The fall of Star Fund Manager Neil Woodford

wealth investment adviser markets

The Breakdown of What Happened

In recent weeks, there has been mass media coverage on the high-profile suspension of Neil Woodford’s £3.7bn Equity Income fund. The fund was suffering large withdrawals (near £560m) following relatively poor performance, which subsequently set off a chain reaction amongst investors.

Neil Woodford is one of the highest profiled, and some would previously argue, ‘most successful fund managers’ of all time. He started his own fund – Woodford Investment Management in 2014 after catching attention during his tenure at Invesco, running their mammoth (£15 billion worth of assets) High Income fund. He was also famous for his negative position on the banks prior to the financial crash in 2007.

Previous to Woodford’s incident, his fund was heavily promoted by several large national financial adviser practices - most notably Hargreaves Lansdown and St. James’s Place.

The suspension of the fund has left investors unable to access those funds or transfer those funds out. A plethora of outstanding questions have now arisen and have yet to be answered – what is the suitability of the fund? What are the dangers of following a ‘Star Fund Manager’, such as Woodford? How reliable are they?

While investors are unable to access their capital, this also raises questions around the huge management fees charged by the fund, and how these fees are then split amongst the firms promoting it to their clients.

Those that hold the fund will undoubtedly be impacted, particularly if they happen to be taking an income from their investments. But what does this story tell us?

Successful investing is not about following the fund manager with the glossiest brochure or the biggest name, it’s about a balanced approach. Using a mixture of the right asset classes and the right funds at the lowest cost is an option, however it is equally important to continually monitor portfolios over the medium to long term.

 

The Value of us as Advisers

As independent advisers we don’t have deals with fund managers, we try to work with the best people, funds and options to offer our clients. We base these decisions on the biggest returns in helping our clients achieve their carefully selected goals.

Whilst fees are often highlighted, the due diligence advisers carry out behind-the-scenes are often not. As advisers we prioritise and perform thorough quality control monitoring of the solutions we use, prior to offering these to clients, whilst ensuring they are continuously suitable and relevant.

Perhaps a good way to breakdown the model would be Vanguard's Adviser’s Alpha model outlining seven critical benefits that advisers offer clients:


Photo Credits: Vanguard's Adviser’s Alpha ‘You Know you add value…’

Although the fund’s structure may have been visible, the investment’s performance could have been masked and there are various factors which should have caused alarm bells to ring long before they did. The FCA are now carrying out investigations into Woodford’s Equity Income suspension.

In truth, the true success of any financial plan is not about the investments. Clearly, they are required to enable the journey, however real value is driven by good advice and performing the right due diligence – an element we take pride in offering at Murphy Wealth.

If you have any questions or would like to find out more about the right offerings, please don’t hesitate to contact us.