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Fund platforms stopping you converting to income

Three-quarters of investment platforms make it difficult for fund investors to move from 'growth' to 'income', according to new research.

 
Fund platforms stopping you converting to income

Three-quarters of online investment platforms make it unnecessarily difficult and expensive for fund investors to change their approach from 'growth' to 'income', according to research by Candid Financial Advice.

Justin Modray of Candid said fund supermarkets, including Hargreaves Lansdown, the UK's biggest, were failing to allow investors holding 'accumulation', or growth, units in funds to move into 'income' units in the same fund.

This means investors are forced to sell and buy back units in each fund to draw an income. This takes investors out of the market for at least a day and means they can miss out on any market gains in this period as well as it costing them more to buy back the units.

According to Modray just five of the 19 leading platforms allowed a conversion from accumulation units to income units without the need to sell and buy back. These are: AJ Bell Youinvest, Bestinvest, Charles Stanley Direct, Cofunds and Transact.

Those that require investors to sell and buy back units are: Alliance Trust Savings, Ascentric, AXA Self Investor, Fidelity (except for Fidelity funds), Halifax Sharedealing, Hargreaves Lansdown, Interactive Investor, iWeb, James Hay, Novia, Nucleus, Old Mutual Wealth, Standard Life Wrap, and Trustnet Direct.

‘You’d think converting one to the other would be 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.’

Modray gave the example of an investor moving a £200,000 ISA portfolio from accumulation to income units. The investor would lose £2,000 if they were forced to sell and buy back and in that time markets rose by 1%. The cost of the transaction could also lose the investor a further £1,000.

‘It’s both frustrating and unreasonable that most platforms require investors to take this gamble,’ said Modray. ‘The conversion itself is handled by fund managers, so platforms have no excuse other than simply not wanting the hassle of offering this facility to their customers. This inertia could leave some of their customers paying a potentially hefty price when they require income.’

In response Hargreaves Lansdown said it would offer conversion of units in future where investors were moving from older 'inclusive' units - where commission paid by fund managers to Hargreaves was included in the annual charge - to modern 'unbundled' units where the commission is not included.

It said it had not offered conversions previously due to low investor demand.

'Hargreaves Lansdown offers conversions from inclusive to unbundled units free of charge. 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,' said a spokesman.

'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. Clients who wish to do this should call our helpdesk for details.'

22 comments so far. Why not have your say?

Mickey

Sep 15, 2016 at 09:51

One sided reporting to claim investors lose out if the market rises, what if it falls then surely the investor gains?

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Justin Modrray

Sep 15, 2016 at 11:27

The key is that by not offering this facility platforms are forcing investors to take an unnecessary gamble. I suspect the reason HL says demand is low is that most of their clients are unaware Acc to Inc conversion exists.

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PaulSh

Sep 15, 2016 at 12:03

If you are with a platform that trades funds at no charge, then as Mickey says, you might gain just as well as lose. However, there are more likely to be losses than gains with funds trading at a bid/offer spread as you will be able to buy back fewer units than you sold.

With all of that said, if an investor was switching from accumulation to income units, wouldn't that generally be as the result of a significant change in investing approach, for example, upon retiring? In those cases, you would probably want a very different set of funds anyway once your priority has shifted from capital growth to steady income.

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Jezzer

Sep 15, 2016 at 15:00

I did this recently with HL as part of preparing for retirement. Many funds that offer Inc and Acc versions don't have bid-offer spreads anyway, so I didn't suffer that cost. However it was annoying to be out of the market for a day, when it doesn't seem necessary. Something they ought to rectify indeed.

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RL

Sep 15, 2016 at 15:51

I'm probably missing something but why would you want to do this? I understand the admin convenience, but the financial effect is simply to turn capital into income, and the tax rate is higher on income than on capital gains?

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chris johnson

Sep 15, 2016 at 16:23

When an OEIC I owned this year was taken over by another I asked HL if I could switch to income units from accumulation units. They said no.

RL - some of us live on income rather than liquidating capital. It comes at a steady pace and means we don't have to try and time capital sales.

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PaulSh

Sep 15, 2016 at 16:29

@RL, if you are invested in a SIPP or stocks & shares ISA then there is no tax anyway. But yes, it's surely more convenient to have income units if you want income. Plus if there is a bid/offer spread, won't you lose out by turning your capital into income rather than just taking the income?

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Neil K

Sep 15, 2016 at 16:52

As a longstanding HL customer I sat down and read all the small print on charges yesterday. Didn't make happy reading. However compared with the hassle and likely costs of moving to e.g. Charles Stanley I'm not sure its worth it?

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Disgusted of Haywards Heath

Sep 15, 2016 at 16:57

Yes, I've recently turned over two ISA portfolios with HL and it was a real nuisance to have to sell and re-buy each fund individually. In financial terms, since I did the exercise over a few days, I don't think there was any great impact either way. But the sheer hassle makes me glad it was a one-off.

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john ballinger

Sep 15, 2016 at 17:26

Bit dim are we using HL ect

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RippedOff

Sep 15, 2016 at 18:15

HL will use any excuse to charge you a fee. You can also convert a UT/OEIC to an ISA with many fund managers if your holding is direct with them. What a disgrace.

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john ballinger

Sep 15, 2016 at 20:02

Why get steamed up about HL there clients have been bombarded with buy buy on the platform, you could win an Audi car, offer on now free pen worth hundreds buy more, we are warned on TV about free gifts its a con most of the info on the platform can be picked up free on other sites, get real bite the bullet find a platform that does not charge an arm and a leg

In static or declining markets these charges .45% will eat into your capital that will hurt but HL will charge you over and over again

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Disgusted of Haywards Heath

Sep 15, 2016 at 20:41

The problem is that once you're hooked in to HL they charge you an arm and a leg to get out. The only way I can see (and it is not without risk) is to convert everything to cash and transfer that to another platform charging more reasonable fees.

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Mickey

Sep 15, 2016 at 21:56

Anti HL rhetoric makes me laugh, of course other fund platforms do all the work for you as a favour :-)

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john vandermark

Sep 15, 2016 at 22:20

Very interesting comments, as I have much faith being with HL.

Not too sure about that now.

Being out of the market due to HL's bureaucratic rules require change, for sure.

This has always been a sore with me.

John van der Mark

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Hugh M

Sep 16, 2016 at 05:36

Also, some platforms impose a dealing charge. What happens to that money for old rope if they allowed a switch by the fund manager?

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Trevor Pick

Sep 16, 2016 at 20:14

I moved from HL 1 year ago and saved £1,300 in fees, I agree with John Ballinger.

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Routeman

Sep 17, 2016 at 10:46

Buying and selling without being out of the market: As an aside, if you specify a pound amount to be switched then the buy and sell happen at the same time and I am pretty sure that one is not out of the market at all. I am with HL and do this whenever I switch a sizeable holding. This does mean that if you want to move an entire holding you need to do it in 2 steps, say 90% as a specified pound amount and the next day the balance in units (this latter amount will then be out of the market for a day). I know... More admin.

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dd

Sep 17, 2016 at 11:38

For any transfers I convert to cash first. It saves the stress. Of course there is out of market risk but the process is generally much quicker and then it is time to move on/find opportunities to invest.

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Roy Harding

Sep 17, 2016 at 12:47

I don't know why HL is taking all the flack while their method of changing from acc. to inc. units is the most common.

AFAIK the conversion could be done by the fund manager. Fund managers converted from bundled to unbundled units when RDR came in.

I don't think the platforms with a flat charge like HL and Fidelity make any money from switching from acc. to inc. I presume platforms that do make a buy/sell charge do.

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Mikesmusing

Sep 17, 2016 at 17:51

RL asks why you would want to convert rather than sell and buy, going from accumulation to income units.

1. It avoids counting as a sale and new purchase for CGT purposes

2. It's cost efficient as the platform probably makes no charge and neither does the fund provider

3. Accumulation units automatically reinvest the dividends (note these ARE subject to income tax in exactly the same way as income on income units - you are remembering to declare them, aren't you ...). The reinvested income changes the average purchase price for CGT purposes. It's a real pain to track this. You may have accumulation units and decided it's simpler not to have the automatic reinvestment of dividends; it may also coincide with retirement when it's time to spend rather than accumulate

5. At a tangent I'd note that capital gains and income within a SIPP are not generally tax free. Both are subject to income tax when you access the funds, subject to the 25% tax free allowance. If you are above the LTA both income and capital gains are effectively taxed at at least 55% (ignoring treatment on death, which gets into IHT)

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DREXEL

Sep 17, 2016 at 18:16

Routeman is correct that with HL you can switch from one fund to another or from inc to acc in the same fund at the same day's pricing point (assuming both funds are priced at the same time in the day).

To achieve this you must sell a defined value ( not the whole holding nor a specified number of units) of maximum 90 per cent of your holding. Next day you sell another 90 per cent then next day the same until the amount left is so trivial you can afford to be out of the market for a day by selling all the remaining units.

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