Woodford fund, bizarre BBC article

MK62

dunstonh said:

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.  

Yes they should.......although I suppose it depends on what we mean here by protection. I don't accept that going DIY is bypassing consumer protection. You aren't protected from investment losses even if you use an adviser......you are only protected if the advice to buy the asset which made the loss was unsuitable (I accept though that what constitutes unsuitable advice is a whole other debate). That said, as we both agree, the redress fund is/was not to compensate for investment losses per se, but rather for the negligence/mismanagement which created the conditions for that loss to occur - had there been no such negligence/mismanagement, then there would have been no redress scheme and possibly no action at all from the FCA.

As for the couple in the BBC article, yes, they were wrong to just assume "most" of the money they invested would be protected, if indeed that is what they assumed (and it's unclear there exactly what the article means by "most").........but in light of the FCA findings into the running and oversight of the fund, that shouldn't mean they are not entitled to any protection/redress at all. I certainly wouldn't want to have seen Woodford and LFS simply walk away from the debacle with no repercussions at all for their actions (or lack of).

masonic

MK62 said:

As for the couple in the BBC article, yes, they were wrong to just assume "most" of the money they invested would be protected, if indeed that is what they assumed (and it's unclear there exactly what the article means by "most").........but in light of the FCA findings into the running and oversight of the fund, that shouldn't mean they are not entitled to any protection/redress at all. I certainly wouldn't want to have seen Woodford and LFS simply walk away from the debacle with no repercussions at all for their actions (or lack of).

They did opine on that "When I first heard it, I thought... I'll end up losing, maybe £30-35K between us, which is not great, but in the scheme of things it would have been OK, a bit of a sigh of relief."

That would have been a loss of 15%.

I agree that they should have received some redress as a result of the wrongdoing, and they did. They received £7.6k in redress in addition to the £107k they received from the sale of the fund's assets. You could argue that wasn't enough, and perhaps it wasn't. It represented 77% of the losses attributable to the conduct the FCA took issue with. It was reported that at its peak, the illiquid assets breached the limit imposed for OEICs by about 10%, so presumably it was losses from that excess 10% that was considered for redress. I think it is likely to be a better outcome than they could have achieved had the vote on the redress scheme not passed.

MK62

True, but I thought we were talking about what protection the investors believed they had when they invested, not so much what they believed they might get/actually get after the fact.....

As for the level of redress, my understanding is that the scheme was as good as it was going to get without years of litigation, counter suits, appeals and judgements......so on that I think we are in agreement.

jimjames

I saw the article too and had similar thoughts. Also a very misleading statement from one person in that article that wasn't challenged or corrected.

Paul King from Kingston-upon-Thames works in IT and invested just under £50,000 in the Woodford fund to help save for his retirement. "I feel I've got more protection if I buy a faulty pair of shoes costing £50 than if the regulator of this country fails and I lose £50,000"

He can't have lost £50k if he only invested £50k. Maximum loss would have been around £10-15k I suspect.

ColdIron

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).

I wonder which camp Kent County Council fell into, DIY or advised?

dunstonh

ColdIron 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).

I wonder which camp Kent County Council fell into, DIY or advised?

If there was a camp for utter stupidity, they would be in it.   On the other hand, they only invested around 4% of their fund in it.   That bit was more sensible.

Bostonerimus1

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.

I have a rule to avoid "rock star" active fund managers, hence I was very dubious about Woodford and will always avoid the likes of Fundsmith and Lindsell Train. IMO anyone who was fool enough to buy the Woodford fund should take their losses and move on and maybe some fund houses should get some punishment too.

boingy

Seems to me that lots of people were "in the know" for months/years before the collapse. Perhaps some of those people should have shared that knowledge.

Section62

boingy said:

Seems to me that lots of people were "in the know" for months/years before the collapse. Perhaps some of those people should have shared that knowledge.

It isn't always possible.  Say anything even slightly negative or contrarian on some public forums and you can find yourself in trouble.

masonic

The outflows started over the summer of 2017 and continued until the fund was suspended 2 years later. News articles were written when institutional investors pulled out citing their concerns. The fact it remained open for so long meant that many were able to get out unscathed. Had the concerns been raised in a more alarmist manner then the shutters would have had to be pulled down much faster, trapping more people, but perhaps spreading the losses more widely. I don't know if that would have been judged a better outcome or not. Some would probably have blamed those who raised the alarm for making it a self-fulfilling prophesy. Perhaps Woodford himself would have pointed to it as a smear campaign and blamed the nay-sayers - that it was only because he hadn't been given enough time to sort it out that things had gone pear shaped. Investors nursing losses may well have believed this, with Stockholm syndrome in full swing.