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Private investors point to Woodford fallout for loss of trust in asset management industry

22/09/2019

Given the national coverage of the suspension of the Woodford Equity Income fund, and the involvement of HM Treasury and the Financial Conduct Authority, it is no surprise that the wider asset management industry reputation will have taken a hit.

However, the first Private Investor Pulse Study carried out by Research in Finance in July has revealed some shocking figures; three quarters (74%) of private investors surveyed said the news about Woodford Investment Management had negatively impacted trust in the asset management industry.

For background, the firm suspended its Equity Income fund in early June following numerous redemption requests amid increasing liquidity concerns as manager Neil Woodford moved to cut the portfolio’s position in unquoted holdings to zero

The suspension led to wide criticism with Nicky Morgan, chair of the Treasury Select Committee at the time, writing to the FCA and platform giant Hargreaves Lansdown. The latter came under fire for continuing to back the Woodford funds amid a prolonged period of underperformance.

In the Pulse study, 41% said they are either currently invested or have previously invested in a fund from Woodford Investment Management, and 32% of these said they had been impacted by the suspension of dealing in the Woodford Equity Income fund.

Furthermore, 87% of investors who had purchased a Woodford fund based on them being a featured in a platform shortlist/select list said it had negatively affected trust in platform shortlists/select lists.

Specifically, over 40% of investors that had purchased a fund run by Woodford Investment Management said they had done so because of its place in Hargreaves Lansdown’s Wealth 50.

This is the second highest factor to contribute towards their decision to buy, with the top reason being Neil Woodford’s reputation, which was cited by 79% of private investors.

Other popular influencers to include Woodford funds in private portfolios include performance figures (cited by 25%), the finance section of newspapers (22%) and ratings (16%). Meanwhile, arguably some of the most important documents are left behind in consideration with the funds’ prospectus, factsheets and Key investor Information Documents (KIID) were further down the list and reports/accounts only received 1% of investors’ votes (see chart).

Although HL removed the funds immediately after the suspension and dropped the platform fee it charges for holding the fund, while calling on Woodford to also suspend its own fees but this was clearly not enough for some private investors.

However, more encouragingly, attitudes to asset managers overall, however, were more balanced. In response to the statement ‘I believe asset managers have my best interests at heart’, 33% of private investors agreed and 33% disagreed, while 34% neither agreed or disagreed.

Research in Finance launched the Private Investor Pulse study in July 2019. It is an online quantitative study surveying 307 private investors. If you wish to access the panel to discover insight for your own business do contact the team.

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