Woodford’s fund suspension: important lessons for investors
Senior Adviser Richard Rochford reviews the fallout from the Woodford saga – and the importance of taking financial advice when it comes to investing for a secure future.
The recent fall from grace of high-profile fund manager Neil Woodford has dominated the investment narrative since the summer, with his flagship Woodford Equity Income Fund being frozen in June. And then, in mid-October it was announced that the fund is to be wound up.
With hundreds of thousands of investors left in limbo, it is perhaps a sobering reminder of the risks associated with investment. However, it also gives us some important lessons for the future. Here I will look at why taking advice is vital in securing a comfortable financial future, and how, at Wellesley, we go the extra mile to protect our clients.
What is the Woodford scandal?
Neil Woodford is a household name in the world of investing, with a (previously) strong reputation for reaping the benefits of bold decisions. At its peak, the flagship Woodford Equity Income Fund contained more than £10 billion of investors’ money.1 However, over the past couple of years it has become the UK’s worst-performing equity fund. As a result, withdrawals from the fund were frozen in June 2019, after rising numbers of investors asked to extract their money.2
Despite two extensions, the fund’s authorised Corporate Director, Link Fund Solutions, has opted to wind it up “in the best interests of all investors.” With this process predicted to start in January 2020, hundreds of thousands of investors have been left feeling unsure about their financial futures.
The scandal presents an undeniable challenge to the investment industry, with investors of all levels understandably becoming nervous about their portfolios. That said, the crisis demonstrates the true value of talking to a professional financial adviser, in order to avoid costly mistakes and manage risk.
Here are just some of the ways that Wellesley Wealth Advisory can help you take the best possible care of you and your family’s financial needs, giving you security for the future:
1. Planning is key
At Wellesley, your Adviser will spend time with you to understand your current situation and your future aspirations, in order to develop a bespoke strategy and risk profile. We guide our clients through the maze of investment options, from pensions to equities, and give due diligence to understand each fund manager and their strategy – i.e. just because someone has a brilliant record (like Woodford), this isn’t a guarantee of future success. We will also determine the type and amount of financial protection you will need to protect yourself, your family, loved ones and assets.
2. A diversified approach
At Wellesley, we will also ensure that your investment portfolio is properly diversified across different companies, asset classes and geographical areas. By taking this approach, i.e. not putting all of your eggs in one basket, the theory is that, while all your investments may not go up at the same time, they won’t all go down together either. This strategy has become even more important in light of the current uncertainty around Brexit – and, of course, the Woodford scandal.
Woodford was caught out by investing in too many unlisted companies, illiquid assets, and small-cap companies that offer more room for growth but also greater risk. The chart below shows how the fund spiralled in comparison to a similar SJP fund:
Some pieces of advice may sound cliché – “Don’t put all your eggs in one basket.” “Don’t follow the herd.” “If it looks too good to be true, it usually is.” – but they are often true. An investor who has money stuck in the suspended Woodford fund told the BBC: “I am not entirely surprised that this has happened. It is a lesson [to investors] not to put all your eggs in one basket. This could happen to anyone at any time.”3
3. Continuous monitoring
Although we take a long-term approach to investment, we keep a close eye on each portfolio to see if any worrying trends are emerging. We also keep updated shortlists of possible alternatives should something change. Your Adviser will also re-balance your portfolio each year, so your investments remain diversified across different sectors.
We stay abreast of any changes to legislation – for example, it is important to note that despite the Woodford scandal, new rules from the FCA do not cover all illiquid funds.
As Money Observer.com commented:
“The regulator [FCA] has made changes that appear to be a move in the right direction but fall far short of what is required and only apply to some funds. For example, the new rules apply only to funds with more than 50% in illiquid assets, well above the level of unlisted shares that Woodford Equity Income Fund held. The rules will also not come into force until September 2020.”4
4. A focus on the future
At Wellesley, we are focused on ensuring our clients plan for the retirement they want; no matter the client’s age, we are always looking ahead. This doesn’t just apply to funds and equities, but to their pensions too – making sure that workplace pension providers’ funds are suitable for the client’s personal risk profile. We also ensure our clients have a ‘cash buffer’ in place for unexpected costs, instead of tying up their money in investments. This is especially important, with so many investors being left unsure of their future after the Woodford saga.
5. Added protection
Our clients have an added level of protection should anything go wrong, based on the advice they have received. Clients can rest assured that we will always act in their best interests, and, to back that up, we also provide an advice guarantee, which means clients will be financially indemnified should they receive advice that was not in their best interest. Wellesley is underpinned by St. James’s Place, which guarantees the suitability of the advice we provide.
6. A personalised approach
At Wellesley we pride ourselves on our approach of:
One Dedicated Adviser, One Point of Contact, One Highly Personalised Service.
We look to meet clients at least on an annual basis or as often as they feel necessary. We understand that everyone’s financial needs are different, which is why you won’t find a ‘one-size-fits-all’ plan with Wellesley – instead, you’ll have the chance to grow a personal and long-lasting relationship with a chosen adviser who understands how best to manage your personal wealth according to your wishes.
What we can learn from the Woodford scandal
As we have seen, it’s important to carefully plan your investment portfolio to protect yourself from volatility or funds closing – and taking professional advice can help you secure a comfortable future.
A financial adviser will provide guidance, reassurance, support and stability to help you stay on course to reach your financial goals. And don’t just take my word for it – have a look at what one of my clients says about their long-term relationship with Wellesley Wealth Advisory:
If you have a question about receiving financial advice, or would like more information about my services, please contact me on 01444 244551 or via email at firstname.lastname@example.org.
1,2,3 BBC News, Neil Woodford’s flagship fund to be shut down, 15 October 2019
4 Money Observer, Lessons investors can learn from Neil Woodford troubles, 17 October 2019