Advisers told to protect against fund suspension fallout

Advisers told to protect against fund suspension fallout

Advisers have been urged to protect their business next year in the aftermath of the Woodford saga and in anticipation of heightened activity amongst claims management companies. 

Advice firm Beaufort Group warned advisers should look to protect themselves from being on the "wrong end" of the consequences of a fund suspension in 2020. 

Chairman Simon Goldthorpe said such moves were necessary in the wake of the Woodford scandal which rocked the industry this year. 

Fund manager Neil Woodford was forced to suspend his flagship Equity Income fund in June after he struggled to meet redemptions following a sustained period of outflows.

Investors, who have been trapped in the fund ever since, are expected to lose 30 per cent of their assets when it winds up in 2020.

Mr Goldthorpe said: "Some advisers still select funds based upon their own research, but is that really sustainable?

"Some of the big names in the business got caught out by Woodford, despite their huge research resource. The small IFA is faced with an even greater challenge." 

He added: "A fund selector tool may be a sensible option - however one might question how many of those still included Woodford."

Mr Goldthorpe also pointed to the gating of property funds, warning suspensions were now on "everyone's radar". 

It follows steps taken earlier this month amid rising redemptions from open-ended property funds and economic and political uncertainty. 

At the beginning of December the M&G Property Portfolio suspended trading for the second time in three years as the fund attempted to deal with an "unusually high and sustained" period of outflows.

Five days later Prudential moved to suspended trading in related UK property funds, leaving nearly 20,000 customers unable to withdraw their assets.

Mr Goldthorpe said: "Though it may have dissipated somewhat since the election, people should ensure they are prepared for any further closures by ensuring the investments clients have – and the structure of those investments – is appropriate." 

The Beaufort chairman also urged advisers to consider protecting their firm from so-called "ambulance chasers", as he warned claims management companies could turn their attention to a fresh area of the advice sector. 

Earlier this year advisers in the defined benefit transfer market were told it would be "naive" to think they were not on the radar of claims management companies, amid warnings a mis-selling scandal in this area might not be confined to "dodgy firms". Other areas may also now be vulnerable, Mr Goldthorpe said.

He stated: "We are all aware of the threat from claims firms turning their attention to defined benefit transfers now that they have gorged themselves on PPI payouts, but what next?

"Interest-only mortgages could be the next soft target, with the regulator making ominous noises about them being ‘mis-sold'.

"Is it likely that most of those borrowers really didn’t know that they were signing up for? It could well become the industry’s collective problem, whether interest-only was advised on or not."