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Evolution of the in specie transfer

Fidelity&#39s FundsNetwork finally launched its re-registration service last week, allowing clients to transfer their existing investments on to the platform.

FundsNetwork was not the first to develop the technology, with Cofunds having beaten it at the end of January. Skandia has plans to follow suit in the near future.

Re-registration – also known as an in specie transfer – is an important progression in the development of fund supermarkets. Previously, IFAs could only put new business on to the platforms, unless they were willing to sell and repurchase clients&#39 existing investments. As well as opening up clients up to losses from bid/offer spreads on unit trusts, this would have left them out of the market for a time.

While both Fidelity and Cofunds have been very proud to announce their new functionality, many in the industry hoped this is what fund supermarkets would have been able to do from the start.

For IFAs, the principal benefit of fund supermarkets was the idea that they could keep all their clients&#39 accounts in one place, allowing them to centralise their administration, receive commission payments from one source and buy, sell and switch funds at the click of a button.

Now the re-registration service has been developed, it should be the catalyst for wider use of fund supermarkets, which so far account for only around 3 per cent of unit trust and Oeic sales in the UK. It may also increase competition in the fund distribution market, giving IFAs who use supermarkets more of a pitch to steal assets from their competitors. Clients may be more willing to transfer assets from other IFAs or discount brokers if the result will be having all their investments consolidated in one online account.

Fidelity marketing director David Cowdell says: “The benefit for an adviser is that he or she can suddenly consolidate historic assets on to the supermarket and use all the analysis and research tools to save money in the back office and provide a more compelling and efficient service for clients.”

Cowdell believes re-registration could be a particularly valuable tool for advisers, given the current quiet equity markets. By transferring all clients&#39 assets on to the platform, they can instantly produce complete portfolio breakdowns in terms of asset allocation, geographical allocation, company size and investment style. Furthermore, they can give client access to all this information 24 hours a day through the website.

Cowdell suggests advisers can use this service to deepen their relationship with clients at a time when they are not bringing them much else in the way of good news.

There is still unfortunately one major flaw with re-registration – only around 50 per cent of supermarkets&#39 providers have agreed to participate. In some cases, admittedly, this is down to incompatible administration systems but, in many others, it is being seen as a deliberate opt-out so as not to lose short-term revenue from funds&#39 annual management charges.

While, in the long term, this will reduce administration costs for a provider, the short-term effect will simply be a hit to their income. At a time when volumes of new business are already low, this is a blow that several providers – especially the bigger ones – may be reluctant to take.

Just 22 of FundsNetwork&#39s 40 providers are participating in the re-registration scheme from launch. Cofunds is in a similar position, with 22 of its 41 providers signing up. In terms of the number of funds, this totals 315 on FundsNetwork and 253 on Cofunds.

From a total of well over 1,000 retail unit trusts and Oeics, both these figures are relatively poor.

Cofunds chief executive Clive Boothman believes it will only be a matter of time before most providers agree to facilitate re-registration. Those with systems issues are currently ironing them out, with many promising developments in the next few months. Boothman says eventually the missing providers will simply be those that have a business issue with facilitating re-registration and these firms will then come under considerable pressure to change their view.

He says: “Once most of the groups offer re-registration, those who do not will find it much more difficult to sustain. If they do not sign up, the danger is that people will find them obstructive and will switch out of their funds.”

IFAs hope that Boothman proves to be right. Plan Invest joint managing director Michael Owen says: “In specie is a core part of the supermarket proposition so it is very frustrating for us if providers opt out. We are left in a situation where we have to tell clients that we have done as much as we can but the other eight providers in their portfolio cannot be registered on the supermarket because they are not playing ball.

“I can see some IFAs saying that they will not hold those providers at all if they do not take part. Can&#39t they cut their costs in other ways?”

As the IFA community begins to embrace the concept of fund supermarkets, it would seem that those providers which have opted out will come under considerable pressure to change their minds.


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