Transferring Pep funds through a supermarket can cut down on paperwork and make it easier to analyse and administer clients' portfolios
There was just over £34bn invested in around 7.2 million Pep accounts in April 2003, according to the IMA. Although rather slow to sell when they were first introduced in 1987, they quickly gained in popularity once the tax-free investment limit was increased and the types of investments allowed was opened up to include a wider range of unit trusts and investment trusts.
While no new money can be invested in a Pep since they were replaced by Isas, this in no way means that these investments need be frozen in time. Investors are free to switch funds or transfer them to another Pep provider at anytime and retain their tax advantages.
There are a number of reasons an investor may consider transferring their Peps. The client's investment needs may have changed, say from the need for growth to income, or they may be reviewing their portfolio in the search for better returns. This is of particular relevance to those older Peps, particularly since the range of investments that can now be held in a Pep is as wide as those available for Isa investment.
Many investors may hold multiple Pep accounts where they had invested each year in order to secure their tax-free allowance, some of which may have remained unchanged for many years, either because they have so far performed adequately or the servicing intermediary has ceased to act on the client's behalf. This being the case, there are undoubtedly many Pep investors with potentially large portfolios of investments, all held in a tax-free environment. Another reason often cited for transferring a range of Pep investments is the need to consolidate all investments into one central place and a number of fund management groups market this concept to potential clients.
All of the above reasons are valid. Certainly, with markets so uncertain, now is an ideal time to review one's investment portfolio to maximise returns. However, traditionally, there have been some disadvantages to Pep transfers that may have deterred investors from doing this.
Apart from the potential risk of being out of the market for up to a few weeks while the transfer is taking place, there is also the cost ' having to incur an initial charge each time to transfer is not an attractive proposition for the client.
Furthermore, while fund groups may promote the idea of consolidation to one or more of their own funds, it may not always be the best thing for the investor in the long run. While the main benefit to the investor of centralising their investments is the dramatic reduction in paperwork and a more manageable portfolio, it may not always be deemed best advice to put all of one's money with one fund group. It is unlikely there will be a sufficient range of funds available to provide an adequate diversity of investment or a broad enough spread of risk.
However, there is an increasingly popular way for clients to achieve all their investment goals and transfer their Peps cost effectively, and potentially without risk, by moving to a fund supermarket. Not only can the client choose from a wide range of funds and fund groups all in one place, they can centralise the administration of their investments and switch quickly and easily as their investment needs change in the future.
The investor has the benefit of one consolidated valuation statement and less paperwork. For the adviser, the portfolio analysis and valuation tools that are made available make it far easier to manage portfolios, the larger ones in particular, and provide an enhanced service to their clients.
Fund supermarkets have revolutionised transfers by pioneering a process called re-registration. This allows the administration of fund investments to be transferred to the one platform without the need to sell and buy back the assets, thereby avoiding any market risk, and there is generally no cost to transfer in this way. It also means that an investor is not compelled to sell all of their investments in order to consolidate but can retain those that are either performing satisfactorily or still fit their investment needs. Furthermore, supermarkets may also be able to offer cost-effective cash transfers.
Another compelling reason to review a client's portfolio is that during the time that Peps were available, it is possible that investors would have bought through a number of different channels each year ' their current intermediary, their old intermediary, their bank or directly from a fund company.
For intermediaries, there is significant potential, not only to review their clients' Pep investments that were previously bought through them but also to gain control of those investments that were bought elsewhere. When an intermediary consolidates fund assets with a fund supermarket, typically, the renewal commission reverts to the current intermediary, the one with the strongest relationship and who is servicing the client.
For the client, consolidation gives them only one set of paperwork to deal with and a convenient overview of their investments. For the intermediary, they have the ability to offer an enhanced service to their client through the valuation and analysis tools that fund supermarkets offer but also the opportunity to increase their revenue by attracting assets that may not have previously been bought through them.
As a result, more and more intermediaries are embracing the concept of consolidating client investments in one place, taking the opportunity to review clients' investments and centralising the administration. Many firms have undertaken large consolidation mailings to their clients with great success, with the fund supermarket being able to provide a range of tools and support to simplify the process even further.
Rodney Aldridge, sales and marketing director, Cofunds
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