The study found that 86% of Woodford investors who were impacted by the suspension of the fund suffered a negative impact on their finances, while 53% reported a negative impact on their general wellbeing.

The AIC says its findings are highly relevant given the investment industry’s plans to launch long-term asset funds (LTAFs), a new open-ended fund structure that would be allowed to have far greater exposure to hard-to-sell illiquid assets than was permitted for the Woodford Equity Income fund.

The Woodford Equity Income fund was suspended in June 2019 following an increase in redemption requests which couldn’t be readily met. In October 2019, Link confirmed the £3bn fund would be wound-up with cash returned to investors as soon as possible. But in August 2021, Link said investors wouldn’t get their money back until 2022.

The research, conducted by Research in Finance for the AIC, looked at the impact that the suspension of the fund had on investors.

One investor reported that she will have to work for an extra two years to make up the losses on her investment. Another described the suspension of Woodford’s flagship fund as “a bolt out of the blue”, while others used phrases like “sick to the stomach” and “bad on top of bad” to describe their feelings on hearing the news.

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Trust in the investment industry remains dented more than two years after the suspension. Of respondents who were affected by the suspension, 77% reported a negative impact on their trust in the investment industry. A total of 81% of private investors believe the FCA should strengthen protections for investors where illiquid assets are held in open-ended funds.

Richard Stone, AIC chief executive, said: “The collapse of Woodford Investment Management two years ago shook the entire investment industry, and we are still dealing with the aftershocks. This research reminds us of the financial and emotional impact on individual investors, which is still being felt.

“Everyone in the investment industry has lessons to learn from what happened, and as an industry we clearly still have our work cut out to restore trust. In the circumstances, it is vital that the launch of Long-Term Asset Funds (LTAFs) does not lead to any kind of repeat of this disastrous episode.

“To prevent investors getting burned again, the LTAF must be based on robust regulatory standards and should not be accessible to the general public. Broad distribution of the LTAF before it is tested through an economic cycle risks exposing investors to fire sales of assets, suspensions and fund failures which can arise from liquidity mismatches, as we saw with Woodford Equity Income.”

The AIC’s research also casts light on why private investors entrusted their money to Woodford Investment Management. It found the reputation of Woodford himself was the most influential factor, cited by 82% of investors in Woodford’s funds.

This was followed by the inclusion of the fund on Hargreaves Lansdown’s buy-list (56%) and coverage in the finance sections of newspapers (31%), with the appeal of the fund’s investment objective or strategy in fourth place (25%).

Among investors in Woodford’s funds, 83% were not fully aware of their exposure to small, unlisted companies, while 20% were not aware at all. And among all private investors, more than a third (34%) were unaware of the possibility that an investment fund might suspend trading.