Is Fidelity's incentive of £50 for IFAs and £25 for their clients a bribe too far for reregistering existing holdings on FundsNetwork? Is this the next misselling scandal?
Most IFAs will have clients who have accumulated Peps, Isas and other investments with a number of different fund managers. Suppose for a moment they are all progressing exactly in the manner the client hoped for when they were acquired, such that the client has no desire to alter any individual security.
It would not be surprising if the amount of paperwork now being received has become somewhat overwhelming. Many clients welcome us regularly if for no other reason than to prune through the thicket of flyers and junk mail received from the companies they are optimistic enough to have invested with.
Most savvy clients would far rather use a nominee service to enable them to simplify their paperwork so that they get one comprehensive statement showing values, income and outgoings. It makes completing their self-assessment tax return much simpler and saves money on accountancy fees.
Anyone who has helped a client with the reregistration process will know that it is no five-minute job. If your firm recommended the purchase of the holdings in the first place, you and the client may feel that to charge them to reregister is not quite fair, even though you will both be better off once the job has been done. The client gets the simplicity they crave and you gain more time to advise because you will not have to chase umpteen companies to get an accurate picture of what your client now has.
Many companies charge for closing accounts or transferring securities to another nominee service. But fund managers should make their money from their share of investors' increasing wealth, not from administration charges on dwindling assets.
I suspect that some may lose money on their smaller accounts, given the regulatory burden of sending out a copse of paperwork twice a year. They should, but frequently do not, realise that while clients like their fund management, many would prefer administration to be independent, hence the nominee services.
Imposing a charge to change nominees is unlikely to persuade an unhappy client to stay and may encourage an otherwise happy one to change fund manager out of pique.
Fidelity's payment of £25 to the client may be seen as compensation towards exit penalties although it is may be on the low side. As a comparison, Comdirect currently pays up to £100 towards exit fees per account transferred to it, up to £300 per client.
Fidelity's offer is constructive because the adviser can afford to reregister without having to charge the client for the time cost involved, the client is compensated towards costs they may suffer (and advisers could even choose to use their £50 towards account closure penalties if appropriate) and the fund manager is more likely to keep the funds, while Fidelity can then earn a share of their annual management charge with which to recoup its initial costs.
In a fund supermarket, it can become economic to change funds or managers whereas before it may have been too expensive. I see good fund supermarkets as an opportunity, not a threat. Something which encourages clients to review their investments is generally a good thing.
When offering advice about reregistering diverse holdings, such incentives should certainly be discussed with the client. However, one should always consider other alternatives, including wrap accounts, which give a wider choice of investment.
Based on our experience of the rest of its group, newcomer Abbey would need to offer over £1,000 per client for anyone even to consider it.
The sophistication offered by Transact without incentives, for example, is suited to some clients, while the reputation of Fidelity, plus a little cash help, will appeal to others.
Michael Both is a partner at Michael Philips