Robin writes:
It’s finally happened. The Financial Conduct Authority, the UK financial regulator, has announced compensation for investors who entrusted their money to the disgraced stockpicker Neil Woodford.
Link Fund Solutions, which was the authorised corporate director of the Woodford Equity Income fund will pay £235 million in redress to the more than 300,000 investors in the fund, which was suspended in June 2019.
Nothing is set in stone. The payout envisaged by the FCA depends on the proposed sale of Link’s operations in the UK and Ireland to Dublin-based Waystone Group going through. It must also be approved by investors and the courts.
But, if the scheme is given the go-ahead, this is a huge development which marks the beginning of the end of a long-running saga.
Closure for investors
What are my thoughts? First of all, I’m pleased for Woodford investors that at last they can have some closure. True, they must share some responsibility; they chose to invest with Woodford after all. But I have huge sympathy for them.
Most of them were relying on Woodford to help fund their retirement, and they were badly let down. Some have had to delay their retirement as a result; others have just had to accept they’ll have less money to spend in their later years than they had hoped. Sadly, many of those who lost money have already died.
£235 million is not enough
Given the price investors have paid, £235 million is not enough. Losses are already around £1 billion, and the eventual figure could be considerably higher.
Why, then, has the FCA decided on a specific amount of compensation now? It’s hard to escape the conclusion that last night’s announcement is primarily designed to allow the proposed sale of Link Fund Solutions’ British and Irish interests to go ahead.
Link is carrying the can
I certainly wouldn’t describe Link Fund Solutions as a scapegoat. Link’s failure to protect investors’ interests when there were so many warning signs that things were amiss is astonishing and deplorable.
But Link was just the administrator, and there were several other parties that played a much bigger part in this fiasco. Pinning all the blame on Link is like jailing the dopey security guard while the shoplifters walk free.
Woodford himself has prospered from the fiasco
I find it immoral and completely unjust that Neil Woodford himself appears to have emerged from this whole episode scot-free. Despite everything, he has personally profited hugely from this fiasco.
Yes, his performance was disastrous, but he earned fees on all the assets he was supposed to be managing. Indeed his company continued to extract fees even after the Woodford Equity Income fund was frozen. Now he’s free to set up another asset management business, as he has clearly been trying to do, and that is just plain wrong.
He also gets to keep his OBE for “services to the economy”.
Hargreaves Lansdown remains unpunished
It must be especially galling for investors that Hargreaves Lansdown also appears to have avoided punishment.
True, it wasn’t the only broker to tout Woodford’s stockpicking expertise, but Hargreaves was undoubtedly his promoter-in-chief. It kept the Equity Income fund on its best-buy list right up until the fund’s suspension, and yet senior staff and shareholders sold large shareholdings just days before the scandal broke.
Again, Woodford was a huge money-spinner for Hargreaves, and it’s helped to fund a very comfortable retirement for several key players involved. Yet there’s been no admission of blame from the company, nor hint even a hint of an apology.
What of the FCA?
The Financial Conduct Authority appears to be putting all of the blame on Link, and yet the FCA is itself guilty of a catalogue of failings in relation to Woodford. Almost unbelievably, it was actually the FCA that recommended Link Fund Solutions to Woodford Investment Management in the first place — despite the fact that it had already had to take action against Link for other breaches of duty.
Like Link itself, and the “research” department at Hargreaves Lansdown, the FCA failed to spot the warning signs. It really was asleep at the wheel. And, of course, the length of time it has taken to complete its inquiry is completely unacceptable.
It could easily happily again
The key question journalists have been asking me today is, Could something similar to the Woodford fiasco happen again? The answer has to be that it could.
I’m far from convinced that lessons have been learned. Concerns have been expressed about holdings of illiquid assets in several well-known funds in recent months, including Scottish Mortgage Investment Trust and the former Woodford Patient Capital Trust, which is now managed by Schroders.
Questions certainly have to be asked, in the wake of Woodford, about fund administration, and particularly the role of the authorised corporate director. Being an ACD is a very important responsibility and yet, compared to other roles in the asset management industry, it’s not particularly well remunerated. It’s a role that needs to be taken much more seriously.
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LISTEN TO ROBIN POWELL SPEAK IN LONDON
TEBI founder Robin Powell and his co-author Jonathan Hollow will be speaking about the murky world of investment fees and charges in London at 1730 on Wednesday 17th May 2023.
They’ll be explaining you may be paying for a nice retirement for people you don’t even know, and what you can do start funding YOUR dream life instead.
The event is free, but places are limited, so book early to avoid disappointment:
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