Hargreaves Lansdown has come under fire for its cosy relationship with Neil Woodford.
The online fund supermarket continued to recommend the Woodford Equity Income fund to its clients, despite the fund losing 17.5 per cent of savers’ money over the last three years.
It only removed the fund from its closely watched Wealth 50 best-buy list on Monday, after savers were blocked from withdrawing their cash.
Hargreaves’ clients have invested £1.1billion directly in the Equity Income fund.
And the Multi-Manager funds which Hargreaves runs – where its own managers choose where to put savers’ money – have ploughed a further £620million into the embattled Woodford fund.
Woodford makes £5.5million per year in management fees from Hargreaves’ clients and charges investors in Hargreaves’ Multi-Manager funds a further undisclosed sum.
Justin Modray, of finance guide Candid Money, said: ‘I think the many Hargreaves customers invested in Woodford will be seriously questioning Hargreaves’ motives and judgement for continuing to back the fund up until the point it was suspended.
The relationship between Woodford and Hargreaves became far too cosy, to the point neither could afford for Hargreaves to withdraw support for the fund for fear it would trigger a downward spiral.
‘I think the Financial Conduct Authority needs to wake up and prompt change, as customers continue to be let down by the financial services industry seemingly putting its own interests ahead of its customers.’
Hargreaves was the only broker to gain access to cheaper shares in the Equity Income fund when it launched in 2014, by promising Woodford £500million of savers’ money.
Few other investment platforms can rival Hargreaves by size, and no other firm was able to stump up the £500million Woodford was asking for.
This meant Hargreaves paid Woodford less in management fees than any other investment platform, as they could access more expensive share classes.
While this is good for Hargreaves’ customers, as they paid lower fees to Woodford, it meant Hargreaves had a vested interest in pushing the Equity Income fund.
If it was able to persuade customers to commit £500million to Woodford, it would have a huge advantage in attracting new clients, as it would be able to offer the fund much more cheaply than rivals.