Investors held to ransom by platforms
Investors are increasingly being encouraged to buy their investments via platforms such as Fidelity Funds- Network and Skandia, which act as convenient one-stop shops for dealing with a range of fund managers.
However, investors are now being held to ransom by some platforms when they want to move their business elsewhere.
Instead of being free to transfer existing fund holdings to another platform, investors are being told that they must cash them in first and repurchase them on the new platform with all the expense that this procedure involves.
The regulator has issued a warning
The Financial Services Authority (FSA) has warned platforms about this practice in the past, but they appear to be dragging their feet over the issue.
Platforms have been quite happy in the past to accept the direct transfer of existing fund holdings and Isas to consolidate them in one spot. Fidelity FundsNetwork has even offered investors cash incentives to do this.
But when these investors want to switch to another platform they are met with a different attitude.
This situation can arise when investors may need to switch to a new platform when they want to change financial adviser.
Investors forced to cash in
If their new adviser does not use the same platform, an investor will be told they must switch to the new platform by following the cashing-in route. Money Observer reader Dr Paul Rasor came across this practice when he wanted to change advisers.
He points out that cashing in would not only cost him money, but also pull his investments out of the market for a significant period. The platforms say allowing investors to transfer holdings in specie is too complex.
Ed Dymott, head of UK fund partners at Fidelity, explains: "Arranging the transfer of several funds between platforms, or any firms holding investments in nominee names, involves coordinating at least five or six companies and getting all of them to carry out the transactions simultaneously, which is extremely difficult."
The FSA has been telling platforms to get their houses in order for the past two years. A Cofunds spokesperson says it is "working towards" that end.
Fidelity says it already carries out re-registrations of directly held funds onto another platform if that platform accepts transfers. However, Dymott says funds within ISAs or self-invested personal pensions still require a cash transfer.
The FSA has now set a deadline. It has notified the industry that it must allow the re-registration of assets before the finalisation of the Retail Distribution Review in December 2012.
It wants to make it compulsory for consumers to be offered an automated solution for moving between platforms by then.
This article was originally published in Money Observer - Moneywise's sister publication - in May 2010
Often used by stockbrokers to ease the administration of buying and selling holdings on behalf of their clients, a nominee (the broker) holds securities on behalf of investors (the “beneficial owners” of the securities). Holding securities through a nominee is cheaper, but the disadvantage is that beneficial owners of shares forego certain rights enjoyed by shareholders on the register, such as the right to vote at an annual general meeting (AGM) or extraordinary general meeting (EGM) and the right to propose AGM or EGM resolutions. Holding securities through a nominee still entitles the shareholders to dividends, rights issues etc.
The Financial Services Authority is an independent non-governmental body, given a wide range of rule-making, investigatory and enforcement powers in order to meet its four statutory objectives: market confidence (maintaining confidence in the UK financial system), financial stability, consumer protection and the reduction of financial crime. The FSA receives no government funding and is funded entirely by the firms it regulates, but is accountable to the Treasury and, ultimately, parliament.