Investment industry is ‘morally bankrupt’, say campaigners in wake of Woodford fees scandal
The boss of the investment industry’s trade body has been slammed for failing to take action on the fees savers are charged by fat cat fund managers.
Chris Cummings, chief executive of the Investment Association (IA), refused to criticise Neil Woodford and his business partner for pocketing £13.8million just months before their fund management empire imploded.
The disaster at Woodford Investment Management last year, which saw two funds frozen, denying savers access to more than £3billion, has cost his investors millions.
Campaigners have branded the insurance industry ‘morally bankrupt’ for failing to address the issue of excessive pay for fund managers who aren’t bringing home the bacon for customers
Yet Woodford continued to charge customers a management fee even when they could not withdraw their money, saying he needed the cash to keep the business running, despite siphoning out £13.8million of profits for the year to March 2019.
At least 300,000 investors were charged more than £8million while denied access to their cash, a sum which could have been covered by what Woodford made in a year.
Now campaigners have branded the IA ‘morally bankrupt’ for failing to address the issue of excessive pay for fund managers who aren’t bringing home the bacon for their customers.
The IA was set up to be a unified voice for investment managers, and to help drive change to improve the industry.
But Alan Miller, co-founder of investment firm SCM Direct and a proponent of increased transparency in the industry, said: ‘The Investment Association is no more than a self-serving, intellectually and morally bankrupt mouthpiece for the industry.
‘It has resolutely tried to defend the indefensible and is completely devoid of principles, ethics or integrity.
‘The IA’s reaction to the Woodford crisis, in which probably more than £1.5billion has been lost by innocent people, is to claim that the scandal is a one off – it isn’t – or that only small changes need to be made.
‘It would be much better if Cummings and the IA could face reality and be contrite for once.
‘There are major problems regarding transparency of fees, transparency of holdings, liquidity management and conflicts of interest.’
In an interview with Radio 4’s Today programme, Cummings said there had already been a lot of ‘innovation’ by fund managers in the types of fee structure used.
As well as the flat fee charged by most managers, many were charging a performance fee only payable if the fund made a decent return.
Yet Woodford Investment Management generated an £18.4million profit in the 12 months to March 2019, despite funds underperforming.
And even though Terry Smith, the boss of Fundsmith, has generated strong returns, accounts filed this week revealed he had trousered up to £87million in the year to March 2019.
Henry Tapper, chief executive of pensions rating agency Agewage, said: ‘The last study of asset managers’ profit margins by the regulator showed they were taking 36pc. That’s ridiculously high.
‘Whenever I walk through the City, I see people staggering out of posh restaurants after entertaining each other.
‘It’s the way it’s always been, but the Investment Association expects us to be happy because it’s getting a bit cheaper to invest? It’s not good enough that Cummings keeps endorsing this behaviour.’
The IA said: ‘Fund charges and costs are more transparent than ever, and the industry is doing further work to ensure information is clear and understandable.
‘Fees are falling and it’s never been cheaper to be a fund investor. This is a positive trend we expect to continue.’