The Week: The platform duty of care

The Woodford problems have raised a number of problems, not least the relationship between platforms and their execution-only clients



The Woodford case has brought a lot of issues to the surface: how funds get onto buy lists, whether illiquid investments should be part of a daily dealing portfolio, the relationship between a fund manager and his compliance department. This week brought a new one, should platforms prevent an investor buying a fund they know to be problematic?

Fidelity has said personal investors will no longer be able to buy new units in Woodford Income Focus, but will still be able to withdraw money. It is an unprecedented move that a platform prevents investors buying into a fund that has not been gated.

It is easy to see Fidelity’s point of view: the Woodford stable looks shaky and even though the Income Focus fund has not been closed, it is still seeing redemptions. Interactive Investor recently reported that since 4 June, when the Woodford fund was gated, the fund has generated 98% sells versus 2% buys. Fidelity has clearly concluded that for the odd investor who wants to buy Woodford at bombed-out prices, there are plenty of other investors who should be gently directed to look elsewhere.

It is the nature of fund management that investors always have an alternative. Even if they did want to take exposure to the type of undervalued domestic companies that Woodford holds, they could invest with, say, Alistair Mundy at Investec, or Clive Beagles and James Lowen at JO Hambro.  Fidelity investors can’t reasonably complain that the move stops them from managing their portfolio as they would wish. 

However, it does blur the line between execution-only and advice. This may be one of the most important elements to emerge from this crisis. Where does a platform’s duty of care to its investors start and stop? Should investors be allowed to make their own mistakes?

This is an issue also being explored with the Hargreaves Lansdown piece of the puzzle. Can buy lists reasonably be considered ‘not advice’ when vast swathes of investor money tends to follow them? How much responsibility do platforms have when investors have signed up for execution-only? Certainly, they will have seen the warnings that buy lists ‘aren’t personal advice’, but will it be enough to satisfy the regulator?

Fidelity has clearly decided to err on the side of caution and if that seems a little paternalistic, so be it, from its point of view, it’s protecting investors from poor decision-making. It is part of redrawing the lines between platforms and their clients.