By Ruth Alexander and James Phillipps Pep consolidation is costing investors up to 5% to 6% o...
By Ruth Alexander and James Phillipps
Pep consolidation is costing investors up to 5% to 6% of their combined tax-free investments due to the need to encash their investments before moving them to be held under one banner.
Many fund managers and fund supermarkets are unable to handle so-called in specie transfers, which is when a client moves assets directly from one investment fund to another.
As of the 6 April investors have been able to consolidate their Pep and Isa holdings. However, because of administration difficulties in handling transfers, investors looking to consolidate have to redeem each individual investment as cash and then reinvest. While many fund managers offer discounts, the reinvestment of the cash incurs initial charges and bid/offer spreads.
Ian Annand, Eurolife marketing director, said those offering transfers generally charge a flat fee or none at all.
Another disadvantage for investors is that by being forced to encash all the assets ahead of a transfer they miss market timing opportunities.
Rodney Aldridge, sales and marketing director of Cofunds, said: "The client is obviously going to suffer some cost but they are taking it as an opportunity to realign and structure their existing portfolio."
He added Cofunds would not be offering in specie transfers initially. He said Cofunds is in talks with the 25 groups and would offer stock transfers once all the groups are able to support this. In specie transfers were a likelihood by the end of the year, he said.
Sam Jensen, chief executive officer of Cofunds, said it would be accepting only cash transfers this season in order to keep administration simple. Jensen said the situation would be helped if IFAs gave up their initial commission on transfers, and fund manager groups their initial charges on reinvestment. According to Hargreaves Lansdown, Barings, Foreign & Colonial, Henderson, Exeter, Govett and HSBC are among those which do not allow transfers, while Baillie Gifford, Invesco/Perpetual, Investec and LeggMason Investors do.
Jupiter, Gartmore, M&G, three of the founding members of Cofunds, do not allow in specie transfers, just as Fidelity does not, the group said.
Mark Dampier, investment director of Hargreaves Lansdown, said: "It is not even that these groups cannot actually process in specie transfers, they can Ã just manually, which of course is expensive for them. They spent so much money on building fund supermarkets, but missed the simple things like being able to move stocks across."
Dave Cowdell, marketing director at Fidelity, said it is likely that both the group and FundsNetwork will allow in specie transfers by the end of the year.
He said: "Before the rule changes, you could only open a Pep or Isa with cash. No one foresaw this particular change in regulation and it will take the industry some time to adjust to in specie transfers."
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