Fallout From The Suspension Of The Woodford Fund Engulfs The FCA & Hargreaves Lansdown

The Woodford Fund was suspended on 3 June following a dreadful May, during which the value of the investment management organisation’s assets fell by £560 million, and redemptions reached £190 million. Whilst plenty of criticism has been levelled at the Fund and its controversial Chairman, Neil Woodford, not least for its continued charging of approximately £100,000 in management fees per day during the suspension, the actions of the FCA and the behaviour of investment platforms, notably Hargreaves Lansdown, have also come under scrutiny.

Fallout of the Woodford Fund suspension

Appearing before the Treasury Select Committee, the head of the FCA, Andrew Bailey, had to defend his organisation from accusations that it had failed to heed warnings by Citywire about what Mr Bailey termed the Fund’s “regulatory arbitrage.” The Fund had listed companies on the Guernsey Stock Exchange to avoid falling foul of the rules limiting investments in unlimited companies to a maximum of 10% for open-ended funds. Mr Bailey argued that earlier intervention would not have prevented the Fund’s suspension, and the problem was with the rules themselves, rather than with the FCA’s supervision. Presumably in an attempt to limit alarm about further illiquidity in the market, Mr Bailey said that the rules had been breached by only two of over 3,000 supervised funds in the past twelve months.

Coincidentally, two of the members of the Treasury Select Committee had to declare their own interest in the Fund through Hargreaves Lansdown. This makes them two of the estimated 300,000 of Hargreaves’ customers with such investments, approximately a third of the Fund’s total. Hargreaves’ conduct has raised eyebrows, notably its continued listing of the Fund on its Wealth 50 ranking of recommended investments up until  its suspension. This was raised with Mr Bailey during his appearance before the Committee, where he said that perhaps Hargreaves had acted too slowly, particularly during the final two to three months when the Fund had been performing particularly poorly. The FCA has committed to look into the issue.

There have since been accusations that the Fund’s listing was tied up with Hargreaves’ 0.15% discount on fund fees, and a further alleged conflict of interest, arising from the closeness of Mark Dampier, a Research Director at Hargreaves, and Neil Woodford. Hargreaves have hit back, arguing that the two men have never met outside of a professional capacity, and that their long-standing business relationship reflects Mr Dampier’s trust in Mr Woodford’s abilities. Hargreaves’ role is complicated by the fact that, as Andrew Bailey stated, they…

are not supposed to give advice in the technical regulatory sense, but do have fund in the Wealth 50 List.”

Comment

The dispute reflects the fact that questions are likely to be asked of platforms and financial advisers that recommended investment in the Fund, and as the tone of the above controversy suggests, whether they were acting in their customers’ best interests by doing so. This is particularly true considering that Link Fund Solutions, the body that oversees the Fund and ordered its suspension, has just extended the suspension for at least another month.

How Can Nelsons Help?

Cathryn Selby is a Partner in our Dispute Resolution team specialising in professional negligence claims.

If you have concerns about advice you have received to invest in the fund then please speak to Cathryn or another member of our team in DerbyLeicester and Nottingham on 0800 024 1976 or contact us via our online form.