Hargreaves Lansdown Group  

Advisers should give clients the heads up

Marlene Outrim

Marlene Outrim

So, yet another scandal rocks the financial services world with the troubles facing the Woodford Equity Income fund.

No doubt financial advisers who advised clients to purchase this fund or have it as part of their portfolio will be subject to complaints, especially if it proves that the fund was riskier than the stated risk profile or it lacked diversification.

Yet, Hargreaves Lansdown – which does not generally give advice – was able to promote this fund as one of its best buys, and may face some criticism for a while from the general public.

But it is unlikely to suffer the consequences of a barrage of charges leading to compensation and subsequently increased professional indemnity insurance costs, and ultimately increases in regulatory fees.

Given that Hargreaves Lansdown may have benefited from the discount the Woodford fund offered its clients, there must be some conflict of interest here and it is not wholly transparent (although it has now dropped the fee since the suspension).

The Equity Income fund had been included in Hargreaves Lansdown’s Wealth 50 list, even though it was the second worst performer in the Investment Association’s equity income sector.

True, concerns have been raised by the Financial Conduct Authority, but again it is too little too late, since there was disquiet last year about the fund’s exposure to riskier funds and the fall in performance.

Then, in March, it was revealed in the media that the fund had dropped its ownership of FTSE 100 stocks from 53 per cent at launch to 16 per cent and, in addition, it held 36 unquoted stocks.

Now, best-buy funds could be probed by the regulator.

Yet these are considered not as investment advice, but rather as independent analysis to help people choose funds to invest in.

Should there not be a duty of care by compilers to alert investors when fund managers start to take more risk than they anticipated and highlight the dangers?

This, after all, is what we respectable and trusted advisers will always do.

Marlene Outrim is managing director of Uniq Family Wealth