Last week marked the second anniversary of the suspension of Woodford Equity Income, the flagship fund of the now disgraced asset manager Neil Woodford. For ROBIN POWELL, the time has come to acknowledge that many thousands of Woodford investors will have died before the official FCA investigation concludes.
This article was originally published by the Suitable Advice Institute.
Much has been written of late about the new generation of stock traders and the way the investment industry is exploiting their lack of financial literacy. The advent of “free” trading, the author William Bernstein observed recently, is “like giving chainsaws to toddlers”.
I share that concern. Thankfully, there have been only isolated reports of suicides, but there’s no doubt that young lives are being blighted by placing large bets on so-called meme stocks. “It’s been devastating,” said one young trader who lost a fortune on GameStop. “There’s so many other useful ways I could have spent that money. I feel very stupid.”
On a more positive note, however, at least these young traders have time on their side. As long as they aren’t put off equity investing altogether, and that is a a big risk, they should be able to learn from their mistakes. I made a few investment howlers myself at that age, and the experience has served me well.
Consequences greater for older investors
What concerns me more are older investors — ordinary men and women who are either in, or approaching, retirement now — and who make a mistake they may never be able to recover from.
We’ve all seen the warnings about investment scams and how those who’ve already accumulated wealth are most at risk. The scams have become increasingly sophisticated, and my heart goes out to older people who, often out of loneliness, become engaged in conversations that lead to them losing their life savings.
But what about those who act on advice from a respected financial organisation, perhaps in a reputable Sunday newspaper, and end up having to delay their retirement, or suffering a significant reduction in their income?
The constant promotion of the now disgraced fund manager Neil Woodford by Britain’s biggest investment broker Hargreaves Lansdown is a good example.
One of the things that’s struck me about media coverage of the two-year anniversary of the suspension of the Woodford Equity Income fund has been the number of comments from older investors. Here are just a few examples:
“I’m 67 and I should have retired two years ago. And I couldn’t because of this lot” — Pauline Snelson (67)
“I just feel sick about it. I’m at the stage in my life where you need this additional income coming in” — Fred Hiscock (72)
“The galling thing is that I felt like I had planned my retirement” — Alison Blinston (61)
‘It’s like (Woodford) has just got away with it and I don’t think he realises the damage he has caused.’ — Richard Batchelor (67)
“Every time I get a leaflet from Hargreaves Lansdown about a recommended fund, I just put it in the bin. These people can’t recommend themselves out of bed” — Alan Carter (69)
Resolution a long way off
What’s become patently clear is that any form of resolution to the Woodford scandal is still a long way off. The recent update from the regulator to the Treasury Select Committee suggests that the FCA investigation is likely to take three years to complete. Even then, it won’t cover cover the role the FCA itself played in the affair. It’s unlikely to address the role of Hargreaves Lansdown either.
The wheels of justice are also turning painfully slowly. there is little sign of any of the legal actions against parties involved in the scandal coming to court any time soon. To make matters worse, the Financial Ombudsman Service is severely overstretched, and the fact that it’s making 200 redundancies isn’t going to help.
Nor is there any imminent prospect of Woodford investors receiving what’s left of their money. The way Link Fund Solutions has gone about winding down the funds and liquidating the assets has only added to investors’ frustration.
Justice will come too late
My point is this. It’s well known that a large proportion of Woodford investors were aged 60-plus. After all, his funds were marketed as income funds, which traditionally appeal to investors in that age group, despite being nothing like income funds in reality.
The blunt truth is that many Woodford investors will die before the FCA investigation and any legal proceedings are concluded. Some already have.
It’s time that someone showed some leadership. If the FCA honestly feels it needs more time to investigate this matter properly, then so be it. But it needs to do something for those who simply don’t have time to wait. At the very least, it must set a clear timetable for publishing the initial report, any consultation and the final version.
In the meantime, the regulator owes it to investors to monitor the liquidation of assets more closely, ensuring that it’s conducted in a timely fashion and in shareholders’ interests.
As for Neil Woodford himself, is it too much to ask him and his business partner Craig Newman to put on hold their plans for a comeback until the mess created by their last business venture is cleared up?
During the six years that Woodford and Newman ran Woodford Investment Management, they extracted around £113m in dividends and shares of profit. Surely they could afford to set aside at least some of that to help their older investors to enjoy the retirement they were hoping for?
The onus is on Hargreaves
But, most of all, the onus is on Hargreaves Lansdown to stand up and be counted. It profited hugely from promoting Neil Woodford. Several senior executives and major shareholders became multi-millionaires off the back of it. The firm has also just reported record growth, adding 126,000 customers in the year to 30 April, which takes its total client base to 1.62m. Its revenues grew by a fifth.
Around three-quarters of Woodford investors via the Hargreaves Lansdown platform. One of those investors, Susan told Money Marketing: “I relied heavily on the fact that they kept the fund in the Wealth 50 list right up to the last minute. Had it not been on that list, I would have acted differently.”
Another investor, Neil, said: “We did exactly what Susan did. We approached Hargreaves first and we got ditched by them. So we put it to the FOS and it’s still with them.”
Instead of ditching customers that complain, HL should do the decent thing and compensate them.
There is still time, just about, for Hargreaves to salvage its reputation and do the right thing. But the clock is ticking.
WHAT TO READ NEXT
If you found this article interesting, we think you’ll enjoy these too:
How to stop noise undermining your decisions
Cathie Wood and the risk of disruptive technologies
How to avoid foolish behaviour
Investing is more like golf than football
Good stories, poor investments
Why do smart people do dumb things?
Why even Buffett has been buffeted by the index
Older investors handled last year’s volatility worst
WOULD YOU LIKE TO PARTNER WITH US?
The work we do would not be possible without the support of our strategic partners, to whom we are very grateful.
TEBI’s principal partner is Sparrows Capital, which manages assets for family offices and institutions and also provides model portfolios to advice firms. We also have a strategic partner in Ireland — PFP Financial Services, a financial planning firm in Dublin.
We are currently seeking partnerships in North America and Australasia with firms that share our evidence-based and client-focused philosophy. If you’re interested in finding out more, do get in touch.
© The Evidence-Based Investor MMXXI