The Woodford affair, which boiled up to crisis point yesterday after investors’ hopes of withdrawing their money were dashed, is a financial scandal that has struck at the heart of thrifty, aspirational middle Britain.
A decade after the banking crisis that shook the foundations of our capitalist economy, arrogant moneymen have once again treated savers abominably.
Fund manager Neil Woodford and his colleagues have acted, too, with the help of self-interested middlemen at Hargreaves Lansdown, a hugely popular platform for small savers.
And, while the fallen superstar of the investment industry – who initially got returns of 18 per cent – laid waste to his loyal followers’ savings, the pathetically ineffectual City watchdogs stood idly by.
Neil Woodford sparked further outrage by refusing to apologise to customers who gave him their life savings. He insisted his equity income fund could not reopen because it did not yet have enough cash to pay those who wanted to pull out their money
As a consequence, victims’ money is now being held hostage in Woodford’s failed fund. The so-called lock-up has already been in place for a month and yesterday he announced it would continue for another 28 days. Most experts fear that savers’ cash is likely to be locked up for much longer as he battles to stabilise the fund.
No one emerges from this shoddy affair with any honour.
In fact, everyone involved should hang their heads in shame: Woodford, for his arrogance and greed; Hargreaves Lansdown for promoting him, and regulators for letting down savers they were supposed to protect.
In his glory days, Woodford was renowned as ‘the man who made the middle class rich’. When he launched the firm that bears his name five years ago, small investors poured in billions of pounds, much of it through the now embarrassed brokers Hargreaves Lansdown who put him on their best-buy lists, and in return received a fee.
The fund was frozen a month ago as investors lost faith and scrambled to recover their nest eggs. The hundreds of thousands of investors with cash tied up in the fund had been hoping it would be unlocked last night following a 28-day review by independent directors
Despite having kept clients’ holdings locked up for a month, Woodford has been unable to sell enough assets to pay back investors who are understandably desperate to take their money out.
Realistically, there is little prospect that he will be able to rectify the situation any time soon, so savers will therefore remain helplessly stuck and out of pocket.
To add insult to injury, Woodford himself is disgracefully extracting fees at the rate of around £100,000 a day. People invest their money in the stock market, whether by buying shares directly or through a fund such as Woodford’s. Their cash is then funnelled to businesses which use it to invest in innovation, to make the goods and provide the services that power our economy.
In return, savers expect to receive dividends and for their money to grow. Woodford’s flagship fund should have been the successful embodiment of the share-owning democracy that Margaret Thatcher envisaged when she embarked on her privatisation programme.
As it is, the fund is frozen and its investors have been left poorer and disillusioned. Of course, this is handy ammunition for Jeremy Corbyn who has said ominously that a Labour government would intervene extensively to ‘transform’ the way the economy works.
Who can blame those who think his vow to introduce Marxist-style controls on the City are a fairer answer than allowing financial sharks and the Woodfords of this world to prosper?
Dennis Deane and his wife Janet put £40,000 into Neil Woodford’s equity income fund because they wanted a ‘safe and steady’ investment. Now they have had to cancel their annual October break and Mr Deane is hoping to join a class action lawsuit against the fallen star investor
Shockingly, most Tory MPs have remained silent over the human cost of this latest savings scandal.
I wish they could read all the letters and emails sent to me from people whose life savings are now in jeopardy. These dignified but despairing notes inspire heartbreak and betray white-hot rage at Woodford and his ilk.
All tell tales of dreams broken and lives shattered. They talk of house purchases put on ice, holidays cancelled, wedding anniversary celebrations called off and children’s university fees not paid.
One Mail reader said she urgently needed her savings of £13,000 because she has lost her job.
A man in his sixties told how he put £75,000 of his work pension into Woodford’s coffers and fears he may lose most of it. He has yet to break the news to his wife.
Most poignant of all was an email from a 93-year-old man who needs access to his money to pay for his wife’s care home bills.
Many like him were facilitated by Hargreaves Landsown, whose bosses – like Woodford and his cohorts – are all multi-millionaires.
They have a lot to answer for. Neil Woodford’s downfall can, in part, be ascribed to simple bad decision-making. He ploughed money into a string of poor performers, including doorstep lender Provident Financial and troubled construction group Kier.
However, he invested far too much money in risky small companies whose shares are hard to trade. Then, having broken the limits on how much he could invest, he moved four of his holdings onto the tiny Guernsey stock market.
Technically, it meant he was no longer in breach of regulations.
But despite recognising that the transaction was underhand, regulators have taken no action. They seem to have learned nothing from previous scandals such as Equitable Life or when small savers lost heavily on their shares in Lloyds and RBS.
As for Woodford, who claims all his own personal investments are in the scuppered fund, there are only crocodile tears. Unlike his clients, he is insulated by the vast wealth he has extracted from his empire, before it crumbled beneath his feet.
Urgently – not least to save its own reputation – the Financial Conduct Authority should compel Woodford to waive his fees.
And politicians, who always claim to be on the side of the small investor, should order an immediate independent investigation. Anyone proved guilty of wrongdoing should be severely punished.
Enough is enough.