There was a moment in the financial crisis, when a very senior official at the Bank of England was perplexed.

It was soon after the news broke that Northern Rock was in meltdown and seeking a rescue package from the government, and footage showed customers queueing to withdraw their savings. The Bank official could not understand why they were bothering – there was a government-backed deposit guarantee scheme in place, he reasoned, that would see them right.

He was both right and wrong. Yes, there was such a life-belt available. But at the same time, they did not trust the authorities to see them right. It was their money and they wanted out. And that really was the point: their money. A similar occurrence is unfolding again, with the trauma engulfing stricken fund manager Neil Woodford. The former star stock-picker has banned clients from redeeming their investments.

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His move to shutter the £3.7bn Woodford Equity Income Fund (not so long ago, it was touching £10bn), preventing withdrawals, has provoked an outcry. It’s the investors’ cash, and many of them are small punters attracted by Woodford’s hitherto stellar record and heavy marketing from the likes of Hargreaves Lansdown.

His was an open-ended fund, one where punters can come and go on a daily basis. That was fine when his stocks were soaring. No one minded, either, that some of his investments were in illiquid, hard-to-sell, non-stock market quoted stocks. Suddenly, the shares went south, and his investors rushed for the exit. Now, Woodford has pulled the gates down to prevent them leaving.

Of course, it was in the small print that investments can go down as well as up. It always is – the Financial Conduct Authority ensures it is. But that does not lessen the pain and urgency experienced by his once loyal flock as they watched their cash melt away. Neither does his video message, saying, “We understand our investors’ frustration. All I can say is that this decision was motivated by your interests. When it is appropriate, we will open the fund so you can buy and sell as normal.”

Woodford says he plans to recycle the fund into “more conventional” FTSE 100 shares, shifting away from unlisted companies and thinly-traded stocks. He needs time, he pleaded. The sale process is “under way”, but the increasing outflows were undermining his efforts. “The suspension of dealing in the funds gives us the time and space to execute that strategy.”

While his motives may be sound, and grounded in law, the outcome is that his followers cannot get at their money. Their money, not his; not the fund’s; not for the benefit of other investors. He’s doing nothing wrong, but that does not make it right. The guilty party in all this is the FCA, for allowing it to happen, for turning a blind eye to Woodford’s dive into illiquid stocks, for letting him push other people’s money into obscure bio-tech outfits, from which he now cannot easily exit.

Even the listed portion of his portfolio lacked solid quality, with Woodford selecting thinly-traded stocks such as IP Group, Stobart and Provident Financial, that, for all their being quoted on the stock market, might as well have been unlisted. Woodford needs to show he shares his customers’ agony, and really show it. Corporate words that have gone through a lawyer’s terminal simply will not do. This is a disaster, and he must do what any good chief would do in such a scenario: demonstrate you care, that you understand, display compassion and empathy. Anything less will sound hollow.

It’s not a question of admitting liability – something his legal team will worry over. He can do it without getting into a legal dispute – that can come later. For now, he must focus on one certainty: it’s not his money and he is going to do his level best to enable them to get it back.

For too long. The City has played fast and loose with OPM (other people’s money), as it’s known on trading floors and in bars where dealers gather. Sadly, it’s not the traders who disregard the fact the cash they’re speculating with isn’t theirs. The authorities, too, do not do anything like enough.

That was the lesson of the crisis, the one that saw Northern Rock become the first British bank in 150 years fail due to a run on the bank. Northern Rock was followed by a full-scale catastrophe, as Lehman vanished, and other banks sought bailouts. Afterwards, once the emergency had passed and the world pulled back from the brink of economic failure, we were assured it would not occur again. 

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Measures would be taken, and there would be a change in attitude to ensure there could be no repetition. Woodford is a stark warning that not much has really altered. Too little attention is paid to the qualification that shares do not always rise – possibly because the print really is too small, and it’s tucked away in the terms and conditions, and is that part of the advert that the voice over usually gabbles through at ferocious speed, or the words fly across the screen in a split second. When you’re marketing something with the consequences of what if, what if you lose is not something you want to dwell upon.

Insufficient focus, too, is paid by the regulators. The strategy looks good, the blurb, the promises appear sound and plausible, and safe. But it’s OPM, and investors should not be barred from accessing their money. Woodford’s woes require a wholesale rethink. Again.

Chris Blackhurst is a former editor of The Independent and current executive director of CTF Partners

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