I could lose £100K despite Woodford fund redress scheme

Numerous investors suffered significant losses when star fund manager Woodford's fund collapsed in 2019, expressing profound disappointment with the UK's financial regulators and calling for a parliamentary inquiry into the matter. The downfall of the Woodford Equity Income Fund affected approximately 300,000 investors, inflicting substantial financial damage upon them. This incident highlights the critical need for robust regulatory oversight and investor protection mechanisms.

The UK's Financial Conduct Authority (FCA) announced a "compensation scheme" in 2023, claiming it would enable investors to recover approximately 77% of their losses. However, some investors argue that this figure is misleading and that the scheme's implementation effectively deprives them of access to other consumer protections. The FCA maintains that the scheme offers investors the "fastest and best opportunity" to achieve a "better outcome than might have been achieved any other way." The regulator believes this approach provides the most efficient path to redress for affected investors.

Ian Duffield and his wife, Linda, from Manchester, invested £234,000 of their pension savings in Neil Woodford's fund. At the time, they believed that the majority of their funds would be protected. Mr. Woodford enjoyed an outstanding reputation, and the fund advertised its protection by the Financial Services Compensation Scheme (FSCS), which provides compensation in the event of a financial firm's collapse. This sense of security proved to be tragically misplaced.

Following the fund's collapse, the Duffields recovered some funds through the sale of fund assets but still lost approximately £107,000. Ian stated that when the compensation scheme was announced, they initially believed they could recover most of the remaining amount. However, after carefully reviewing the details, he realized that this was not the case, as the scheme considered the funds they had already received. He ultimately received only £7,600 in compensation, resulting in a total loss of nearly £100,000 for him and his wife. This illustrates the complexities and potential shortcomings of the compensation scheme.

Paul King, who works in the IT industry in Kingston, invested just under £50,000 in the Woodford fund to help him save for retirement. He said he felt reassured that the fund appeared to be protected. "At the end of the day, I'm just a consumer. You do your best to prepare for the future and place great importance on the FSCS," he said. "I didn't anticipate that if things went wrong, we would be treated unfairly, which is what it boils down to." This highlights the vulnerability of ordinary investors relying on regulatory safeguards.

The All-Party Parliamentary Group (APPG) on Investment Fraud and Fairer Financial Services, composed of members of Parliament and the House of Lords, has written to the House of Commons Treasury Committee, requesting that they investigate how the FCA handled the fund's collapse, including its development of the compensation scheme. The APPG will state in a report to be released on Tuesday that the FCA failed to adequately communicate that its "77%" figure related only to a portion of the assets in the fund, not the entire amount. This lack of transparency raises serious concerns about the FCA's communication practices.

An FCA spokesperson stated that the size of the compensation scheme did not reflect investment losses caused by poor fund performance. "Instead, it covers losses caused by the actions of Link Fund Solutions (LFS), which we believe fell below the required standard," they added. "The scheme offers investors the fastest and best opportunity to achieve a better outcome than might have been achieved any other way. The scheme was approved by over 90% of investors." Although only 54,000 people voted, almost 94% of investors supported the compensation scheme in a December 2023 vote. Last year, the scheme received approval from a High Court judge. This suggests a degree of investor acceptance, despite ongoing concerns.