The FCA handed the fine, which is the largest that has been placed upon a UK fund manager, to Invesco Perpetual because during the period May 2008 to November 2012 the group exposed their investors “to greater levels of risk than they had been led to believe”.
Specifically the group failed to disclose the use of, and risks associated with, derivatives in a number of their funds’ prospectuses.
Invesco Perpetual also did not adequately document allocations of fixed income securities when aggregating client orders and various fixed income transactions were not posted on a timely basis.
These issues took place across 15 of their funds, including the five crown rated High Income and Income funds, which used to be managed by Neil Woodford but have since been passed onto FE Alpha Manager Mark Barnett.
Invesco Perpetual have, however, paid out compensation to the funds and have had the fine cut by 30 per cent for settling with the FCA at an early stage. It would otherwise have been more than £25m.
With that in mind, we ask the experts what they think of the fine, whether it changes the way they view Invesco Perpetual as a house and whether they are now less likely to invest in their funds as a result.
Patrick Connolly (pictured), head of communications at Chase de Vere and member of the AFI Panel
“It’s clearly very bad news for Invesco Perpetual, but also very bad timing.”
“It is worrying that the system and controls breaches had been going on for a number of years but for this to come to light now, with Invesco Perpetual struggling with Neil Woodford leaving and setting up his own business, it doesn’t reflect well.”
“However, it doesn’t reflect well on Neil Woodford either.”
“While it is concerning that it has taken so long to come to light, there are two factors that are important here. Firstly, investors haven’t been negatively affected and secondly, the systems and controls are now in place.”
“We will continue to use Invesco Perpetual funds as we have done in the past.”
Mike Deverell (pictured), investment manager at Equilibrium Asset Management and member of the AFI Panel
“Obviously, it is a little bit concerning. The facts around it still seem to be pretty few and far between but it seems to suggest they had some pretty lax risk controls. Having said that, it does appear that these were historical issues that happened in the past and have since been rectified.” “I suppose we have to take their word for it and believe them when they say they have enhanced their processes and, given the nature of the fine, there is a big incentive for them to make sure that is the case.”
“We will quiz them more about it when we next see them as we do use a number of their funds, but it isn’t an immediate concern for us.”
“It seems, however, that it is more about risk control and compliance than anything else, which is something we always screen for when doing our own due diligence on a fund.”
“Each group usually has an independent risk analysis team, so something has clearly failed at Invesco. However, it is good to see that it has been rectified.”
Brian Dennehy (pictured), managing director at Dennehy Weller & Co Ltd and AFI Panel Member
“Obviously this will create some headlines. But does anyone really care?” “The adviser market is already concerned about regulatory over-kill, so unless there is fraud or someone is dead the adviser market will be unmoved beyond shrugging its shoulders.”
“It won’t add anything to the issue as to whether an adviser should be recommending holding or buying ex-Woodford funds.”
“Then there are the consumers – whether advised or non-advised. The advised will follow the lead of their advisers.”
“Fans of Invesco, mostly inert, will remain unmoved. Fans of Woodford, less inert and faithful camp followers, will also be unmoved. So it all ends up being a bit of a bore for those who count.”
Charles Younes (pictured), analyst at FE Research
“Despite the fact we didn’t start recommending the fund during the period in question, for me, it looks like the FCA has done its job.”
“Clearly, risk limits were breached and the use of derivatives was not explicitly notified to investors. It is also clear that Neil Woodford was using derivatives, but Invesco Perpetual has agreed to pay in advance to limit the fine.”
“It is a real concern that use of derivatives wasn’t explained to investors, because clearly, they do carry a certain degree of risk that should have been properly described to clients.”
“However, the FCA has come in sorted the problem and Invesco Perpetual have fixed the issue raised by the FCA. They have improved their risk management process and that should make it easier of the risk analysis team at Invesco Perpetual to make sure that the new manager, Mark Barnett, doesn’t breach those risk controls again in the future.”
