Woodford fund, bizarre BBC article

masonic

https://www.bbc.co.uk/news/articles/cx2gw5y8er7o

The thrust of the article seems to be, but for the redress scheme, investors would have had a claim on the FSCS, which would have given them (or some of them) a better outcome than was achieved by the redress scheme. My understanding is the fund was frozen and then wound up. The losses were due to investment risk and the assets held by the fund were present and correct, just rather illiquid and consequently not able to be sold for book value. Had LFS been pushed into administration, the FSCS would only have needed to cover the costs of that administration, and investors would have got back whatever the assets could eventually be sold for - likely a substantial loss. The only avenue to more money within this system I can think of is a negligence claim via the FOS, but it seems questionable whether this would have succeeded for a DIY investor... and most likely the FOS would have considered what aspect of the loss was due to mismanagement as opposed to simple poor performance of the underlying investments not related to the liquidity issues.

This looks to me like the latest in a worrying series of publications conflating the FSCS protection for savings with FSCS protection for investments, where the latter does not cover investment risk willingly taken on when an investment is made.

InvesterJones

Maybe it's since been edited, but it reads to me like the customers are the ones largely conflating protection for savings vs investment risk. But I think the BBC's use of a lot of quotes and spokesperson statements doesn't really help - they're kind of reporting what other people are saying/thinking rather than offering any clarity on facts.

MK62

The main issue isn't so much the losses due to investment risk, but rather LFS, as the authorised corporate director, allowing the build up of the "illiquid" investments within the fund in the first place......

https://www.fca.org.uk/news/press-releases/fca-sets-out-findings-against-link-fund-solutions

There is a pretty grey area here on what would or wouldn't be covered by the FSCS.......they are clear that plain investment losses are not covered, but it's not clear if those losses would/should be covered if they were incurred due to mismanagement or negligence......I think in practice/reality each case like this would need to be decided on an individual basis - pretty much what has happened here tbf.

This looks to me like the latest in a worrying series of publications conflating the FSCS protection for savings with FSCS protection for investments, where the latter does not cover investment risk willingly taken on when an investment is made

......and that, in a nutshell, is the main bone of contention.......Woodford Equity Income was sold to the masses as a mainstream equity income fund, not as the vehicle for high risk private equity speculation it apparently became.

The whole issue is a mess though tbh, but while far from satisfactory for some, the end result might be the best one that could be salvaged from this wreckage. Lessons learnt and all that.....now where have we heard that before.......

dunstonh

......and that, in a nutshell, is the main bone of contention.......Woodford Equity Income was sold to the masses as a mainstream equity income fund, not as the vehicle for high risk private equity speculation it apparently became.

One of the due diligence companies I use gave warnings about Woodford Income having too high illiquid assets and telling us not to use it two years before it failed.     The illiquid assets situation was known and it even more so once the other fund version was launched without the illiquid assets.   

I think investors got lucky with this redress scheme.  I also think some of the distributors that promoted it got lucky too.

MK62

dunstonh said:

......and that, in a nutshell, is the main bone of contention.......Woodford Equity Income was sold to the masses as a mainstream equity income fund, not as the vehicle for high risk private equity speculation it apparently became.

One of the due diligence companies I use gave warnings about Woodford Income having too high illiquid assets and telling us not to use it two years before it failed.     The illiquid assets situation was known and it even more so once the other fund version was launched without the illiquid assets.   

I think investors got lucky with this redress scheme.  I also think some of the distributors that promoted it got lucky too.

You are in the know, and many on this forum are too, but of the investors who got stuck in Woodford's fund, how many were equally so?  With some platforms still recommending it right up to it's suspension, it's not hard to imagine a fair proportion trusted Woodford and LFS to run and oversee the fund properly.......trust apparently misplaced though.

masonic

MK62 said:

dunstonh said:

......and that, in a nutshell, is the main bone of contention.......Woodford Equity Income was sold to the masses as a mainstream equity income fund, not as the vehicle for high risk private equity speculation it apparently became.

One of the due diligence companies I use gave warnings about Woodford Income having too high illiquid assets and telling us not to use it two years before it failed.     The illiquid assets situation was known and it even more so once the other fund version was launched without the illiquid assets.   

I think investors got lucky with this redress scheme.  I also think some of the distributors that promoted it got lucky too.

You are in the know, and many on this forum are too, but of the investors who got stuck in Woodford's fund, how many were equally so?  With some platforms still recommending it right up to it's suspension, it's not hard to imagine a fair proportion trusted Woodford and LFS to run and oversee the fund properly.......trust apparently misplaced though.

The thing is though that there were two aspects at play here. One was underperformance of the fund that stems from manager / active management risk and could have happened regardless. The other is inclusion of inappropriate assets for which the redress scheme sought to identify the quantum of loss and compensate for only that part. This seems to have been arrived at through an investigation by the FCA.

Had LFS been allowed to fail in the normal manner with administrators picking over the carcass, I doubt the guy with £234k invested in the fund would have got more back than the (just over) £134k he received.

It does make me wonder the context of that investment - more than 20% of the portfolio in this single fund would not be justifiable (probably in these parts an allocation above 10% would be frowned upon) - and whether the real problem here is consumers relying on marketing to decide what to invest in instead of seeking financial advice.

dunstonh

You are in the know, and many on this forum are too, but of the investors who got stuck in Woodford's fund, how many were equally so?

Isn't the point of DIY is that it allows people who know what they are doing to do it cheaper?
If people DIY and make a pigs ear of it, should those people be bailed out by others?   (all redress schemes divert their costs onto other consumers one way or another).

With some platforms still recommending it right up to it's suspension, it's not hard to imagine a fair proportion trusted Woodford and LFS to run and oversee the fund properly.......trust apparently misplaced though.

Advisers still recommending it at that point should be liable for missing it.  Redress makes sense for that.   

Platforms promoting it on marketing lists is a tough one.  They were not giving advice but we know from posts here in the past that many people thought it was.     I often said that they appeared to sail close to the wind on that front.

Restricted providers that still used it should be liable because they had access to the same data IFAs had.

I'm just not sure that DIY investors that bought it should have because the data was there if they chose to read it. 

MK62

dunstonh said:

You are in the know, and many on this forum are too, but of the investors who got stuck in Woodford's fund, how many were equally so?

Isn't the point of DIY is that it allows people who know what they are doing to do it cheaper?
If people DIY and make a pigs ear of it, should those people be bailed out by others?   (all redress schemes divert their costs onto other consumers one way or another).

That's an interesting perspective.......the FCA conclusion is that there was, at best, negligence/mismanagement by LFS.......LFS have effectively accepted that by their even agreeing to fund a redress scheme.......but you appear to be suggesting that the only people who should benefit are those who were "in the know" (or used advisers who should have been) and not any DIY investors who were unaware of/did not fully understand the risks (and being aware of and fully understanding those risks are not the same thing). 

I agree that some platforms, who were aware and, you would seriously hope, did fully understand those risks, and continued to promote the fund as a "best buy", were sailing very close to the wind, certainly morally, if not legally.

dcs34

I have filled out the 'contact us' box to raise that the article's lack of clarity about FSCS protection for investments (and how they differ for savings) is incredibly misleading and doesn't make it clear that investors lost money because their investments lost money - albeit with some side issues about lack of scrutiny on the fund's investments, potential mis-selling etc. Listing out Joe Bloggs' comments about 'failed regulators' without context and explanation is poor public service consumer journalism, and puts the blame squarely in the wrong place.

It's also entirely unclear why this article has been written by a political correspondent rather than a financial one; in much the same way our Covid-19 news was led by political coverage instead of health, this seems to lead to sub-optimal results. And of course now we have the APPG who seem one step away from suggesting the taxpayer should fund any investment loss for middle-class retirees (read: consistent voters) in much the same way MPs seem determined to underwrite any amount of risk or people failing to read the T&Cs of deals they sign up to (see: PPI "mis-selling").

dunstonh

MK62 said:

dunstonh said:

You are in the know, and many on this forum are too, but of the investors who got stuck in Woodford's fund, how many were equally so?

Isn't the point of DIY is that it allows people who know what they are doing to do it cheaper?
If people DIY and make a pigs ear of it, should those people be bailed out by others?   (all redress schemes divert their costs onto other consumers one way or another).

That's an interesting perspective.......the FCA conclusion is that there was, at best, negligence/mismanagement by LFS.......LFS have effectively accepted that by their even agreeing to fund a redress scheme.......

There was certainly wrongdoing.  Lots of people asleep at the wheel.  However, the high level of illiquid assets was known.  It was known by Woodford, Link, research teams and the FCA.  It even led to the creation of a second fund with the same investment strategy without the illiquid assets.     It became an accepted wrong until it wasn't.

And lets not forget that the scale of the redress was actually very low because it was limited to the impact of the failing and then reduced to 77% of that through the scheme.

but you appear to be suggesting that the only people who should benefit are those who were "in the know" (or used advisers who should have been) and not any DIY investors who were unaware of/did not fully understand the risks (and being aware of and fully understanding those risks are not the same thing). 

If a DIY investor buys an investment after bypassing consumer protection to do it cheaper and then fails to do their own research, should they really get consumer protection?

Maybe some because of the failings, but you risk consumers being allowed to make rash decisions thinking that they are protected from doing so.  

Take that guy from the BBC article.

"When Ian Duffield and his wife Linda, from Manchester, put £234,000 of their pension savings into Neil Woodford's fund, they thought most of their money would be protected."

This was a fund with 50% loss potential over 12 months. Yet he thought most of his money would be protected.

Albermarle

Take that guy from the BBC article.

"When Ian Duffield and his wife Linda, from Manchester, put £234,000 of their pension savings into Neil Woodford's fund, they thought most of their money would be protected."

This was a fund with 50% loss potential over 12 months. Yet he thought most of his money would be protected.

Although sadly it is just another example of poor decision making by many members of the public, when it comes to financial matters generally.
Along the lines of ' I was shocked when my luxury £150K holiday mobile home, was worth only £30K 5 years later and that guy who sold it to us seemed so nice' 
' I was horrified to find that when I went to collect my guaranteed casks of whisky, they had disappeared' 
Etc. Etc.