Hargreaves Lansdown data push raises regulatory questions

Hargreaves Lansdown is pushing UK regulators for a freer hand to use big data to target customers with personalised messages as the investment platform steps up efforts to guide clients in their investing decisions.

The UK’s largest investment platform said the “rigid boundary” that defines regulated financial advice is making it harder to deploy newly-developed data tools to help its 1.6m customers with more general guidance which doesn’t qualify as formal advice.

But, coming in the wake of City mis-selling scandals, the push will revive questions about whether investment platforms already have too much sway over their customers without the accountability that comes with offering formal financial advice.

The Financial Conduct Authority in December published details of an overhaul of consumer protection standards setting out new draft rules designed to raise the “standard of care” at financial firms and increase scrutiny of practices including marketing tactics that lead clients towards unsuitable options.

Hargreaves is calling on the FCA’s review to look again at the boundary between advice and guidance. Anne Fairweather, Hargreaves’ head of government affairs and public policy, said: “The advice/guidance boundary gets in the way of our ability to engage our clients using targeted messaging and guiding them to better outcomes.”

The firm wished to use in-house information drawn from customer investment patterns. “The power of data hasn’t yet been fully harnessed here — more could be done to support consumer understanding.”

Other forms of recommendations from the platform to its clients have prompted criticisms of Hargreaves in the past. The platform’s influential “best buy” funds list was blamed by disgruntled clients for encouraging to them to buy the former star stockpicker Neil Woodford’s doomed fund before it collapsed in 2019.

Hargreaves Lansdown has stepped up its “investor education” efforts this year after adding a record 233,000 new customers in the year to June, according to its most recent annual report. Rival investment platforms have also enjoyed a bumper year, as many savers had more cash and free time to devote to investing during Covid-19 lockdowns.

But the same period also produced a sharp rise in speculative investments, including cryptocurrencies and “meme stocks” such as GameStop and AMC.

Some Hargreaves clients also took on more risk. The platform saw elevated numbers of new clients buying just one stock, and trading frequently, as well as longstanding clients “panic selling” triggered by pandemic news.

“We saw some of the poor behaviours that we had identified really accelerate during Covid,” said Nadeem Umar, who leads the platform’s content team.

Investment platforms already put out reams of consumer-oriented content from blog posts to email newsletters and online videos.

Hargreaves has taken its efforts a step further by investing in “big data” capacity and staffing up its team of data scientists to develop more personalised suggestions.

The funds supermarket said it wants the FCA to take a more flexible approach to policing the border between advice and guidance, so it can do more to personalise the information it sends to clients.

The FCA said it was open to new ideas. “We recognise that firms need to navigate the boundary between advice and guidance . . . We are open to innovation in the advice market and have supported a number of firms that wish to test new ideas before coming to market.”

The regulator said it was looking at how to make sure customers get financial advice and support with their investments as part of its latest consumer investments strategy, launched this year.

However, watering down the advice versus guidance boundary could add risks for self-directed investors. “The problem with guidance, even if it is ‘targeted’, is that it pushes all the risk and responsibility for investment choice on to the customer,” said Anthony Morrow, chief executive of financial advice service Open Money.

“There is no comeback on the platform for . . . unsuitable guidance,” he said.

Hargreaves’ data system works by assigning each customer a personal score for their level of diversification and for investment risk. Using these numbers, the investment platform can identify clients falling into certain investment traps — such as holding too much in one stock or taking on excessive risk — in real time.

It can then target them with timely email or pop-up warnings in the company’s mobile app. One such warning talked about the dangers of “hot stocks” during Covid, Umar said.

Umar stressed that Hargreaves does not want to become an investment nanny state. “We are not taking away people’s right to choose. They can opt out or ignore it.”