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Woodford investors forced to sell other funds to pay fees

Neil Woodford
Neil Woodford Equity Income fund was suspended in June, trapping investors' money Credit: Tom Pilston

Neil Woodford investors are handing over hefty advice fees with the money being taken from other funds to cover the costs.

While major fund shops have waived fees for those investors stuck in Woodford's funds, some wealth managers are selling down other investments to make up the difference, Telegraph Money can disclose.

Neil Woodford’s beleaguered Equity Income fund closed in June after he was forced to suspend trading due to a mass exodus of investors. The manager is still taking fees from the fund to the tune of £65,000 a day, but fund shops like Hargreaves Lansdown and Interactive Investor waived their fees on any money held in the fund.

However, no adviser-only fund shops have followed suit. The largest in the country are run by insurers Aegon and Standard Life Aberdeen. Wealth management firm Quilter and investment business Fidelity own other big adviser-only platforms.

All still charge investors a platform fee and also facilitate payments to financial advisers, with around 90pc of all investor-adviser relationships managed in this way.

Fund shops, like Aegon, Standard Life and Fidelity FundsNetwork, take this from investors’ cash accounts. However, Quilter’s Old Mutual Wealth does this by proportionally selling units from funds and sending the proceeds to advisers.

Fund shops using the latter method have become stuck following the Woodford fund suspension. They have been unable to sell any holdings in the suspended fund and have been selling out of other funds to make up the difference.

For investors who were placed into the Equity Income fund via an adviser, this means their savings in other funds are being depleted to cover the cost of the advice.

Mike Barrett, of consultancy The Langcat, said this could cause a precarious situation for advised investors who have the majority of their assets invested in Neil Woodford’s suspended fund.

Their remaining funds are now paying more for the advice costs – normally a yearly charge of between 0.5pc and 1pc on all assets.

Mr Barrett said investors had the right to be aggrieved given the combination of the adviser's decision to invest in the poorly performing Woodford fund, and now having their other investments pick up the tab.

He said: “The issue is how big the holding in the Woodford fund. If an adviser puts all or the majority of an investor’s money into the Woodford fund, then there’s potentially a claim for redress.”

However, he said not all investors should be annoyed about still paying for financial advice, regardless of which fund it gets paid from.

“It depends what the adviser is doing for that money; they’re not just paying for the Woodford fund, but for retirement and tax advice among other things,” he said.

A Quilter spokesman confirmed investors have the right to amend their charging policies and even cancel the advice fee paid from other funds.

They added: “Advisers and clients agree on how they pay their fees. When they choose to pay via their investment, they have a variety of options including paying from the largest fund, proportionally from all funds or proportionally from specified funds. They can change this arrangement at any time.”