Simon Read asks: what does the ongoing Woodford fund fallout mean for investment advice
The Neil Woodford funds debacle has been rattling on for more than two years and still shows little sign of being successfully resolved. The Financial Conduct Authority’s (FCA) investigation is continuing and, frankly, is unlikely to reach a conclusion any time soon.
There are several reasons for this, not least because the regulator has to ensure that its work is robust. As much as we would like it to act quickly and be seen to help restore some faith in the investment industry, that is never going to happen.
“The investigation is being appropriately resourced and is progressing, though there has been some impact on accessing certain documents and witnesses during the pandemic,” the FCA said recently. The language may be the somewhat impenetrable one of the civil service but in short, it is spending as much time and money as it can but is struggling to get all the evidence together quickly because of the coronavirus crisis and lockdown.
As the country begins to gradually return to a degree of normality, hopefully the FCA’s investigation will start to make speedy progress. But even in normal working conditions, such probes are slow.
The City watchdog said it “recognises the time taken to investigate causes frustration among those affected by a firm or fund failure and who are, understandably, looking for answers,” adding: “They rightly look to us to provide those answers. As a result, it is vital we investigate thoroughly and investigations are not limited at their outset.”
It is determined to examine all the evidence before coming to any conclusions about “what, if any, misconduct has taken place and who is responsible, if it has”. It is only then, it said, that it will be able to “assess what, if any, sanction we should put in place”.
The whole process is frustrating, as the FCA conceded, but the investment profession is left with a dark shadow hanging over it. Qualities that are key to the standing of advisers, such as trust and integrity, have been shattered. If the profession cannot police itself properly, then where is the trust?
Critics will say it has disappeared, along with the millions of pounds that investors have lost.
Will they be blaming Mr Woodford for their loss? Up to a point, yes, but they will also be feeling aggrieved at the profession that allowed it to happen, including regulators, platforms and advisers. And it is the latter who are at the forefront of having to try and rebuild some of the trust lost.
Advisers that have acted in their client’s best interests all along should have little problem. I assume that few would have put people’s cash into Mr Woodford’s high-risk technology punts, even though they were wrapped up for marketing purposes in what was called an income fund.
Admittedly it was easy to be charmed by the man himself, who created a persuasive argument that investors should back him after he set up on his own following so many successful years at Invesco Perpetual. But even those that bought into his message must have warned investors about the risk, so they should have understood the potential for making a loss.
I have interviewed quite a few investors in the last couple of years and most have been fairly sanguine about the fund's failure. If they have lost money, it has only been a small part of their portfolio and with the wild ride the stock market has been on in the last 18 months or so against the background of the pandemic, many have had more pressing worries about their nest eggs.
But these are seasoned investors, many of whom have seen it all before, often through being victims in earlier scandals. It is not these that advisers need to rebuild trust with – it is younger people. And that presents a huge challenge.
The lead needs to come from the regulator in taking action but advisers have a crucial part to play
Where do you think younger folk are stashing their hard-earned cash these days? Many are attracted by the potentially huge gains to be had by backing cryptocurrencies. It is not just that they do not trust traditional investments in the wake of scandals such as Woodford, it is almost as if they prefer to gamify their investments.
That leaves the advice profession with a huge battle. The lead needs to come from the regulator in taking action but advisers have a crucial part to play too, in educating consumers about why sensible investment is important.
Simon Read is a freelance journalist