What will happen first? Jeff Prestridge will walk on the moon, or Woodford’s bucket shop will pay its clients?

Image-reliant dinosaurs get away with literally ripping off 300,000 retail investors. It is time for the FX industry to step up and challenge the gray suits

The saga of Neil Woodford’s fallen fund in which 300,000 investors who for the past 16 months have been waiting patiently to extricate themselves from failed investment fund Woodford Equity Income went by without even the shrug of a shoulder continues.

Over recent years, Woodford Asset Management has been championed by so many commentators that it must be impossible to count how many laurel leaves are now under the firm’s reputation.

This year’s revelations demonstrate that it is far from prudent to assume superiority based on name and classification.

The double standards that have been apparent throughout this matter during the general public’s suffering at the hands of what is effectively a bucket shop from which 300,000 people have not been able to withdraw their funds, in that regulators and the mainstream media have treated Woodford Asset Management with kid gloves, whereas if an electronic trading company even did so much as to be perceived to mistreat one customer account, there would be a furore the size of – well, the size of the hole left by Woodford.

Today, a further delay in the progress of the emergence of any light at the end of tunnel has arisen, as British investigative and campaigning journalist Jeff Prestridge has stated that he will “walk on the moon” before anyone gets their money back from Woodford.

When Woodford’s £3.7billion fund was abruptly closed in June last year after it could not meet a multi-million pound redemption request from a local council, it was awash with illiquid investments that should never have been held as part of an income-oriented portfolio – indeed, should never have been part of any investment fund.

It also dragged our industry into the mire, because the fund had been part of Hargreaves Lansdown’s portfolio, a subject which Peter Hargreaves, who co-founded Hargreaves Lansdown in 1982 spoke out very candidly about.

Woodford was fired from the fund last October (but not before taking millions of pounds in fees) and Equity Income has since been gutted – but it’s a drawn-out, messy and expensive process, much to the infuriation of investors.

The gutting has been overseen by Link Fund Solutions, an organisation that has hardly covered itself in glory given its role at Woodford Equity Income, from the day the fund launched in 2014, was to ensure it ran in the best interests of investors.

Mr Prestridge today said “Link failed its duties as shockingly as Mr Woodford did with his stock picking. A few days ago, Link updated investors on the winding-up of the fund as well as publishing fund accounts for the 15 months to the end of March this year.”

“For investors it made depressing reading, although I can’t imagine that many managed to fight their way through all 70 pages of bewildering financial numbers without reaching for a box of Nurofen Maximum” – Jeff Prestridge

“What investors would have discover if they lasted the course would have made their blood curdle. Some £288million of the fund’s assets have still to be disposed of, presumably because nobody wants to buy them” he said.

“Indeed, Link says it may take until ‘mid to late’ next year before they are sold. If so, that would mean at least a two-year wait for investors to finally be rid of Woodford Equity Income. Unacceptable” is Mr Prestridge’s view.

“Also, there’s more chance of me walking on the moon than investors getting back their share of £288million. Mark my words, it will be much less ” he said.

“The fees that have been taken from the fund during its dismemberment – reducing cash payouts to investors – are mind-boggling. Asset manager BlackRock, employed to sell Equity Income’s tradeable assets, took more than £11million in fees – an ‘outrageous’ sum according to one investor who said ‘his accountant could have done the same job for a fraction of the price'” he concluded.

Ultimately, Mr Prestridge noted today in mainstream media that he will “walk on the moon” before anyone gets any of their money back.

FinanceFeeds has been following this carefully, and we disapprove strongly of the way in which Woodford has been allowed to do this with no recourse purely on the basis that it is considered a prestigious hedge fund and wealth management company, therefore the wood paneled, plate glass image applies, whereas an error of even 1% of this in the FX and CFD world would have brought the onslaught of a major regulatory crackdown and restitution order, plus more image blackening for brokers, whilst Woodford goes away scot free.

Peter Hargreaves’ recent diatribe showed his own disdain for the circumstances.

Ever since Peter Hargreaves and Stephen Lansdown CBE founded the firm as a small independent insurance brokerage in Clifton, Bristol, the firm has been evolving, taking itself from humble beginnings as an intermediary to its standing today, complete with proprietary platform called Vantage, from which investors can manage their entire portfolio from mortgages, to ISAs to FX and CFD trading accounts with the company’s HL Markets division, a white label of IG Group. It is now Britain’s largest retail financial services firm.

Peter Hargreaves is a major voice in British financial services, and today his outspoken stance on the situation that surrounds Neil Woodford and his troubled asset management firm that has caused Hargreaves Lansdown and its customers significant anguish has been vocal indeed.

In September last year Mr Hargreaves, who was furious that Woodford continued to operate which caused Hargreaves Lansdown to continue to provide the fund to its clients even though the fund was experiencing problems, leaving Hargreaves Lansdown with the customer-facing issues that have ensued from clients not being able to withdraw, has publicly expressed his opinion, citing that Mr Woodford had not been ‘truthful’ about the situation.

“The problem was Hargreaves Lansdown had too much with him” said Mr Hargreaves, referring to Neil Woodford.

“The clients have been stuffed in this horrible Woodford fund. I’ve drawn this big dividend. Nothing to do with me and I’ve been very successful. What do they want me to do? Give the dividend back to the unit holders?” said Mr Hargreaves in defence of the £64 million dividend he received from the company that he is entitled to as he is a 32% shareholder.

“It’s annoyed the hell out of me that it would appear he (referring to Neil Woodford) has not been truthful with Hargreaves Lansdown. But it’s also annoyed me that they let it go on so long” said Mr Hargreaves publicly.

It was refreshing to hear such a direct opinion from the founder of what is now a huge publicly listed company with a loyal client base.

This demonstrates, however, that even the most astute companies in the business can fall foul of perceived quality, as withdrawal issues are usually subconsciously associated with low-end bucket shops on islands or in the Middle East, not long-established plate-glass hedge fund managers who hold themselves out as financial gurus and court the media.

FinanceFeeds is an absolute advocate of the need for FX firms to move into the professional trading and hedge fund sector, largely because many good quality FX brokerages along with their associated prime of prime liquidity providers and technology vendors that integrate platforms into a multi-asset market are more than capable of providing a highly efficient direct market access solution for wealth managers with a diversified asset requirement at low cost with efficient execution.

This industry is, after all, a massively entrepreneurial and innovative sector, far more than the traditional hedge funds are.

Over recent years, Woodford Asset Management has been championed by so many commentators that it must be impossible to count how many laurel leaves are now under the firm’s reputation.

Last year’s revelations demonstrated that it is far from prudent to assume superiority based on name and classification.

The company has been in the spotlight for continuing to recommend Woodford’s equity income fund until he blocked withdrawals on June 3 this year. The suspension of the fund affected more than 290,000 Hargreaves customers, about a quarter of the company’s investors, with savings likely to be trapped for six months, resulting in a massive public spotlight honing in and Hargreaves Lansdown left to clear the mess with its customers, and executives including Hargreaves Lansdown CEO Chris Hill who moved to the company from IG Group to take the lead spot, having docked his own annual bonus.

Imagine the furore should a retail FX broker do something like this, even affecting 1000 clients let alone 300,000!

By contrast to the pillorying that would ensue toward an FX broker if it blocked withdrawals of client capital, Woodford Asset Management’s founder, Neil Woodford CBE, knighted for ‘services to the economy’, has managed to remain relatively unharmed by the direction his company has taken.

In March 2019, after two years of poor performance during which fund assets contracted by more than £5 billion, the Sunday Times carried out an investigation into the

It found the fund held less than 20% of assets in FTSE 100 companies compared to over 50% when it was created, and over 20% of assets were in small Alternative Investment Market companies.

On 4 June 2019 trading in Woodford Investment Management’s largest fund (the Woodford Equity Income fund) was suspended. There had been large withdrawals of funds by many investors. Following this, St. James’s Place plc which is one of the UK’s largest network of hedge funds and has connections to Allied Dunbar and Abbey Life founder Mark Weinberg, terminated Woodford’s contract to manage three of its funds, valued at £3.5 billion.

The FCA launched a formal investigation into the suspension back in June, and at that time a Woodford spokesperson said: “We can confirm we have been contacted by the FCA, regarding its investigation relating to the events that led to the suspension … and will be co-operating fully with its investigation.”

Suspension in this case is a box-ticking exercise. The old boy network well and truly at work.

Why the diiscourse, you may ask?

Well, this affects our industry directly, yet Woodford Asset Management continues to be viewed as a professional hedge fund and therefore part of the elite compared to the retail FX industry, which is a totally inaccurate assumption.

Hargreaves Lansdown, the largest retail financial services firm in the UK, which is led by CEO Chris Hill, former CFO of IG Group (Hargreaves Lansdown’s HL Markets FX brand is a white label of IG Group) has been massively affected by Woodford’s issues.

This demonstrates a form of total trust that no firm would give an FX broker. We all know what some of the profit sharing antics of so-called liquidity providers have led to, yet Woodford Investment Management holds its head high after decimating Hargreaves Lansdown’s share prices.

Hargreaves Lansdown will soon report results after a disastrous week for Woodford, who had been held out as a star fund manager and favourite of retail investors. The equity income fund’s administrator said it would probably take until early December for the fund to reopen as Woodford disposes of difficult-to-sell stakes.

Woodford was also revealed to have sold more than half his shares in a separate publicly traded fund whose board is considering terminating his position as the asset manager.

Chris Hill, Hargreaves’s CEO, issued an apology to his customers a few days after the fund’s suspension. “We all share their disappointment and frustration,” he said, as he also came to terms with the loss of his bonus of as much as £2.1m until the matter is resolved, and at the commercial impact having had to waived Hargreaves’s fees for Woodford investors.

Hargreaves’s results at the end of the last trading period were the the first time the company actually commented about the impact of the Woodford affair on its business and reputation. Mr Hill at that time answered questions from the Treasury committee but these concentrated on his company’s dealings with Woodford and how it decides which funds to recommend.

Mr Hill’s commentary was very corporate and polite, compared to Mr Hargreaves who fired his anger directly into the public domain.

All of the analysts that have skirted around this issue and had to mind their Ps and Qs on televised news or in large financial markets newspapers is effectively white noise. FX firms in Australia, the US and Britain have been wound up by regulators, their responsible officers criminally prosecuted and assets seized time and time again for practices far less grim than this. Yes, they should pay the price, but everyone should pay the price, not just retail FX brokers.

Hargreaves Lansdown, whose Vantage system allows retail investors and traders to manage their accounts from endowments and ISAs to FX and CFD trading in one place, has been getting more into the FX and CFD space and expanding its range, having recently launched a product which is aimed squarely at the self-directed retail investor.

This is offered via Hargreaves Lansdown’s IG Group white label HL Markets, wrapped into Hargreaves’ highly sophisticated proprietary infrastructure.

The company, which has £85.9 billion assets under administration all from direct retail customers, has diversifed its asset base since.

So why did a company this astute trust Woodford Asset Management? It would not have trusted dodgy dealers such as AFX Group or ILQ, both of which had engaged in profit sharing and mixing client funds with operational capital, but to a far lesser extent, however the end result is exactly the same.

Look at the NFA’s treatment of Drew Niv, founder and former CEO of FXCM, which at one time was the world’s largest FX firm. He personally prevented any damage to client withdrawals during the Swiss National Bank’s removal of the EURCHF peg which plunged FXCM’s resources into massive decline (as it did with many other firms) yet the regulators would not let him go. FXCM has been absolutely decimated, whilst Woodford carries on. Of course, FXCM’s alleged false statements that it was A-booking trades when it was sharing them with a market maker is not excusable, but customers were not affected, and nobody complained. Therefore the Woodford situation is worse.

Woodford’s reach has even been notable in the firm’s aspirations toward challenging the banks. Neil Woodford’s venture capital fund enabled Atom bank, the UK’s first bank built exclusively for mobile, to raise £50 million in a fundraising round with participation from BBVA, Toscafund, Woodford Patient Capital Trust and funds advised by Perscitus LLP.

The funds raised were set to used to finance further growth and to continue the bank’s investment in technology.

Atom continues to be a fast-growing challenger in the UK’s lending markets. The bank says its total lending, for homeowners and small businesses, has grown by 76% in the past year to £2.4 billion. At present, Atom is welcoming up to £20 million of business and £10 million of residential mortgage applications each week.

Woodford Patient Capital is now the target of an aggressive potential takeover, purely because of its instability.

It depends who you play golf with as to whether all retail FX and CFD firms should be under massive scrutiny and hedge funds should be allowed to create havoc with minimal consequences.

It is time for the FX industry to challenge the traditional hedge funds. Surely the good quality firms in the FX and CFD sector could easily connect to Hargreaves Lansdown via API and are more aligned technologically and ideologically.

Let’s get rid of the inferiority complex and go head to head with these image-reliant dinosaurs. It cannot be that difficult.

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