When did an investment platform become an IFA?

Forgive me if I seem a bit behind the curve, but I was on holiday for most of August.

The action is bizarre and outrageous on all sorts of levels, not least that they are moving £640m of investors’ money into OMW Old Mutual Woodford Equity Income Fund — a fund with no track record.

Skandia’s action is bizarre and outrageous on all sorts of levels

Just when did Skandia become the financial adviser to these investors?

I wonder how many will return from their summer holidays to discover that their money is being moved not by their financial adviser but by a jumped-up platform manager?

Woodford’s fund has got off to a decent start, putting on just over 1.5 per cent in its first three months. But to move clients’ money based on this and his reputation alone is tantamount to recklessness.

What if the fund dives in value? Woodford has had bad patches in the past.

This fund does not yet have a Morningstar Rating or a Risk score. Invesco Perpetual High Income’s has a five-star rating overall and a low risk score, while the Income fund rates four stars and low risk.

Trustnet gives the Invesco Income fund a risk score of 83 — a fairly modest rating for an equity-based fund. CF Woodford Equity Income is not yet rated.

So what if it turns out that investors have been thrown into a higher risk fund: where would that leave Skandia if they start complaining?

Then there is the question of charges. Shifting investors will cost around 1 per cent.

Once in the new fund, investors will face a total expense ratio of 1.1 per cent compared with the 1.3 per cent charged on the old funds.

But that is still a lot more than the 0.65 per cent to 0.75 per cent (from 0.95 per cent including the platform fee) they could pay for the genuine CF Woodford Equity Income.

Skandia says an investor exodus made the position regarding the old Invesco funds untenable. But advisers say they are sticking with Invesco, for now at least.

On its website, Hargreaves Lansdown notes that Woodford’s “high conviction approach has been a key factor behind his success and he has tended to get the big calls right more often than not”.

But it adds, tellingly: “Please remember, however, that this approach increases risk and there is no guarantee he will be able to repeat his previous successes.”

This is the gamble that Skandia is taking in moving investors’ money, and I am not convinced that it is a gamble it has any right to take.

Don’t take sides in annual reports

The Financial Services Consumer Panel’s comment in its annual report on non-compliance with RDR has caused dismay with some IFAs.

The FSCP said: “The FCA found that the vast majority of investment advisory firms it assessed were non-compliant in some respect, with a significant proportion having multiple failings.”

The FSCP comments were based on an FCA thematic review published March 2014.

I see nothing in the review to support this statement. In particular, the use of the term “vast majority” seems, to say the least, unjustified. That is not something we should expect from a pseudo-regulatory body.

Out of 88 firms examined, just two were definitely not meeting requirements and a further 28 might not have been.

When more in-depth research was carried out on 17 firms causing concern, the FCA concluded that six were not acting independently. So that is eight out of a starting base of 88.

I have a lot of sympathy for those posting messages of despair. The FSCP can carry a lot of weight with journalists, consumer bodies and consumers. Any reports should be balanced and fair, not biased and inflammatory.

Higher rate tax relief needs to go

Rumours abound that higher rate tax relief on pension contributions could be scrapped after the next general election.

Nigel Green, chief executive of deVere Group, warns it would be “a disincentive to save at a time when there’s a critical need to reignite Britain’s appetite for saving”.

I suspect it is inevitable that higher rate relief will be scrapped. The task facing the savings industry is to come up with affordable and innovative ways in which the current amount awarded in relief can be distributed more fairly.

Otherwise, that relief may disappear and be swept out of the savings system altogether to help fund the favoured project of the government of the day.

Tony Hazell writes for the Daily Mail’s Money Mail section

t.hazell@gmail.com