Merrill Lynch faces the threat of further legal action this week following its decision to settle the Unilever case, with IFAs concerned that the case has damaged the reputation of all fund managers among retail investors.
The news comes as the Consumers' Association warns fund managers that they must not neglect retail investors now that institutional investors have become more aggressive.
Senior policy adviser Mick McAteer says: “Our concern is what will happen now. It is bound to be tempting for the big insurance or fund management firms to make sure their resources are applied to their institutional clients rather than their retail clients.”
The high-profile eight-week court case came to an abrupt end on Friday as Merrill Lynch agreed to settle with Unilever out of court for a reputed £70m. Unilever had originally sought about £130m in compensation for the underperformance of its pension funds during the late 1990s which were managed by Mercury Asset Management. MAM was bought by Merrill in November 1997.
The case pitted Merrill's star fund manager Carol Galley against Unilever chief inv-estment officer Wendy Mayall.
In settling out of court, Merrill has avoided setting a legal precedent but the successful outcome for Unilever may spark a series of similar cases.
Supermarket chain Sainsbury has already come forward as one firm which is considering suing Merrill for its poor pension fund performance.
IFAs have given a tentative welcome to the deal although some have voiced concerns that it in the longer term it could lead the way for retail investors to consider legal action against their financial advisers.
Michael Philips proprietor Michael Both says: “IFAs are going to be very very nervous and their clients are going to end up with a lot more deposit funds. For the retail client, it could be bad news.”
Chelsea Financial Services managing director Darius McDermott says: “I think this case further damages the whole fund management ind ustry – with a big company having effectively lost such a highprofile case. I don't think it will have done Merrill Lynch's reputation any good in the IFA market.”