When it comes to funds, the best advice is personal

The recent problems with the suspension of dealings in a heavily promoted UK equity income fund have exposed the blurred line between advice and guidance.

According to the Investment Association (IA), there are around 3,500 funds on sale in the UK. The IA sorts these into over 30 individual investment sectors, although about 10% are listed as being in the unclassified sector. Faced with such a large choice, understandably many private investors want some help in making their fund selections. The assistance they receive has come under the spotlight following the recent suspension of trading in the Woodford Equity Income Fund (WEIF).

WEIF’s manager, Neil Woodford, established a strong track record with Invesco Perpetual before leaving the group in 2014 to set up his own fund management business. Unsurprisingly, a large amount of money followed him to his new company. He was helped by a common feature of today’s fund marketplace: favoured fund lists. These typically consist of 50 –100 funds, spread across those 30+ IA sectors, chosen by firms whose main business is marketing funds to the public. The criteria for selection are not always specified, but there is often a heavy reliance on past performance. However, there is one aspect that is clear: if you pick a fund from the list, then it is you who are making the choice.

Favoured fund lists do not constitute personal financial advice, even if may investors think that is what they are receiving. At best they are a form of general guidance, attempting to sort some of the wheat from a large volume of chaff. A select list only supplies the selector’s opinion at the time. It does not offer you a recommendation based on your personal circumstances, including consideration of the other investments you hold, whether held directly or indirectly, e.g. via pensions. Nor does the provider of the list offer any ongoing support, an important factor in current market conditions.

There is a role for recommended fund lists, but there is no substitute for personal, regularly reviewed advice on your investments.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investing in shares should be regarded as a long-term investment and should fit in with your overall attitude to risk and financial circumstances.

17th July 2019

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