It was always likely to happen. Solicitors RGL Management have issued proceedings against Hargreaves Lansdown along with Link Fund Solutions in relation to the collapse of the Woodford Equity Income Fund last year. RGL are the first firm to initiate action but others are likely to follow suit. There were an estimated 300,000 individual investors in the fund and so far RGL claims to have 2,000 claimants signed up to their class action.
Investors are estimated to have lost between 20% and 43% depending on when they invested in the fund and when they were able to withdraw their funds. The fund collapsed last year over liquidity issues when investors started to make cash withdrawals running at £9m a day which tipped over the edge when Kent Council tried to call in its £250m investment.
Hargreaves Lansdown have been joined into the legal action by RGL because they continued to advertise the Woodford Fund in their best buy lists right up until its collapse, whilst allegedly knowing that the fund faced liquidity issues.
This story is set to run and run, and it will be interesting to see how it pans out on several levels.
Firstly, should investors be compensated for the failure of a fund? Does it depend on why the fund failed or should there be blanket cover? If they are covered then who will foot the compensation bill? Will Hargreaves Lansdown be found guilty of keeping the fund on the best buy list and can they be held responsible for any losses incurred? Will investors be compensated to the full extent of their losses and will they also be eligible to claim loss of opportunity for the time that their funds were invested when they could have been invested elsewhere?
On the Hargreaves Lansdown element of the claim, their position is that they have never offered any advice to clients and that the fund was execution only, which means that people chose to invest without advice or recommendation. They have also already said that they issued over 20 updates about the fund which were very open about the makeup of the fund and that it wasn’t their fault if investors didn’t take ethe time to read and digest the information. That said, over 75% of investors are thought to have invested because of the Hargreaves Lansdown “Best Buy” recommendations, which incidentally made Hargreaves over £40 million in fees over five years.
We are not sure about the validity of any of the claims, so we will be watching closely.