Why the fat-cat fund boss who shames the City must be forced to step down

AS WOODFORD INVESTORS ARE BETRAYED AGAIN

EACH year, Britain spends £1.7 billion to ensure that our financial system — the most important in Europe — is clean, fair, and works in the best interests of us all.

For this staggering sum, provided by the taxpayer and financial industry, we surely have a right to expect a Rolls-Royce system of regulation.

How, then, can we explain the flaccid, near negligent response by the regulator and the Bank of England to the meltdown inside the investment empire of neil woodford?

indeed, i find it almost inexplicable that woodford has not been discharged from his job. why is he being allowed to soldier on, raking in fees of around £100,000 each working day, while his clients are denied access to their money?

Unscrupulous

The woodford saga is one i have written about regularly since June, when his main fund, global Equity income, was frozen because it did not have enough ready cash to pay departing savers due to so many of its holdings being illiquid (hard to sell).

i make no apology for returning to it after news emerged this week that 291,520 savers — myself included — either directly or indirectly exposed to woodford funds via the Bristolbased investment platform Hargreaves Lansdown, will not be able to get their hands on £1.6 billion of their own money until at least december.

what really sticks in the craw is that, while small investors are being made to wait and worry, not only are woodford and his firm continuing to charge fees — amounting to some £12 million by the end of the year — he has also been cashing in his investments.

The shameless financier revealed he sold 1.75 million shares in his publicly quoted Patient Capital Trust Fund, in total worth £1million, to meet a personal tax bill.

in so doing he drove the shares in Patient Capital, which have fallen 30 per cent this year, down further, hurting all his fellow investors.

He only told the Trust board on Saturday — three weeks after he ditched the shares.

woodford has become superwealthy — with the houses, cars and a lifestyle to match — on the back of ordinary savers, and he is still able to get his hands on resources.

The muggins in his main fund, however, are totally trapped. They are unable to release funds to pay their tax bills, meet social care costs for a family member, organise a wedding or buy a house.

They are the innocent victims of the unscrupulous greed of woodford and his sponsors, Hargreaves Lansdown.

Once lionised by the City as Britain’s savviest stock picker, woodford has not been seen in public since the scandal erupted. He’s confined his excuses to online postings.

There has been absolutely no recognition by him or by the City regulators of the damage being done to the reputation of our investment industry.

if i sound angry and aggrieved it is because i, like several colleagues and members of my family, have reasons to be worried. we are among those who trusted the loaded advice of Hargreaves Lansdown.

i committed some of my retirement funds to woodford’s flagship Equity income Fund and to the separate, but as it turned out far too closely related, Patient Capital Trust.

we can’t access our money, but woodford continues to ruthlessly exploit us, refusing to waive fees in defiance of admonition from Andrew Bailey, the head of the City watchdog, the Financial Conduct Authority (FCA) — or, as Private Eye has dubbed it, the Fundamentally Complicit Authority. Savers could be forgiven for thinking the magazine may have a point.

As this appalling spectacle plays out, the City’s biggest potential embarrassment since the financial crisis, it is clear the regulators have totally misjudged the public mood.

what we have witnessed since the build-up of trouble within the woodford empire began, is fumble after fumble by those charged with safeguarding our investments.

Yet there was no shortage of evidence of alleged rulebreaking and conflict of interests, which justified a far more robust approach from the regulator from the start.

Stocks held by his Equity income Fund were sold on to an interconnected company (Patient Capital Trust) — something frowned on by regulators — and unlisted stocks were transferred to the guernsey Stock Exchange, where few dealings are done, so it could be claimed they were ‘quoted’ somewhere.

Several directors of Patient Capital were also directors of companies in which funds were invested, while the relationship between woodford’s firm and Hargreaves Lansdown was far too intimate.

Dangers

And not enough attention was paid, until it was too late, to the necessity of keeping a generous cash or ‘liquidity’ cushion to protect against a run on the funds by savers.

Yet, for several years now, the Bank of England and its deputy governor, Jon Cunliffe (along with Bailey, one of the candidates to succeed Mark Carney as governor), have regularly warned of the dangers of ‘open funds’, such as those woodford managed, where investors are entitled theoretically to withdraw their cash instantly.

The FCA has been aware of the weaknesses in the system, but reforms of fees and governance have been hampered in part by fierce lobbying by the fund management industry. despite all this, instead of raising red flags as warnings of unorthodox dealings and a lack of cash in woodford funds grew, the FCA was silent.

At the same time, Hargreaves Landsdown continued to support woodford — even after problems became public — by including his funds among its top recommendations.

So, if ever there was a time for the FCA to seize the moment to protect savers, it is now. But its main response to date has been to announce an inquiry into what went wrong — a worthy exercise, but one that will do nothing to address the immediate pain of savers.

Failed

it is not too late to do more. The FCA together with the Bank of England, which has overarching responsibility for preserving financial stability, need to act decisively. woodford should be summoned from his hideaway and ordered to suspend the average 0.6 per cent fee he charges savers for managing their money.

He won’t be left short. Managing other people’s cash is hugely rewarding, with profit margins of close to 50 per cent. Since he founded his firm in 2014, woodford and his main associates have extracted £100 million in dividends.

Should woodford defy the FCA’s request to waive the fees, the FCA should remove his licence as an ‘approved’ person to work in the City.

in previous financial scandals, such as Equitable Life and the Libor interest rate scam at Barclays, regulators moved ruthlessly to clean the stables by removing top executives.

They may lack a clear legal basis for asking woodford to step down, but the FCA and the Bank of England have sufficient moral authority to force his departure.

The duty of the regulator is to us, the customer, so that the ordinary citizen can invest for the long-term with confidence and know precisely how and when they can access their own money.

in this, regulators have failed miserably and the scandal continues unabated.