ShareSoc Woodford Legal Claim Seminar

There are several legal firms who are mounting cases to try and gain some redress for the investors but ShareSoc is backing Leigh Day who presented at the seminar. They are focussed on a claim against Link Fund Solutions, the Authorised Corporate Director (ACD) for the fund and which is part of a large financial group (Link).  Leigh Day’s investigations lead it to believe that Link allowed WEIF to hold excessive levels of illiquid or difficult-to-sell investments, and that this caused investors significant loss. In doing so, they consider Link breached the rules of the FCA Handbook and failed to properly carry out the management function of the Woodford Equity Income Fund. They have already issued a letter before action and received a rebuttal response from Link so have now filed a case in the High Court, i.e. the case is progressing – see https://woodfordpayback.co.uk/ for more details and how to join the claim.

A representative of Leigh Day presented the facts and the basis for their claim against Link, but as usual when lawyers present cases, this might not have been exactly clear for the average person. Lawyers seem to want to display their intelligence and knowledge in such presentations which might impress corporate clients but is inappropriate for the general public. Those who invested in the Woodford fund might not have been the most financially sophisticated individuals with many of them relying on recommendations from brokers such as Hargreaves Lansdown (HL).

It seems that Leigh Day cannot identify a good case against Neil Woodford himself, against his management company or against HL. This is unfortunate. Link and the FCA might have fallen down on the job of regulating WEIF and monitoring what Neil Woodford was doing but in essence it was his actions that eventually brought about the collapse. Not only did he invest in companies that were inappropriate for an “equity income” fund but many of them were high risk. Liquidity evaporated when fund performance was poor and negative publicity hit the fund at which point everyone wanted out.

The Leigh Day claim is certainly worth supporting in my view but they have only managed to sign up about 11,000 claimants so far. Why is that? No doubt the first problem is that they do not have access to a register of investors. Both Link and HL have rebutted such requests which is morally indefensible. The FCA should surely step in to ensure that happens if the required information cannot be obtained using the normal disclosure responsibility in legal cases.

Indeed the FCA could take much tougher action by enforcing compensation if they had a mind to do so, but as usual they are proving toothless.

One point I was not aware of before that came out in the meeting was that Grant Thornton were the auditors of the WEIF fund and should surely have queried the low liquidity. Another black mark against that firm.

Apart from the problem for Leigh Day getting through to investors there are a number of other difficulties in obtaining supporters for such legal actions. These are: 1) Investors are often elderly and suffer from sloth – repeated reminders are necessary to get them on board; 2) Investors are keen to forget their own mistakes in investing in the fund; 3) The time to likely obtain a judgement which is several years puts people off; 4) The legal case appears complex and the contracts between investors and the lawyers can be complicated – investors might also doubt that they are not facing risks of costs. The way the case is communicated to investors needs to be handled very carefully to ensure investors understand what is being done and why they do not face risks from the legal action.

Another issue is that ShareSoc and Leigh Day have pointed out that another approach might be to complain to the Financial Ombudsman. From my experience of that organisation, it would be a long and tedious process with little certainty of satisfaction. I would personally prefer to rely on an aggressive law firm to obtain some redress.

Leigh Day certainly seem to have acted competently so far in pursuing their legal action and have moved relatively quickly. I would also encourage you to write to your Member of Parliament to request that the Government ensures that the FCA (Financial Conduct Authority) takes much stronger action over these events.  

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Roger Lawson

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Charles Stanley Takeover

   

I attended, via the LumiAGM platform, the Court Meeting and General Meeting of Charles Stanley Group (CAY) to approve the takeover by Raymond James this morning. In other words, these were hybrid meetings with both physical attendees and web attendees.

The meetings were reasonably well run but there were no questions from attendees and I guess it will go through as the offer price is more than 40% higher than the previous closing price for CAY shares. But we will have to await the final vote results (a 75% majority is required plus court approval in due course).

The LumiAGM platform is easy to use and I would recommend it to other companies.

It is perhaps unfortunate that yet another stockbroker is disappearing, therefore reducing competition. Consolidation in brokers and platforms is the name of the game of late as size matters now that profits are being eroded by new entrants while operating and regulatory costs rise. Keeping up technically is now expensive for example.  Raymond James is a good fit because they are primarily a full-service broker like Charles Stanley. But it may leave the execution-only Charles Stanley Direct platform out on a limb. I would expect they might sell that business to another execution-only platform operator in due course but the stated intention is not to change anything in the short-term.

At least this takeover will remove another holding from my portfolio, reducing it to 84 companies and funds, although a number of them are investment trusts and VCTs which require little monitoring. But with the market riding high, it’s a good time to weed out a few holdings.

Postscript: Based on the voting results, it looks like a done deal. Some 99.9% of shares were voted in favour, although the number of shareholders actually voting is astonishing low at only 72 (only 12.5% of those eligible). This should lead the Court to question the outcome, but will they?  See here for the full results: https://www.londonstockexchange.com/news-article/CAY/results-of-court-meeting-and-general-meeting/15138290  

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Platform Transfers – It’s Even Worse Than Thought

I commented last month on an article in Investors Chronicle by Mary McDougall on the subject of platform transfers, and how they are inordinately slow. Despite past efforts by the FCA, the situation does not seem to be getting any better. My latest transfer, which was commenced on the 12th of January, is still not complete. The shareholdings have recently been transferred to the selected new platform but not the substantial cash holding in the portfolio.

But according to the latest article (see link below) by Mary, other investors have even worse experiences. Six months is how long it took in two examples reported to her. Hargreaves Lansdown, who otherwise have a good reputation for service, seem to be no better in doing transfers than other brokers although none seem to be exactly fast. Of course it requires both sending and receiving brokers to act quickly to expedite a transfer so they tend to pass the buck if you complain. See her full article on the link below.

Mary would like folks to send her examples of their own experiences with broker/platform transfers so she can take up this problem with the regulators. Please send her an email to mary.mcdougall@ft.com . Please help her so we can get this problem fixed.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

Latest Investors Chronicle Article: https://www.investorschronicle.co.uk/news/2021/04/12/time-for-the-fca-to-crack-down-on-platform-transfers/

My Previous Article: https://www.sharesoc.org/blog/brokers/platform-transfers-progress-has-been-pitiful/

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The Promotion of Speculation

I was flicking through some TV channels last night and I saw an advertisement for Interactive Brokers Inc. You know the market is getting too speculative when you see they are offering margin rates of as low as 1%, i.e. you can borrow money at that rate to purchase shares.

This is some of what they say on their web site:

“Lowest Financing Costs:

We offer the lowest margin loan interest rates of any broker, according to the StockBroker.com 2021 online broker review.

Earn Extra Income:

Earn extra income on the fully-paid shares of stock held in your account. IBKR borrows your shares to lend to traders who want to short and are willing to pay interest to borrow the shares. Each day shares are on loan you are paid interest while retaining the ability to trade your loaned stock without restrictions”.

That last statement is truly surprising. So it seems you could sell all the stock you purchased on margin even though it has been lent out.

Interactive Brokers (IBKR) is a US listed company with revenues of over $2 billion. They are authorised by the FCA. The fact that they are now actively promoting their services in the UK tells you that the mania for share trading by small investors is spreading from the USA to the UK.

I suggest that buying shares on margin should be accompanied by very strong health warnings to investors and tougher regulations. It was one of the reasons for the collapse of the US stock market in the 1930s. Too many folks geared up with broker loans that were unsupportable when the market headed down. Investors were unable to meet margin calls, and the lenders then went bust.  

Borrowing to speculate on shares is like gambling with other people’s money.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Platform Transfers – “Progress has been pitiful”

There is a very good article in this week’s Investors Chronicle by Mary McDougall on the subject of platform transfers. I have sent her the following email:

Mary,

On the subject of platform transfers, you are quite right to say that “It appears progress has been pitiful”. I have done several such transfers in the past and none has been completed in under 3 months. The FCA initiatives to improve matters has had minimal impact. I am currently still trying to get one completed that I initiated on the 12th of January.

This is a transfer of a SIPP from one platform to another where I already held a SIPP. This was an “in-specie” transfer but it only contained holdings of cash and UK listed Crest shares. No funds or other problematic assets. In other words it should have been absolutely straightforward. But it still required paper forms to be completed and signed. They suggested it would take 12 weeks but I think it will take longer.

The latest hold up is that as I passed the age of 75 in the middle of this transaction the sending platform requires completion of a Lifetime Allowance Test which is also being done by the receiving platform. I am querying why they both need to do it and why that should be holding up completion.

What is really annoying is that both platforms seem to be understaffed to handle transfers, and seem to expect me to do all the chasing required to get the transfers completed. As I have pointed out to them, the FCA Handbook says the brokers “must execute the client’s request within a reasonable time and in an efficient manner”. They are clearly in breach of that rule.

In the meantime, my cash and holdings have been frozen, prejudicing my investment activities.

It is simply unacceptable for transfers to take months. It’s anti-competitive as it deters people from moving to platforms with lower costs or a better service. The FCA cannot fix this problem by exhortation. It needs to look at the wider issue of poor systems and under resourcing of transfers. And it needs to get a lot tougher with the platform industry.

Note that I have not named the two brokers concerned in my latest transfer as I don’t think they are likely to be any worse than others from my past experience. It is an industry wide problem, and needs tackling more vigorously.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Share Centre Future and FT Spoofing Article

The Share Centre recently advised their customers of “Our Future with Interactive Investor”. It gave details of the transfer of accounts to the Interactive Investor platform following the acquisition of the Share Centre business. However they failed to point out one important point which customers need to be aware of.

Share Centre ISAs are “Flexi ISAs”. This means that you can take cash out of the ISA and put it back in so long as you do it in the same tax year. Many people may have taken cash out this year after stock markets fell and put it on deposit, with the intention of putting back in later.

But Interactive Investor do not offer a Flexi ISA so if a Share Centre customer took cash out they won’t be able to put it back in after the account transfer. The Share Centre should surely have warned people about this but I can see no reference to it in their literature.

Spoofing

There was a very interesting article in the Financial Times today on the subject of “spoofing” – the practice of entering and cancelling orders in rapid succession to manipulate the prices of shares, bonds or commodities. The article was headlined “US regulators step up battle with spoofing” and mentioned the $920m fine imposed on JPMorgan Chase this week. Apparently the company’s traders had been using this abusive practice for years. The size of the fine should surely deter the practice if companies can actually control their traders.

This practice is not just confined to the USA of course. It was also alleged to have taken place in Burford shares recently. It just needs large transaction volumes in an order book system to make it viable.

It is symptomatic of the sharp practices that are rampant in the financial world. It is of course a practice to be abhorred as it creates a false market in the shares of a company. It suggests that there are buyers or sellers queuing up to buy or sell the stock, and a general impression of activity when none might exist.

Why not put a stop to it by imposing a time limit before an order can be cancelled?  

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Cash Held by Brokers, and Low Traffic Neighbourhoods

The Daily Telegraph ran an interesting article today on the amount of client cash held by stockbrokers and what they earn from it. Most brokers pay no interest on cash held in broking accounts, but get significant interest on it that they retain for themselves. They singled out Hargreaves Lansdown who apparently received £91 million in the last 12 months (to June) for some criticism. They obtained a margin of 0.75% on the cash held.

Many investors moved out of the stock market during the March epidemic rout but left the cash in their broking accounts rather than move it out, mainly because it’s takes effort and can be tricky to do so with ISAs and even more so with SIPPs.

But you can take cash out of an ISA and put it back in later, just so long as you put it back in within the same tax year. In fact I took quite a lot of cash out of our ISAs and with the market recovering strongly I am moving some back in. I did not expect the recovery to take place until much later in the calendar year. It’s quite difficult to understand why the market is recovering so quickly. Perhaps investors are looking further ahead than the short term poor economic numbers, or are betting on a vaccine working and soon (the FT reported on Russia going into production with one). But I never try to figure out the rationality of the market – I just follow the market trend but selectively about which shares I am buying and selling.

There is a great deal of irrationality in the world at present. A good example was a webinar I attended this morning run by Landor Links on Low Traffic Neighbourhoods (LTNs). These are being promoted by the Government and frequently consist of road closures using the euphemistically named “modal filters” Several of the speakers promoted the wonders of such schemes typically using slides showing the joy of cycling in sunny weather. They failed to cover how the residents of boroughs such as Waltham Forest got to vote on the proposals, before or after implementation. I know there is a very large amount of opposition in Waltham Forest, in Lewisham in the Oval area, in Islington and several other parts of London. But the Covid-19 epidemic is being used to justify emergency measures without any public consultation.

It’s all quite disgraceful as democracy is being undermined and the road network is being destroyed. Traffic congestion in Lewisham for example has been made a lot worse to my personal knowledge and that’s even before the schools return. Labour controlled Councils are frequently a particular problem as they tend to like to decide what is good for you rather than listening to their electorate or taking into account any rational arguments.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson  )

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Taking Cash From ISAs and IHT Reclaims

If like me you have been selling shares in your ISA during the market crash, you may now have a lot of cash sitting idle in your ISA. Most brokers pay no interest to you on it but prefer to collect it themselves. But now we are into the new tax year, there is a solution to this. Take the cash out and put it on deposit into a high interest current account. You will get over 1% interest.

You can put the cash back into your ISA without losing the tax reliefs so long as you do it within the same tax year (i.e. before April 2021). It is worth checking with your broker or platform provider that their systems support this though – mine certainly does.

If you expect the market to rebound quickly, you may not consider it worth bothering to do this, but the economic news and company results are surely going to be depressing for the next few months. Or as an article in the Financial Times said today: “The UK economy is heading for a recession that is forecast to be deeper than the 2009 financial crisis and one of the most severe since 1900; the coronavirus pandemic has seen consumer demand collapse and many businesses forced to close or significantly reduce operations”. Government moves to stimulate the economy may help but it still uncertain when business will get back to normal so holding cash in an interest paying account makes a lot of sense until the picture is clearer.

There was another interesting point raised in an article in the FT today under the headline “Wealthy seek inheritance tax rebates”. There may have been a number of deaths of elderly and wealthy relatives when stock markets were much higher. Inheritance Tax applies to the value of assets at the date of death, but it can take many months to obtain probate and for an executor to realise the assets. Shares may now be at a lower value so the tax is excessive. But for listed shares you can claim a rebate from HMRC. There is a similar provision for property.

Readers who are exposed to this problem should read the FT article and take professional advice on the subject.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Market Bounces, But It’s Not on Good News

The FTSE-100 is up 2.5% today at the time of writing, and my portfolio is up 5.5%. There are several stocks in there that are up more than 20% but the bad news keeps coming so this seems to be more a case of folks picking up stocks that have fallen to very low levels and moving into defensive ones than on any really good news. The impact of the virus in the UK is still growing and business is grinding to a halt.

The bad news today was 1) From Rightmove (RMV) who said “Notably the number of property transactions failing to complete in recent days and likely changes in tenant behaviour following the announcement of the renters’ protections by the government may put further pressure on estate and lettings agents”. They are knocking 75% off their customer invoices for the next few months which will mean a hit of up to £75 million to revenue! Better to have some revenue than have agents cancel seems to be the logic. The share price is down 4%. 2) From Tracsis (TRCS) a provider of services to the rail industry who say: “Given that the situation is changing rapidly, at this point in time it is not possible to accurately quantify the impact on H2 trading and therefore full year expectation”. A lot of their revenue is recurring in nature but they will be impacted by the cancellation of events. The share price is up over 2%, presumably on some relief that it is not as bad a prognostication as many companies are issuing.

I do hold those stocks but one I do not is Next (NXT) the retailer. They have received compliments in the national media about their recent announcement which gave some very detailed forecasts of how they would cope “in extremis”. I still doubt this is a sector to get back into because wages in many sectors of the economy will be depressed which will surely hit retail sales even if they are able to venture back into the shops or shop on-line. When the economic outlook is uncertain, people stop spending money also.

For Sirius Minerals (SRX) shareholders, ShareSoc has issued a very well judged blog post on possible legal claims – see https://www.sharesoc.org/sharesoc-news/sirius-update-9-14-march-2020/ . Regrettably there have been some hotheads who wanted more action and sooner, which was not practical, and some who think ShareSoc is raising false hopes. Neither is the case. As someone who has in the past run shareholder action groups, I have learned that quick actions are neither sensible nor practical. But legal cases for redress are sometimes possible – for example in the case of the Royal Bank of Scotland rights issue in 2008 and the false prospectus. But it can take years to raise funding and reach a conclusion. Persistence is everything in such circumstances. But rushing into legal action, however willing lawyers are to run up fees on a case, is not sensible.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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Sirius Meeting Result, Intu Announcement and Share Plc Results

Yesterday shareholders in Sirius Minerals (SXX) voted for the proposed scheme of arrangement. Whether the votes actually represented the considered views of shareholders as regards the Court vote is questionable as most were not on the register and hence would not have been counted as individual members. However, this was a typical example of what happens when a company runs out of money and there is the immediate threat of administration – the winner is likely to be any other company that is willing to put up the cash to mount a rescue which in this case was Anglo American. Shareholders will not lose everything in this case as is what often happens but the many private shareholders who invested after optimistic promotions of the venture will still feel disgruntled no doubt.

I did not attend the meeting as I was never a shareholder in the company, but there are good reports in the Guardian and Daily Telegraph this morning. ShareSoc who have been running a supportive campaign for Sirius investors will no doubt be publishing a report on the meeting soon.

I never invest in mining companies that are still building a mine rather than actually in production because they always tend to run out of cash and require more investment to finish the development. The folks who make money are those that step in at that point because there are often few bidders to take it forward. In the case of Sirius billions of pounds are required and the project is high risk and always has been, even if the eventual outcome could be very profitable. So you can see exactly why current investors did not have much choice and may have been wise to vote for the takeover. The only possible alternative was some support from the Government such as loan guarantees but they chose not to do so. Why should they though when the Anglo deal will protect jobs and ensure the mine is developed? At least they will be taking the risk, not the Government.

In a previous blog post I suggested that investing in property companies might prove a good defensive strategy against the coronavirus epidemic. That was on the basis that they have reasonably secure long-term leases. But property companies that are exposed to the retail sector are probably not a good bet, I should have said. This morning Intu Properties (INTU) gave an “Update on strategy to fix the balance sheet” which is a direct way of stating what needs to be done.

The share price is down 28% today at the time of writing, and that is after a long decline since 2006. It’s actually fallen by 99% since then!  The company has concluded that an equity share raise is not viable.

The business reports some positive news but in essence the company has too high debts with a debt to asset ratio of 68% after the latest property revaluations downwards. It has £190 million of borrowings due for repayment in the next year and other liabilities of £93 million also due. The company is to “broaden its conversations with stakeholders” but it looks to be a grim outlook for ordinary shareholders. A debt for equity swap is one possibility which often dilutes previous shareholders out of sight.

Share Plc (SHRE) who run The Share Centre announced their preliminary results this morning. You can see why the company recently agreed a takeover bid. Revenue was up 7% but losses rose to £133,000. Not that this is a great amount but it shows how competitive the stockbroking sector is currently with new entrants now offering free share trading. Consolidation is clearly the name of the game so as to increase scale and therefore it’s not surprising that an offer was accepted.

Stockbrokers now have high fixed costs due to the costs of developing and maintaining their IT systems and increased regulations and compliance have also added more costs. With few barriers to entry and not much market differentiation the future for smaller players does not look good.

Roger Lawson (Twitter: https://twitter.com/RogerWLawson )

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