'Long-term asset funds'; long-term fund liquidations ; and 'interest rate roulette' - here's our weekly heads-up on the financial stories that may have caught your clients' attention over the weekend …
New funds will lock in investors to prevent Woodford-style sell-offs
Funds that limit withdrawals by investors are being developed by investment firms and the Treasury to prevent repeats of the Woodford "debacle", according to this Sunday Times article.
A new type of investment class - a "long-term asset fund" - is set to be unveiled at a conference later this week, the piece says, with the aim of averting a liquidity crisis in the industry. A taskforce for the Investment Association, it continues, "has been working for more than a year on proposals to develop a new type of fund, and a new set of rules" that could solve problems associated with fund managers not having enough readily available cash to pay back investors who want to sell up.
The trade body's CEO Chris Cummings tells the paper: "The UK is crying out for these types of long-term investments, which will help savers and local communities up and down the country. With the UK set to leave the EU in the next few months, these proposals will help future-proof the UK's investment landscape, ensuring it can remain competitive on a global scale."
It may take Woodford 20 times longer to shift than rivals
Neil Woodford-inspired liquidity concerns are also to the fore in the Mail on Sunday, where - in among some pulse-quickening headlines such as Prisoners of the Woodford lockdown and Woodford's money merry-go-round - is this theory-based piece, which neatly conveys the idea of just how long it might take the manager of a £1bn-plus fund to sell all their holdings.
According to the Mail on Sunday, while the managers - excluding Woodford - would on average take six weeks to liquidate their entire portfolios, if every investor decided to ask for their money back, and Fundsmith's Terry Smith could apparently pull off the trick in a few hours thanks to his preference for owning larger listed companies, some would take a good deal longer.
The piece notes: "In the worst cases among Woodford's rivals, the research indicated the Invesco High Income Fund, which Woodford used to manage, would take 19 months to sell off, the M&G Recovery fund 15 months and Woodford's former Invesco Income fund nine and a half months. Yet that paled in comparison to the astonishing 31 years it would take to sell off Woodford's Equity Income Fund in its entirety."
Explaining the methodology, the MoS notes the analysis of 98 £1bn-plus funds is "theoretical" and based on how often each share has been traded over the past six months. "The calculations presume the fund manager avoids a fire-sale by offloading shares at a steady pace, accounting for no more than a fifth of daily share trades in each company," the piece adds. "The manager could sell more quickly, but that might mean getting a worse price on the trades."
Interest rate roulette: how banks charge you double what they advertise
An obscure technicality means anyone who takes out a personal loan could be losing hundreds of pounds, according to this piece in the Sunday Telegraph.
The so-called "loophole", the piece explains, allows banks to advertise low interest rates while offering a "significantly worse deal". Financial Conduct Authority rules, it continues, require 51% of successful loan applicants to be offered an advertised interest rate, so the remainder can be rejected or offered a higher rate by banks.
Research from peer-to-peer website Zopa found loan customers were typically charged 6% by banks - 2.6% higher than the average advertised rate of 3.4%. "Customers deserve a fairer personal loans market," Zopa chied product officer Andrew Lawson argues. "It's about time the industry commits to reforming its practices so that customers can shop around to get the best deal."
Our weekly heads-up for advisers
The Financial Services Compensation Scheme (FSCS) declared 11 adviser firms in default between 1 August and 31 October.