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Does Skandia’s Woodford switch set a precedent?

sam macdonald 450

Friday saw the latest in the big money moves to Neil Woodford as Skandia chose to close its versions of the Invesco Perpetual High Income and Income funds, transferring £640m assets to the former Invesco UK equity head.

The funds themselves are owned by Skandia Life, so the firm is free to choose where the money goes and who manages it, but the switch could set an intriguing precedent.

What happens when a lower profile manager with similar performance credentials moves on? What are the triggers for the change?

With such a high degree of movement in the fund management space it is hard to envisage a scenario where a mandate is switched every time a good manager moves on.

It is also interesting that Skandia chose to completely close the Invesco funds. The reasons for the transfer appear to make sense, as it obviously thinks the majority of investors want to move across to Woodford from Invesco. But was there an option to run both Invesco and Woodford mandates alongside each other and see what happens? Does there need to be a blanket switch?

If the Invesco funds remained open and a large majority of assets are switched to Woodford at advisers’ behest then the firm could close the funds at that point. At least there remains an element of choice in that instance.

Hargreaves Lansdown’s Laith Khalaf said about the move: “Life companies do close funds from time to time because of lack of investor interest.” But that is clearly not the case here.

It would be interesting to see if any money had recently come into the Skandia Invesco funds with the specific intention of accessing the management of Mark Barnett. These people will now be unable to access his High Income and Income mandates through Skandia.

Skandia also says the move will cost investors around 1 per cent due to transfer charges etc which has served to anger some advisers.

The question is not whether Skandia had the authority to make the changes it did, but to what extent advisers and clients invested in the Invesco funds were happy to make the move.

As was predicted when Woodford set up his new venture, assets have flowed out of the newly-managed Invesco funds and into Woodford’s new equity income offering.

Other providers could well follow suit and switch similarly large mandates en masse, changes which could upset advisers enough to make them transfer away from the provider altogether.

Sam Macdonald is deputy head of investment news at Fundweb and Money Marketing follow him on Twitter here

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Whilst life funds are indeed ‘owned’ by the insurer, I’m of the opinion that the vast majority of clients (or their advisers) should have choice – whilst I’m sure many invested into Woodford, they may also be some invsting into the Invesco ‘fund house’ or (as outlined above) they may have invested into Mark Barnett. The upshot, therefore, is that everyone is left to carry a cost for something they may not have chosen to do!

    Providers making investment decisions for clients always makes me nervous!

    I wonder whether this ‘deal’ was part of the discussions held which resulted in Skandia being able to secure the fund at a reduced OCF??

  2. Don’t get too excited (Although I did)

    The top brass have now explained the situation (and all credit to them for working on a Bank Holiday weekend and bothering with a small intermediary).

    This only applies to the old Skandia platform. The Skandia Investment Solutions remains unaffected. Indeed if you have clients in the old PP plans these can be transferred to the CRA at no cost into the same funds – often with lower charges and of course onto a platform with a far wider choice of funds. The only outstanding is (so far) the insurance bonds. These cannot be transferred because this may trigger a chargeable event.

    If the boffins manage to sort this then transfer will also be possible.

    It also rather does reflect on 2 other points:

    1. This rather odd slavish adherence to the cult of the one fund manager. Sure Mr Woodford has done well, but I’m sure he doesn’t do it on his own. (indeed with IP he had Mark Barnett and a team backing him up). Personally I far prefer a team approach and find the fixation with a particular personality a little banal.
    2. Judging by the discounts offered by the new Woodford fund it would seem he is pretty desperate for business.

  3. I personally wouldn’t recommend a fund that didn’t have a track record of at least 3 years, so I think it would have been better for them to have switched into cash and then let the adviser go through the alternatives with their clients. You could be forgiven for thinking that there may have been an incentive for Skandia to have switched £640 million into this new fund. Not exactly small potatoes is it?

  4. Advisers who recommended this fund did so (presumably) in the knowledge that moving the mandate was Skandia’s prerogative…

  5. Paolo Standerwick 1st September 2014 at 6:16 pm

    What if the Woodford new fund doesn’t outperform the investor one, what if Woodford dies, who carries the can? The adviser. This is clearly wrong for skandia to give advice. As a previous post suggested, there should be a choice for the advisers as they should be involved.

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