personal finance

Hargreaves says revamped ‘best buy’ list would exclude Woodford fund


Neil Woodford’s former flagship Equity Income fund would “not make the cut” in Hargreaves Lansdown’s newly relaunched list of recommended funds, the investment platform said, a year after it came under fire for promoting funds run by the disgraced manager.

The UK’s largest investment platform published its overhauled “Wealth 50” best buy list on Tuesday, rebranding it the “Wealth Shortlist”, in an attempt to restore investor confidence.

“The risk monitoring we are doing now is significantly greater,” said Emma Wall, head of investment analysis at Hargreaves.

Under the new parameters of the influential list, which screen continually for investment risk factors such as liquidity, the Woodford Equity Income fund, which halted withdrawals in June 2019 trapping nearly £3bn in investor cash, “would not have made the cut,” she said.

Best-buy lists are intended to help DIY investors by providing researched recommendations of funds for their portfolio, whittling them down from a choice of more than 3,000.

Hargreaves Lansdown, which has more than £96bn under management, was roundly criticised for continuing to feature Woodford funds on its best-buy list, despite industry concerns about liquidity issues and fund performance. The platform accounts for 41 per cent of the retail investment market, according to data from research company Boring Money.

“It would be foolish not to take what we’ve learned in the last year into account,” Ms Wall said. “We know more about a fund’s liquidity than a year ago, and how a fund manager and fund flows impact liquidity.”

A survey by Interactive Investor, another fund supermarket which publishes rated fund lists, found that 75 per cent of investors use such lists to make investment decisions. However, the Woodford scandal rocked investor confidence in both Hargreaves and its Wealth 50 list, and prompted investors to question whether there was a potential conflict of interest in the way platforms earned fees as well as a lack of transparency in the fund selection process.

In February, the Financial Conduct Authority also flagged potential problems over best-buy lists, writing to the heads of fund platforms to say they should “construct them impartially and manage conflicts”.

A year on, trust in these lists has not been fully restored. Fewer than half of investors surveyed thought the lists were impartial and 40 per cent said they would like to see greater transparency.

“Investors are between a rock and a hard place,” said Moira O’Neill, head of personal finance at Interactive Investor, since financial advice in the UK was expensive. “If the industry is going to provide tools for investors, they need to have confidence that consumer interests are always at the centre.”

Hargreaves Lansdown’s new list features almost 70 funds, and will now focus on “performance potential” while also considering “managers, their processes and the culture of management”.

“We have taken our time to get this right,” said Ms Wall, adding that the Wealth Shortlist was not intended for use by novice investors.

However, Hargreaves’s reforms did not go far enough in protecting investors, said Anthony Morrow, chief executive of financial advice service Open Money. “Those who use best-buy lists as the basis for investment decisions are really on their own if things go wrong. It needs to be made much clearer that best- buy lists are not the same as regulated advice.”

Mr Morrow said platforms should make advice more accessible to investors, instead of forcing them to rely on lists. “The industry should look at creating new ways to bridge the advice gap, providing regulated advice that is affordable and accessible to all regardless of age, experience or wealth.”



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