Three in four platforms do not offer fund share class switch
New research has found platforms do not seamlessly convert fund investors from accumulation to income units.
Just six of the 19 leading investment platforms offer clients the opportunity to seamlessly switch from the accumulation version of a fund (likely to be used by investors as they build an Isa or Sipp) to the income version, according to research by Candid Financial Advice.
The financial advice firm surveyed the 19 platforms and found that only AJ Bell YouInvest, Tilney Bestinvest, Charles Stanley Direct, Cofunds and Transact offer the conversion on all funds. Fidelity allows investors to convert funds from its own range, but not from other providers.
Investors on platforms that do not facilitate accumulation to income unit conversion have to manually sell out of the accumulation version and then separately buy into the income version.
This process takes at least a day, potentially costing them returns should markets rise in the intervening period. It should be noted that, should the market fall in this time, investors will not lose out and will in fact benefit from being out of the market for a short period of time.
Converting from a growth to an income fund share class is most widely utilised by older investors transitioning from building up their pension pot to taking an income in retirement. Pre-retirement, accumulation units tend to be much more popular as investors do not generally require the income.
Justin Modray, director at Candid Financial Advice, says: "You’d think converting [from accumulation to income] would be a standard service offered by all investment platforms, but our research suggests around three quarters don’t.
"This effectively forces their customers to incur market risk and charges from having to sell and buy back units, which could potentially cost them thousands of pounds.
"For example, someone with a £200,000 Isa portfolio who needs to move from accumulation to income units would lose £2,000 if they were forced to sell and buy back and markets rose by 1 per cent over that dealing period. Plus, fund trading spreads or levies could easily add another £1,000 or more to this."
Mr Modray says the conversion itself is handled by fund managers, so in his opinion platforms have no excuse other than simply not wanting the hassle of offering this facility to their customers.
He adds: "Inertia could leave some of their customers paying a potentially hefty price when they require income."
However, some firms point out that under the new pension landscape there will be a greater tendency among savers to keep some of their pension invested for longer than previously.
Hargreaves Lansdown, which following Candid Money’s research said it would start to allow clients to convert, points out that the number of clients who actually require this service is relatively small at present.
Danny Cox, head of communications at Hargreaves, says: "The number of clients who want to change from accumulation to income units is tiny compared to the volume of other transactions made by the 836,000 clients who use our investment services. Therefore, up until now, we haven’t offered this facility as a conversion; it has been available as a switch.
"Going forward we will allow clients to convert from accumulation to income units providing that the underlying fund groups also allow a conversion, which they don’t in every case."
Like a self-select ISA but for pensions, self-invested personal pension is a registered pension plan that gives you a flexible and tax-efficient method of preparing for your retirement. It gives you all sorts of options on how you put money in, how you invest it and how it’s paid out and offers a greater number of investment opportunities than if the fund was managed by a pension company. SIPPs are very flexible and allow investments such as quoted and unquoted shares, investment funds, cash deposits, commercial property and intangible property (i.e. copyrights, royalties, patents or carbon offsets). Not permitted are loans to members or people or companies connected to the SIPP holder, tangible moveable property (with the exception of tradable gold) and residential property.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.