The past couple of weeks have seen two incredible things happen: First, the career of Neil Woodford – arguably the most successful and famous fund manager in the UK – effectively ended when he was sacked from his funds after a miserable few years of outflows and poor performance. And second, fund management for once entered the mainstream.
This has all come as a surprise to those working in financial services who remember Neil Woodford as the ‘star’ fund manager he once was. In an illustrious career at Invesco Perpetual, he became known for his brilliant returns (achieving over 2000% between 1988 and 2013) and at the peak of his career managed £33bn in investors’ assets. By 2013 he was so highly regarded and in demand, he was even awarded a CBE for services to the economy.
However, things began to sour a few years after 2014 when he had left to set up his own fund management firm, Woodford Investment Management. His flagship fund, the Woodford Equity Income fund, attracted record inflows and was initially quite successful – reaching a peak size of £10.5bn in 2017. But, things began to unravel.
Free from the structure of Invesco Perpetual, Neil pursued investments in smaller and riskier companies which caused his performance to plummet. He ended up the worst performing manager in his sector, and with outflows reaching hundreds of millions a day the fund was dramatically gated (an unprecedented step for an equity fund) in June 2019 when it had shrunk to just over £3bn in size.
In the past two weeks, the step has been taken by the fund’s administrators to wind up the fund, Neil has been removed from his remaining mandates and Woodford Investment Management is to be closed down. Neil has experienced a spectacular and costly fall from grace – but the worst could be yet to come.
This is largely because the BBC recently aired a Panorama documentary into the Woodford scandal and for the first time many in the British public learnt about fund management. This is no longer just a financial services scandal, millions of people across the UK are now viewing the fund management industry in an unfavourable light and – at a time when the reputation of the city was already low – many are now starting to question the security of their investments. Although criticisms have been levelled at Panorama for giving a potentially limited picture (many of these topics are difficult to cover fully in a 30 minute programme), pressure is already mounting on the regulator.
This is because the scandal has quickly gained attention from millions of savers. In a low interest rate environment, with the cost of retirement growing, investing in equities is a natural choice for those looking for a larger income. Now, with the subject of consumer protection in the spotlight, many are starting to question if they are potentially open to unnecessary risks in their investments. And although there is plenty of oversight in the asset management industry (with fund houses regularly having to spend millions in regulatory fees to this effect), the reputation of the space has been severely damaged.
A few years ago the FCA revealed findings from its market study of the asset management industry which made a number of recommendations, including things such as greater transparency and more information to be provided to investors. Little has since come about from that study but the hugely publicised Woodford scandal might just be the catalyst for change.
For instance, one financial services firm in particular – a popular high street name and long time backer of Neil Woodford from his Invesco Perpetual days – has come under particular criticism for continuing to market the Woodford Equity Income fund even as performance was tumbling. Ironically, days after the fund was gated, their monthly newsletter landed on doorsteps and proudly named Neil Woodford as one of their preferred managers. The way in which funds are marketed, and particular in how risks and suitability are covered, is likely to be an area the regulator will review in more depth and take action if necessary.
However, many regulated firms are already struggling to adhere to the compliance demands placed upon them as it is. Any regulated firm that manages investments must adhere to financial promotion regulations, requiring them to capture records of all financial promotions and investor communications and ensure products are only being marketed to those who they are appropriate for.
Many will argue the existing measures in place are suitable and there will be frustration across the asset management industry if widespread change is needed in response to an individual (and very unique) case.
However, whatever the regulator decides to do, it is paramount that these firms are doing the best they can when it comes to how they are marketing to investors. Ensuring regulations are met and that all communications, especially those making up a firm’s digital presence, are accountable and responsible will be at the top of many agendas. With such negative publicity brought down on the industry, there's no room for error.
Asset management firms know how important it is to have rigorous systems and controls in place and this is why the MirrorWeb Platform is a chosen archive platform for several of today's leading fund houses. Due to not only the volume of financial promotions published daily across web and social channels, but also to the speed at which this digital content can change, firms are having to archive their digital presence in a much more sophisticated way to satisfy today’s regulatory standards.
If you'd like to find out how our platform is helping regulated firms capture, archive and monitor electronic communications (to meet MiFID II, FCA, GDPR and FINRA requirements) then simply request a demo by clicking below.