fact that Lindsell Train’s funds have long been excluded from its best buy funds list to avoid any potential conflict of interest, since Lindsell Train owns a significant number of shares in Hargreaves Lansdown.
But Hargreaves Lansdown also praises the investment team and its investment process. So what does this all mean and how worried should you be? Are Hargreaves’ analysts genuinely concerned or just being extra cautious?
This note stands out because not all of Hargreaves Lansdown's notes are like this. In March, for example, the platform removed two EdenTree funds from its shortlist, articulating management changes that had reduced its analysts’ level of conviction in the portfolios.
However, Hargreaves is not the only platform guilty of less than perfect clarity when communicating its research. Fidelity, for example, won't explain why it won't allow new investment into certain funds on its platform. One of these – Jupiter UK Mid Cap (GB00B1XG9482) – which had this restriction placed on it at the beginning of the year, had the ban quietly lifted last month. It was removed from the restriction list on Fidelity’s website without a word of comment. Abrdn Private Equity Opportunities Trust (APEO), meanwhile, remains on the list although its manager Alan Gauld is not sure why (see 'Will private equity trusts weather the storm?', IC, 19 May 2023)
These are tricky calls for platforms. If they sound the alarm too often, they can be accused of crying wolf. If they don’t and things go wrong, the reputational risks can be enormous, as the Woodford debacle taught Hargreaves. Platforms also have the Financial Conduct Authority’s upcoming consumer duty rules to consider, according to which providers are expected to “address any risks to good customer outcomes.”
Holly Mackay, founder and chief executive of Boring Money, says that with compliance getting more onerous every year she has some sympathy for platforms. But she agrees that it can be tricky for investors to understand what is going on.
“I think it’s very hard to know when a research team is genuinely worried – we have a real problem – and when they are playing it safe from a governance perspective,” she says.
When platforms make their concerns over a fund known, they should provide as much information as they can on their thinking. While total transparency isn’t perhaps possible, how are investors supposed to make informed decisions when vague words and guesswork are sometimes all they have to go on?
Mackay also makes the point that more disclosure in the form of longer fund documents does not necessarily equal better disclosure. Indeed, it is the level of detail and the clarity of communication that matters.
Earlier this month, investment platform TILLIT started sharing with clients its reports on how it selects the funds it offers. The reports contain a wealth of information, including a list of funds that have delivered a “notable disappointing performance”.
Overall, transparency feels like something the industry is gradually getting better at. It should keep going.
