That started to change with the advent of Willis Owen’s newspaper guide, which could at least claim to be promoting products to newspaper readers who had never thought of owning a fund before. The fund groups recognised the value of doing that by offering to subsidise these publications (something that the press eventually pilloried, even though their advertising departments had gleefully taken the money). In our case, we had responded to Chase de Vere’s original PEP Guide with our own version. We called ours The PEP Handbook, eventually superseded by The PEP Discount Directory. It was at that time that we invented what has now become our main advertising strapline: “the best information, the best service and the best prices”. This perfectly captures our business philosophy and ambitions. When we first joined the discounting game, we mistakenly believed that investors would be happy to accept a lower level of service and less information in return for having their initial charges discounted away. In practice, we found that the people who want the biggest discounts are also the quickest to complain at any reduction in service. Anyone who goes down the discounting route quickly realises that cutting the level of service is not an option.

We also have to thank Fidelity for providing the stimulus for us to create Vantage. Their contribution to the story starts way back in 1987 when PEPs were first introduced. At the time, I was not sure that we wanted to get involved in providing PEPs. They were difficult to administer and had to be invested in individual stocks and shares, an area in which we had never claimed expertise. However, Fidelity offered an administration service and Stephen, who had always been keen for us to manage money and become more involved in fund management, pursued the early PEPs using their service. Fidelity has always been decisive about cutting services that were not earning their keep. When the company first arrived in the UK, they offered a discount stockbroking service but promptly axed it without warning. Then they also cut their PEP administration service because they weren’t making a profit out of it and, at the time, PEPs looked as though they would be a damp squib. As we had enough technical people to take the job on ourselves, we ended up using our computer programmers to produce our own PEP administration system. It showed we were not afraid of accepting the challenge of running new services.

It helped that Broker Focus, the new stockbroking system, had a PEP administration service which was built into the software and completely integrated with the system. That meant that whenever we allocated a stockbroking deal to a PEP, it automatically updated the client’s PEP account. Whilst this prototype was not a full forerunner of what Vantage has since become, it was a considerable step along the way. In the late 1990s, Fidelity again forced our hand. They had developed what initially was called a fund supermarket but is also known as “a wrap” or a “platform”. It employed open architecture, meaning that visitors could buy a unit trust from any UK provider, not just Fidelity's own funds. Fidelity called their supermarket “Funds Network”. We felt strongly that this was the way forward for the industry. The attraction was that clients could hold all their investments in a single account, could see the valuation of their entire portfolio on one visit and could deal as and when they wanted. We were one of the first firms to sign up for Funds Network. Fidelity made much of the fact that we were one of their first users in their initial publicity.

However, this was also the time when the deep discounters were starting to eat into our business. I made my standard argument that providers like Fidelity should be rewarding brokers on the basis of how much effort they were putting in to building the market. Fidelity sympathised and told us they would be spearheading a drive to reduce the level of commission for those who did nothing but discount. After months of waiting to see Fidelity move, however, it became clear that it was simply not going to happen. Whether we were strung along or not, I do not know. However we were incensed. It was at this point that Theresa came up with her brilliant idea that we should hold our clients' PEPs in our own PEP administration system. If we did that, we could afford to give clients what we now call a loyalty bonus, to be taken from our share of the annual 0.5% renewal commission. Although the accounting implications were horrific and the amount of programming required daunting, we set about developing this concept with a vengeance and eventually launched Vantage in 2001. It helped that, while we were developing Vantage, a number of unit trust groups were becoming unhappy about Fidelity having a monopoly with their fund supermarket. At that time Fidelity was the UK’s biggest unit trust group, the risk of allowing it to become even more powerful was clear.

Before we came up with our new business model, no one operating on the retail side of the investment funds business had made a lot of money. The fund management side of the unit trust industry was extremely successful and created many profitable businesses and multimillionaires but the bonanza had never fed through to those at the sharp end of the business. It was the fund providers who made the big money. The reason was that fund management, unlike the broking business, produced quality earnings in the shape of a reliable income every single year. As long as the retail investment business remained tied to sales commission, it had no hope of emulating those quality earnings: as a broker, you got paid when you made a sale, but there was nothing afterwards. Every year you had to go out and win the same business all over again. The introduction of a business model based on renewal commission was to change all that. For the first time, a firm like ours could look forward to a regular and sustainable flow of income from year to year. The only reason it had not happened before was that nobody else before us was prepared to forego high levels of sales commission today in the hope of achieving a smaller but more reliable annual income tomorrow.

Our main reason, therefore, for launching Vantage was commercial pressure. It was only after we had made the switch that we realised we had stumbled across the only enduring business model in the industry. What made it more rewarding still was that the new model also turned out to be the one that best served the interests of investors as well. They were able to buy their funds more cheaply, with big discounts on initial commissions and a share in the ongoing renewal. They were getting one all-embracing valuation for all their investments, while we were also still fulfilling our other two main goals of offering the best information and the best service to our clients. Having taken the initial pain, this business model has proved to be both scaleable and enduring. Over the following years, we set out to move all our businesses onto the same model. It took us around seven years to complete this. None of our major competitors will be able to match what we have done unless the fund providers do for others what they never did for us, which is to provide financial support.

When Theresa suggested that the only way we could compete against the discounters was by building our own investment platform, it sounded a tall order. Fortunately we found out that the broking system to which we had by now committed ourselves could be modified to do exactly what we wanted. Don’t get me wrong. This was not a 20-minute workover but an entire systems upgrade that probably cost us many millions of pounds – though that’s probably £30 million less than it would cost to build a similar platform today. We also had a big advantage over anyone else in the market in that we already had almost 20 years of experience in dealing with the investing public. We knew what they wanted and what they didn’t need. The problem with most new computer systems is that they are over-specified. The design teams that big companies put together are paid to think of every possible eventuality, 95% of which will turn out to be completely unnecessary.

The problem with engineering all possible eventualities into a new system is that it makes the system unwieldy and difficult to use. Every time you create an option that only one client in a million will need, it means you have to include or exclude that option whenever you come to enter a new investment or client on the system. As there are so many more things to go wrong, you have to make an exponential increase in the number of your administrative staff. There is also the very real danger that the system will overload and you will no longer be able to give your clients any service whatsoever. The best example I can think of is the National Health Service computer, where I daresay the system can cope with a tropical disease which only two people have ever had (and that is halfway up a mountain in Borneo, when one of them had one leg and the other was blind in one eye and both were allergic to various different medicines). You can be sure that the committee which put the National Health Service computer together decided that they would have to allow for this one in a hundred billion chance. It’s this kind of thinking that has made the National Health Service computer so user-unfriendly and so unworkable that you can guarantee, even if the cost escalates to £100 billion, it will still never work effectively.

Even with a sensible specification, we still had a lot of work to do. Many of the valuations provided by other wrap platforms were not easy to interpret. This is not surprising, since the accounting and background information that sits behind the valuation pages is exceedingly complicated and difficult to collate. Our model produces information that most other statements don’t such as, for instance, a tax statement which you can clip to your income tax return showing all your taxable income and other relevant details. The most important benefit of having our own platform is that, alongside keen prices and the popular loyalty bonus, we can also offer clients something that the rival business-to-business platforms cannot. Because the other platforms are used by a wide range of different investment brokers, they cannot make comments or give information on the various underlying investments. Any comment that is less than laudatory would upset the people who ultimately pay for the cost of the platforms – i.e. the fund providers.

It is difficult therefore for the other platforms to provide objective opinions. Even if they could, they also have the problem of deciding which opinion to give. You have to remember that every broker has a different view of almost every investment. Some will like a fund that others hate. Investment is, after all, a matter of opinion and the variety of opinions is what makes the market. In our case, as we only have our own clients on our platform, we can give objective comments about any investment which our clients hold. We don't need to worry about upsetting any fund providers. If we don't like one of their funds, we simply don't suggest it to our clients. For example, we have never heavily marketed property funds despite huge pressure from their promoters, a decision that has proved to be very right.

In addition to all the programming, administration and systems design work, there were other problems we had to solve. One was that the draconian regulation of the time required us to attach a full “key features document” to any client proposal. These documents provide the same detailed information about every investment including charges, performance and a thousand other things. We set out to design a single document that could be used for all types of investment so that clients could write in any product which they wanted and we provided. We would then buy it for them. As if designing such an all-purpose form was not bad enough in itself, negotiating with all the various parties involved was a nightmare. It took us many months to perfect our document but only a matter of weeks for it to be copied by all our competitors. I don’t think one of them acknowledged how much easier the piece of paper that we designed, invented and produced had made their lives, but I suppose we should be flattered that they copied us.

Simplifying application forms has been a constant theme of ours throughout our history. To this day, I look with dismay at most of the application forms which are produced by businesses (not just investment firms) and the public sector. They seem to have been designed by incompetent chimpanzees with no thought for the client whatsoever. It is particularly dangerous to allow salesmen to design application forms. A salesman will always design the most complicated form he can. Perhaps this is because he thinks he has to have a prop of some sort to sound convincing. Or perhaps it’s because a complicated form which no client can understand makes him indispensable. My experience of salesmen is that they can rarely fill in the forms that they have designed. I would like to think that our forms are the easiest to complete of any forms used in the investment world. The application forms that life companies produce for a pension plan can stretch to 27 pages. In fact, all the life company needs is the client’s name, age, how much they are going to invest, at what frequency and into which funds. That is six pieces of information at most. Is it any surprise that the life assurance industry is so widely hated by clients and that their share of investors’ funds is shrinking?

There is very little doubt that business needs competition. We have lamented for many years the demise of other brokers’ newsletters, as it means we now have nothing with which to compete. We make do with competing against a previous edition of our own newsletter. We enjoyed our battles with Chase de Vere when their PEP Guide gave them an early lead in the PEP Wars. More recently, the other investment platforms have proved to be our most direct competitors. Fidelity Funds Network, although widely regarded as the first UK fund supermarket, was in fact the second. Skandia had been doing something similar since the beginning of the 1990s, albeit in a different way, in that most of the funds that brokers could buy through the Skandia platform were life or pension funds. It was only later that a number of investment groups, concerned at being beholden to the investment platform of their competitor (Fidelity), grouped together to set up the Cofunds platform.

One further advantage of having our own platform was that it gave us a much more accurate insight into how well we were doing in the market. Just as politicians are always optimistic even on the point of defeat, figures for sales and repurchases of unit trusts have always been somewhat exaggerated by fund providers. As we launched our platform right at the start of an investment recession, it took us some time to realise how valuable its sales tracking capability would turn out to be. We never had any doubts that the list of investors (and potential investors) that we had built up over 20 years was our single biggest asset. Its value stemmed in particular from two significant features. First, the list had rarely, if ever, been augmented by “bought lists”. The only way you can get onto the Hargreaves Lansdown investment list is if you either request it yourself or someone else requests it on your behalf. The only exceptions have been the list of investors in Equitable Life which we managed to acquire when it ran into financial trouble and a list of Venture Capital Trust investors that we compiled ourselves from shareholder registers.

Initially, Fidelity refused to allow their own funds to appear on the rival platform offered by Cofunds and the four owners of Cofunds took the same attitude to the Fidelity platform. We were able to make significant mileage out of the fact that you could buy anyone’s fund on our platform and it was the only platform where you could do that. Skandia, the other potential rival, only had a limited range of fund management groups initially so we were able to make a good showing. In the early days, we managed to grow our platform faster in the first quarter of the year than the others but had to settle for last place during the last nine months of the year. Nothing could alter the fact, however, that the years immediately following our launch (2000-2003) were not good for retail investment in general, coming as they did in the wake of the 2000 stock market technology bubble.

Remembering our experience in 1988, when we used our computer records to send out valuations to clients, Theresa came up with the idea that we should talk to our investors in a similar way. We knew that a single valuation for all clients’ investments was something that the broker market had never offered before. Historically, what tended to happen to IFA clients, even those who had invested every penny they had in a range of different products from different companies, was that the IFA would never be seen again. The only way you could get a valuation of clients’ assets was to write to all the product providers and ask for the value of each investment. With our new platform, as our computers were able to link up with real-time pricing services on a daily basis, we could produce this kind of comprehensive valuation overnight. Now, any Hargreaves Lansdown client can go online at any time of night or day and find a valuation of their investments. The prices will be 24 hours old at worst. Theresa came up with something which she called a “portfolio healthcheck”, to take advantage of the huge administrative team that we had built up to handle the volume of business at the end of 1990s. We didn’t want to lose them as it takes time to train people and there simply are not enough people with that expertise in Bristol. Her idea was to ask the clients to send us details of their current investments and allow us to value them all without charge. It was extremely labour-intensive but immensely popular. We found that it created massive goodwill and a stream of new business. Clearly, there were many advantages to being on the platform and that is why we gave it the name Vantage. Reinvestment could be done by letter, phone or online.

To change an ISA or a PEP, was a tortuous operation because you had to first of all ask your present PEP provider to sell the investment but keep it in the PEP wrapper. Then you had to ask your new PEP provider to pick up the funds from the original PEP provider. And then, when the funds arrived, the new PEP provider had to reinvest them in the right place. On occasions, this process could take six weeks. In Vantage, the ball starts rolling after a 30-second telephone conversation and transactions are completed within five days. Initially, many clients only transferred some of their assets. But once they started seeing valuations and how convenient it was to have everything in one place, clients started to bring together all their investment portfolios under the Vantage umbrella. During the period from the end of 1999 to the end of 2003, the stock market fell 23% but we were able to increase our revenues by 64%, mainly as a result of investors transferring into Vantage in droves. Since then, we have made the transfer process even simpler. The general lesson is that it is when markets are declining that clients need most comfort and hand holding.

The Vantage service proved its worth in another way during the bear market. At such times clients desperately want to do something to counter their losses, even though they’d be best to do nothing. With our portfolio healthcheck and asset transfer campaign, clients could at least feel that by checking their portfolios on a regular basis they were doing something that was worthwhile. The other benefit that comes from being prepared to talk to your clients during the bad times is that they are grateful. Brokers who can’t be seen for dust when markets turn ugly deservedly lose their clients. Keeping in touch also provides us with superb market intelligence. When markets emerge from the doldrums, there comes a moment when investors once again become prepared to invest. With our huge client base, we are often the first to spot the change in sentiment. It gives us a chance to hunt through the bargain basement for investments that have gone down further than they should. The return of investor interest also tells us when we should increase our marketing spend, allowing us to steal market share while our competitors are asleep and still floundering to get their act together. The bad times have always been our golden hours. In bull markets, the amount of business you do is immense but every Tom, Dick and Harry is in there trying to market investment and it is more difficult to steal market share.

Changing our business model had been a painful process, with a lot of belt tightening along the way. But the new model did not take long to prove itself. By the late 1990s, we had established something which had never been achieved before in the investment industry. We had a profitable, highly sustainable business with quality earnings. Most other investment retailers, or investment advisers as they sometimes call themselves, have to create their income from scratch each year. When they wake up on 1st January they have no idea how much income they will receive that year. Everything depends on their ability to make sales. Hargreaves Lansdown no longer earns its living from sales commissions. We still sell some investments on initial commission when no alternative method is available; when the products are good, we are not shy about promoting them to clients. Since we created Vantage however, our objective has been to change our business model wherever possible to one where we can supply clients their investments with little or no initial charge. By its nature an initial charge reduces the amount of money that is available for a client to invest. If you write a cheque for £100 and £5 is immediately lopped off by way of an initial charge, only £95 of your money is left to invest. By eliminating the salesman’s upfront take, our new approach gives our clients a clear head start over any other business model. From day one they know that 100% of their money is working for them. I am proud to say that no other broker has done more to negotiate away the initial sales charge. It saves our clients millions of pounds a year.