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Woodford Equity Income fund suspension

05 June 2019

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It will not have escaped your notice that trading on the above fund was suspended on 3 June 2019. With such a high profile fund, the breadth of impact is broad and although this represents fewer than 3% of advisers’ clients on our Platform, they may feel the impact depending on their circumstances.

We therefore wish to share with your firm a number of scenarios and the Zurich Intermediary Platform position, so you can discuss this with your clients and colleagues as required.

We note that we do not have this fund currently held inside any DIM model portfolios on the Platform.

Buying (new money or a switch into)

The fund is suspended, therefore you will not be able to purchase this fund with new money or switch into it. The fund is no longer showing on our tradeable assets list available from our intermediary website.

The proportion of the regular contribution (if held outside of a model portfolio) that is allocated to the suspended fund will instead go into ‘available cash’ of the relevant Account. If the asset is held inside a model portfolio, it will be held as cash inside the model portfolio.

You can log into the Platform and select a new asset allocation for future contributions.

Selling or switching out

The fund is suspended, therefore you will not be able to sell out or switch out of this fund until the suspension is lifted.

Inflight money

Any trades (buys or sells) for which we have not received confirmation will be cancelled. Client money buying the fund will be placed in ‘available cash’ for the relevant product, or as cash inside the model portfolio if the fund is held inside a model portfolio.Sells will not complete and your client(s) will unfortunately have to remain invested in the fund until the suspension is lifted.

Regular withdrawals

The full income entitlement will continue to be paid to your clients. It is important to understand the process that will be followed for regular withdrawals:

  • A client holding say 10 funds in a model receiving £100 per month, split equally across all 10, will still receive £100. The £100 will be generated proportionately from the remaining 9 funds. If for any reason the cash cannot be raised from the 9 funds, the balance will be taken from ‘available cash’ and if necessary our auto-disinvestment strategy will seek to meet the shortfall. As always, your client will still receive their expected cash on time.
  • The Woodford fund will remain outside of the income payments and the above process will be followed until the suspension is lifted.

One-off withdrawals/PCLS payments

One-off withdrawals/PCLS payments can only be keyed on the Platform when there is available cash (or a confirmed price for the sell transactions.)

The full withdrawal/PCLS entitlement will still be paid in full to your clients. It is important to understand the process that will be followed for one-off sell transactions:

  • A client holding say 10 funds in a model will receive the full amount from 9 of the funds held, taking the necessary shortfall from the 9 funds in the same proportion.
  • The Woodford fund will remain outside of the withdrawal process until the suspension is lifted.
  • For any inflight sells that have been cancelled, you will need to sell other assets to raise enough cash to pay the one-off withdrawal or PCLS.

Invested fully in the LF Woodford Equity Income fund only

Although unlikely, if a client only holds this fund and there is no ’available cash‘, the client is unfortunately stuck until the fund resumes trading. No sells or income payments can be made.

Model Portfolio Rebalances and Upgrades

Automatic and manual rebalances and upgrades will not be actionable if the model portfolio contains the suspended fund. You may choose to deconstruct the model portfolios, create new models without the LF Woodford fund and reconstruct into the new model, leaving the LF Woodford fund outside the model portfolio.

We don’t have any impacted DIM model portfolios involved at this time, but for completeness please see below the options available to model portfolio users.

Model Portfolio Activity Versioned Model Portfolio Non-versioned Model Portfolio DIM Model Portfolio
Deconstruct Yes Yes Yes
Reconstruct Yes Yes Yes
Upgrade No, if the existing model portfolio contains a suspended fund. N/A N/A
Edit Yes, but the suspended fund cannot be included in the new version Yes, but the suspended fund cannot be included in the new asset allocation. Yes
Auto rebalance No, if the existing model portfolio contains a suspended fund, the auto rebalance will not be carried out. No, if the existing model portfolio contains a suspended fund, the auto rebalance will not be carried out. Yes
Manual rebalance No, if the existing model portfolio contains a suspended fund, the manual rebalance option cannot be selected. No, if the existing model portfolio contains a suspended fund, the manual rebalance option cannot be selected. Yes

Re-registration

Please note, the fund manager has confirmed that re-registration is still permitted providing the beneficial unit holder remains the same.

We hope this is timely and useful information for your firm.