Almost 6 in 10 of advisers surveyed had, at some point, recommended clients invest in the Woodford Equity Income fund.

Of these, 84% had clients who were impacted by the fund’s suspension in June 2019.

The most common changes made by advisers after the collapse of Woodford Investment Management were to give more consideration to liquidity when choosing investments (47% of respondents) and to be less trusting of a fund manager’s reputation (41%), according to research by the Association of Investment Companies.

Other common changes were to check the level of exposure to unquoted companies in funds (37%), to discount fund manager reputation in investment decisions (29%), and to read fund factsheets (23%) and prospectuses (10%) in greater detail.

Richard Stone, chief executive of the Association of Investment Companies (AIC), said: “Our research shows that the suspension of Woodford Equity Income came as a surprise to most advisers, as it did to private investors. It has left them a lot more cautious about trusting a fund manager’s reputation or investing in a fund that has exposure to illiquid assets.

“Advisers clearly identify the Woodford fund’s exposure to unquoted companies as the number one reason behind its suspension and eventual failure. Whenever open-ended funds hold hard-to-sell assets, there will be a risk of such problems. The proposed Long-Term Asset Fund needs to be carefully designed to minimise such risks and, as an untested product, it should not be widely distributed until it has proved itself through an economic cycle.”

There was agreement amongst advisers surveyed by the association (72%) that there are insufficient controls on how funds operate where they hold illiquid assets.

Almost 7 in 10 (69%) of those surveyed said the Financial Conduct Authority should impose stronger investor protections where illiquid assets are held in funds.

The collapse of Woodford Investment Management also left advisers less trusting of the investment industry. A majority (54%) said their trust in the industry had been weakened, and among those advisers who had clients impacted by the suspension, 62% trusted the industry less than before.

The research also revealed advisers were more cautious about investing in open-ended funds with direct investments in property, following several being suspended during the Coronavirus pandemic lockdowns.

Previously 69% had at some point recommended that clients invest in an open-ended property fund. Only 12% said they currently recommend such funds, and only 11% said they would definitely do so in the future.

Research amongst 106 advisers was conducted by Research in Finance on behalf of the Association of Investment Companies.