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The Woodford debacle has hit many where it hurts most – their bank account.
Seasoned investors understand that losses happen. Many will have lived through plenty of market downturns.
But that is why they choose diversified funds that are not tied to a particular stock.
They expect a decent fund manager will be clever enough to limit losses or even make a profit when turmoil hits shares.
Over the decades, a few star fund managers have emerged, but probably none more hyped than Neil Woodford.
I can envisage a sad future for him pacing around his palatial home muttering: “They should have given me more time.”The reason his self-named fund management house proved so popular with investors was because of his highly successful track record with Invesco Perpetual.
After all, anyone who backed Mr Woodford with £1,000 when he started out at Invesco would have had more than £25,000 when he left the company to strike out on his own in 2014.
But those that followed him are obviously rueing their decision now.
The scale of the loss is incredible. In just the past four months, since the flagship Woodford Equity Income fund was frozen, its value has slumped almost 20 per cent.
While the FTSE 100 has had some ups and down over that same period, as I write it is up almost 1 per cent since the end of May.
Of course, we should not judge investment performance over short-term periods.
That was a point that Mr Woodford was always quick to make.
When launching his investment house in 2014, he told me: “Many fund managers don’t have an investment horizon beyond the end of their nose.”
Mr Woodford is a very personable man and his investment arguments have been powerful.
He would no doubt be seething that he will not be able to see his current work through to fruition.
I can envisage a sad future for him pacing around his palatial home muttering: “They should have given me more time, I’d have delivered them fat profits.”
Investors lost patience
But time ran out: investors lost patience.
They spotted that his so-called income fund contained lots of high-risk illiquid biotechs that paid no income.
When some of his punts began to collapse the warnings became clear.
Take Oslo-listed Thin Film Electronics. Mr Woodford invested £34m in the company in 2016. Its shares have crashed by more than 97 per cent since then.
He invested in cancer treatment company Immunocore when it held a private fundraising round in 2015. That holding has halved in value since April.
It is no wonder that investors began questioning Mr Woodford’s decision-making, which led to institutions pulling their money out of the fund.
That, in turn, led to its freezing earlier this year – too late for the many private investors who had kept faith with the star manager.
And that will prove to be one of the biggest fallouts of the collapse.
Many small investors will feel they are the real victims.
They will read that Mr Woodford has taken an estimated £63m in dividends and profits from his company in the past four years since it was founded.
Meanwhile, chief executive Craig Newman has trousered £37m in the same period.
Hargreaves Lansdown
There is also the involvement of Hargreaves Lansdown, which took more than £40m in fees from customers invested in the Woodford fund it had recommended.
But this is not simply a tale of greed and hubris.
It is a story that undermines the whole investment industry and criticisms that financial advisers are not immune from.
“The whole situation has been awful for investors and damaging for the industry,” pointed out Darius McDermott, managing director of Chelsea Financial Services.
“It is worrying that so much trust has been lost. We now need to work hard to get that trust back.”
I have written often about trust in financial services and how important it is.
But I have seldom touched on how fragile it is. There will be many normal folk who are now, at best, licking their financial wounds, but who could be considering moving away from investing altogether.
That could be an even more costly decision, so financial advisers should be busy seeking to reassure and reinforce the importance and value of the right decisions.
While the age of the star fund manager may be over, sensible and considered investment decisions should remain.
Patrick Connolly, head of communications at Chase de Vere, said the focus on star managers was “done solely to entice investors to part with their money”.
That style of marketing should be consigned to the dustbin. It is time for the resurgence of individually-tailored financial advice.
That will mean more work in matching the right investment opportunities to clients’ needs, but it is essential work to ensure that trust in financial services is not totally lost.
Simon Read is a freelance journalist
