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Crazy fund codes that stopped me getting a better investment deal
Savers who want to move their investments from one platform to another are being told they can't switch share classes
Investors who want to transfer their funds from one investment broker to another are incorrectly being told they must sell some of their holdings first, exposing them to unnecessary tax bills and other costs.
The problem has emerged because a number of fund providers, including major names such as Invesco Perpetual, have struck special pricing deals with the larger brokers, or “platforms”, such as Hargreaves Lansdown and Bestinvest.
A single fund can come in several different versions, or share classes, which are often designated by a different prefix or letter. Although the underlying investments are identical, different share classes carry different costs.
Invesco Perpetual’s High Income fund, for example, is available through some fund platforms and brokers in its “Y” share class, which is cheaper than its standard “Z” share class.
Telegraph Money has heard from a number of investors who have tried to move their investments, which included Invesco Perpetual funds, from a platform that offers the “Y” share class to one that offers “Z”. They were told that they would have to sell their Invesco units first.
If held outside an Isa, this could trigger a capital-gains tax bill. It could also expose investors to additional charges or – because they would be out of the market – cost them potential returns.
They were told the alternative would be to leave their Invesco holding with the original platform and move the rest of their funds, which would be extremely inconvenient and impractical.
Ideally, when you switch providers, you should not have to sell and repurchase funds. The two providers should arrange for the holdings to be moved “in specie”.
And if the brokers involved are prepared to help customers, a similar outcome should be achievable even where fund shares classes have to change. The original platform should convert holdings to the same share class that the receiving platform offers before transferring them across.
Mark Polson, of investment consultancy The Lang Cat, said platforms are not offering this to clients because it costs them money.
“Platforms don’t like re-registering money anyway, but they would rather sell investments down and move the money because it’s easier and cheaper for them than converting the share class,” he said. “But platforms should be hotels, not prisons. If platforms want to negotiate cheaper share classes than their competitors, they have to offer their clients a way out when they want to leave that doesn’t involve them selling their funds.”
Last month this newspaper wrote about Garth and Carole Inman, who had stocks and shares Isas on investment platform Cofunds. They wanted to transfer them to a new platform, Transact. Their financial adviser warned them that there could be a problem transferring their Invesco Perpetual funds because they held the “Y” share class with Cofunds but Transact only offered the “Z” share class.
They were told that the only way to achieve a transfer was for the Y class to be sold and the cash transferred to Transact, which would then reinvest it in the Z share class.
But a Telegraph Money investigation found that Cofunds could have simply transferred the funds into the Z share class and then transferred them to Transact. This option was not offered to the Inmans until this newspaper intervened.
And it appears that this was not an isolated case. Telegraph Money has heard from a number of investors who have faced the same problem.
Tony Taylor (above), of Formby in Liverpool, retired from the pharmaceutical industry and took up investing several years ago. He recently tried to transfer his investments from Bestinvest to Interactive Investor.
Interactive Investor contacted Mr Taylor to say that his Invesco Perpetual High Income fund could not be moved because he held the “Y” share class with Bestinvest and Interactive only offered the “Z” share class. Interactive said he could encash his units and transfer the money across, or leave his Invesco holding with Bestinvest.
“Armed with Telegraph Money’s article I telephoned the Financial Conduct Authority,” he said. “I explained my position and referred to the article. A very helpful adviser told me that the FCA was aware of this situation. He asked me how I could be financially disadvantaged by the options given to me.
“I explained that to transfer my holding I would incur the cost of selling and repurchasing the holding, and would be out of the market for two to three weeks. Alternatively, if I left my holding with Bestinvest, I would incur a second set of ongoing charges.”
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The FCA adviser recommended that Mr Taylor contact both Bestinvest and Interactive again and insist that the share class be changed to facilitate the transfer.
“I telephoned Interactive and was told the options given to me were the only ones possible,” he said. “I then mentioned the Telegraph Money article and the advice received from the FCA. Suddenly, a share class change was another option – but I would have to instruct Bestinvest myself.
“I telephoned Bestinvest and was told that it was not possible to change the share class to facilitate the transfer. Again, I mentioned the article and the advice from the FCA. After a pause, a share class change was suddenly possible and the Bestinvest transfer team agreed to do this for me. Obviously it can be done, but platforms are reluctant to do it.”
Ben Yearsley, of Charles Stanley Direct, the investment shop, said when fund providers and platforms negotiated preferential rates, no one considered the impact it would have on transfers.
And it’s not just Invesco Perpetual funds that are affected. Schroders, Investec and Threadneedle among others all offer preferential rates to some platforms.
“This is a growing problem,” Mr Yearsley said. “In the future, investors in Woodford’s Equity Income fund, in particular, will face problems because Hargreaves Lansdown has negotiated a cheap share class that only it has access to,” he said. “Platforms don’t know how to deal with it. They need to get a grip on this and offer a fair solution.”
Mr Yearsley said investors should be allowed to keep their existing share class when they transfer their money to a new platform, but if they want to buy more units, they should have to buy them in whatever share class is offered by their new platform.
The Financial Conduct Authority refused to comment on the issue, but has previously said that it expected moves from one share class to another would be achieved by converting the units, rather than selling.
The Investment Association, which represents fund groups, said it supports “any efforts to facilitate straightforward re-registration, including where this involves conversion from one unit class to another”.
• nicole.blackmore@telegraph.co.uk