Does Hargreaves Lansdown’s success mask a UK Isa crisis?

Hargreaves Lansdown’s boss Ian Gorham gave a presentation to journalists this morning with two fairly big pieces of news (covered here by me) for Mindful Money. The first was an announcement that HL is working on bringing down the minimum investment at which it will offer advice from about £50,000 to £20,000 and the second that Gorham wants a cap put on the charges that insurers can levy on transfers saying 6 per cent of a portfolio is phenomenally high. And so it is.

Both are big news of course especially the reduced minimum which could be a game changer. If HL can make it work maybe others can too. It is certainly the first time I have heard that the advice gap might just have narrowed a little. It seems to be driven by the fact that some people simply won’t self select.

The second issue on transfers is very interesting too. HL may be the biggest consumer platform, but platforms together are starting to become a very significant lobbying group (well when they are not arguing with each other). I think the pressure may be on insurers’ back books in a way they underestimate though of course they would lobby forcefully against any change. Gorham’s arguments about competition not working are difficult to refute, particularly if you look at the issue from the point of view of the individual consumer, policyholder and investor. The insurers’ riposte will, of course, be about how those books must be managed collectively to make sure all policyholders are looked after and to maintain the integrity of their business in those policyholders’ interests. True, up to a point, but perhaps less true than it was in the past. The engine of the insurer is much less likely to be a with-profits life fund or three these days. Big life funds do sit beneath the closed life offices, of course, but Gorham singled out some of their practices for criticism for example suggesting wet signature requirements were obstructionism rather than any real concern for the customers’ interest. It wouldn’t hurt to test closed life offices’ assumptions about transfer penalties from time to time even if a big regulatory intervention isn’t on the horizon yet. The OFT examination of workplace pensions might even help Hargreaves case if it looks at reasons why money can’t move around.

Listening to the national journalists’ questions, almost all seemed to be focused on the future pricing policy, except where they were interrogating the make up of the Wealth 150 and those questions had a price element too. This is a perfectly legitimate line of questioning. But the occasional question about how we might increase the overall numbers of people investing might not go amiss.

Gorham’s view is that is that the key is pension policy. He pointed out that it was one significant difference with the US and Sweden for example, and he has hopes for auto-enrolment. But the Isa figures are striking. While HL has grown Isa share significantly, the numbers investing have dropped. In 1999/2000 4.57million people applied to invest in stocks and shares Peps/Isas. In 2011/2012 there were 2.9m applications –  a fall of 36 per cent. That feels like an Isa crisis and surely they can’t all be refugees from the TMT bubble? It might be good if national newspaper journalists asked why more people don’t have the confidence to invest. People like Mr Gorham may well have some of the answers.