Members of the British Steel Pension Scheme (BSPS) who were advised to transfer out of their final salary pension are facing a 5% charge if they want to leave the fund they invested in.
Several BSPS members were advised by IFA Active Wealth UK to transfer out of their final salary pension; through a discretionary fund manager some of these members were later invested into the 5alpha Conservative fund.
In November Active Wealth voluntarily agreed with the Financial Conduct Authority (FCA) to cease new pension business.
Some Active Wealth clients have now had their circumstances looked at again by other IFAs. However, advisers have discovered those clients cannot be moved out of the 5alpha Conservative fund without incurring a charge. In one case a client would have to pay £17,000 to withdraw from the fund in the first year.
Newscape Capital acts as the fund manager for the two 5alpha funds.
In a factsheet, Newscape describes the charge as a ‘contingent deferred sales charge’.
The charge is 5% for the first year of investment, reducing by 1% for every year the client stays invested, according to the fund’s factsheet.
Eugen Neagu, head of financial planning at IFA firm Montfort International, is helping clients invested in the 5alpha funds in South Wales.
He said Newscape should waive the 5% fee.
‘At the moment these people will appoint new advisers, but this 5% wasn’t made very clear to them. We hope some negotiation will take place and they will waive it [the fee],’ Neagu said. ‘They [steelworkers] have a 30 day cooling off period but the people we met today in Port Talbot are outside of this by a few days or so. Why should the fee be there? The clients should have the opportunity to leave this fund if they are not happy with it.’
Sipp provider Intelligent Money administers pensions for 26 clients of Active Wealth.
Julian Penniston Hill, chief executive of Intelligent Money, said the majority of these 26 BSPS members were invested through the online platform Vega Algorithms and into funds run by Newscape Capital called 5alpha Conservative and 5alpha Adventurous. This investment went through DFM Gallium.
According to the factsheet there is distribution fee of up to 5%, paid by the fund to the ‘investment manager or for onward transmission to an intermediary or distributor’ and is paid 'in respect of’ the contingent deferred sales charge.
If an investor leaves early, in the first five years, the fund recoups this cost with the contingent deferred sales charge. The fee could have been paid to an introducer, but not an adviser.
Compliance consultant Rory Percival said: ‘You can pay an unauthorised firm whatever you like because they are not subject to any regulation. Advice firms can pay introducers to them as a marketing exercise. But an authorised advice firm, which is providing a personal recommendation into retail investment products, would not be able to receive anything other than adviser charging in relation to that.’
Combined the two 5alpha funds, which are regulated Ucits funds residing in Ireland, have around £106 million of assets.
A spokesperson from Vega Algorithms, which provides Gallium with platform technology and services, said: ‘the model portfolios available for advisers to select on the platform are invested into fully authorised and regulated, HMRC recognised UCITS, the gold standard for retail investment owing to their transparency, liquidity and regulatory oversight. All charges are disclosed to advisers beforehand.’
Penniston-Hill said: ‘Having always prohibited non-standard assets, given they were the type which enabled introducer payments, we were shocked to discover that a regulated standard asset [the Newscape funds] held within these DFM portfolios are also able to pay a 5% introducer fee.’
Active Wealth was contacted for comment but did not respond.
Gallium declined to comment.
Newscape has been approached for comment.