‘We have not always kept pace with the competitive environment, the way customers consume marketing, the increasingly sophisticated and demanding requirements of digital customer journeys and the service levels clients expect.’

Dan Olley, Chief Executive, Hargreaves Lansdown PLC

 

Peter Hargreaves has done well in building his Bristol-based investment business over the past forty years, culminating in last Friday's deal with the CVC Capital Partners-led consortium. As with my experience at The Share Centre, it's not always been an easy journey for him and, even at the close, he faces criticism from some of his shareholders for accepting too low a bid price; but in my view his decision to draw a line while remaining partly invested in the outcome is well-judged.

Some of the criticism has cited the outcome of our Share plc/Interactive Investor deal — ultimately, with Abrdn in 2021 — which has drawn a fair share of criticism itself in The Times last Wednesday, with Abrdn’s interim chief executive claiming that his predecessor Stephen Bird had paid ‘a high price’. I would say that Abrdn also lost a major opportunity to build on the broader strategy of Share plc, and to adopt its brand, which means a great deal more than ‘interactive investing’.

In both the Hargreaves Lansdown and Interactive Investor deals, private equity has played a central part; it's worth bearing in mind the short-term and intensely finance-based motivation of that sector in contrasting its entry and exit pricing. That's why shareowners of Share PLC (the parent company of The Share Centre) remained 90% invested following its merger with the JC Flowers-run Interactive Investor, and it's why Peter Hargreaves is doing the right thing in staying significantly invested himself.

But the fact is that nationally-driven retail investment platforms have had their heyday. Their technology is antiquated, they put too much emphasis on high-net-worth clients, and they are ill-equipped to cope with the new world of global retail investment, based on convergent populations and multiple language capability.

It's time to look ahead to the opportunity for global stock ownership, serving people of most, if not all, nationalities.

The five years between 1985 and 1990 were nothing short of extraordinary in the investment world: it was the midst of Thatcherism and marked by the ‘Big Bang’ City revolution in October ’86, to be followed by a financial crash in October ’87.

It was during this period that I established Barclayshare, then a radical new approach to populist investment services, based on retail pooled nominee share administration: in 1988 our bid to host the Abbey National share offer was only denied by the main board of our parent Barclays Bank, which took the view that if all went well it would be to their banking competitor’s credit, but that if anything went wrong it would damage Barclays’ reputation.

Shortly after leaving Barclays in 1990, I recall visiting my competitor David Jones, who had set up Sharelink in Birmingham, while I was preparing to launch my own business, The Share Centre. I asked what was at the heart of his strategy and he said, ‘The transaction: as long as I'm handling as many transactions as possible, I'm happy’. I told him that was the major difference between us: for me, it has always been the provision of share ownership services which is at the heart of my strategy, for it is by so doing that the customer relationship is nurtured and developed.

A year or so later I had started operations at The Share Centre and Peter Hargreaves, who had then been running his own business for about ten years, came to visit me in Tring in order to explore the potential for putting my share ownership business as a front window for his fund-driven business. I remember our lunch at the Robin Hood pub, and our meeting thereafter at my very embryonic office. My decision was to go it alone, but we stayed in touch over the following three decades and I much appreciate our relationship and his kind comments over the years.

Peter has an insightful and focused approach to business, and his use of retail share investment services to build his profile while maximising his returns from fund-based commissions and self-invested personal pensions (reflecting the transition from ‘defined benefit’ to ‘defined contribution’ pensions) has born witness to his shrewd business sense.

However, both our businesses were shaped by nationality-defined factors which seriously constrained their long-term potential. Regulation was driven by Brussels and London in a direction which made access by American personal investors impossible. Meanwhile, although custodial retail nominees managed to circumvent the antediluvian nature of share register administration, they were constrained by technology which couldn't adapt fast enough to the changing world.

It's clear from Dan Olley’s quote at the head of our commentary that Hargreaves Lansdown shared the same experience as The Share Centre in these respects: and this challenge was made all the more difficult by management which was reluctant to engage with a wider vision.

So, what is that wider vision?

The clue lies in employee share ownership. There has been no choice but to provide international workplace solutions for international businesses, because so many major businesses employ people all over the world. They can't discriminate between employees on the basis of the country in which they live.

So, solutions have been found, also using the basis of retail nominee custodianship, for global employee share ownership: the leading service provider is now JP Morgan following their acquisition of the Global Shares business in 2022.

But it's not just employees who are global in character: it's also individual customers. There is a powerful logic for increasing customer share ownership, but our listeners will be aware we need to look beyond motivations based on shareholder benefits and encouraging customer loyalty. It's also a key part of enabling widespread ownership participation in return for the harvesting of data and creativity by tech giants. The proposal for ‘Stock for Data’ will also therefore require global stock administration.

Of course, it doesn't stop there. How can investment services cling onto national backwaters when every other product and service is delivered online to people all over the world? It's high time that regulators and investment businesses work to enable this unlimited access for people of all nationalities, languages and wealth levels: retail investment services should not focus their attention purely on high-net-worth people in their own home country.

Widespread participation in share ownership is key to enabling people to share in wealth creation across the world — let's hope that the transition from localised high-net-worth-client investment services to global stock ownership administration makes this possible for the future.

Gavin Oldham OBE

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