DIY investment platforms restricting which funds investors can buy into could be “pushing investors out of potentially lucrative investments, and into potentially damaging ones”, according to some DFMs and wealth managers, who warn that “switching the lights off” for certain investments is “a dangerous line to tread”.
Others, however, believe the decision is more nuanced, and say the problem lies in the regulatory design of the FCA’s Consumer Duty and Assessment of Value regulation as opposed to with the platforms themselves.
In July this year – the same month that the Consumer Duty rules first came into force – Fidelity took the decision to restrict investors from buying into certain funds and trusts on its platform which it deemed to be poor value.
The FCA’s 121-page paper on Consumer Duty states that companies “must take proactive and reactive steps to avoid causing harm to customers through their conduct, products, or services… their design, terms and conditions, marketing, [sales] and support”. It added that this should be implemented with a degree of “reasonableness”, meaning the rules and guidance “must be interpreted in line with the standard that could reasonably be expected of a prudent firm”.
The first product that Fidelity shielded new investors from buying into was the RIT Capital Partners investment trust which, at time of writing, is trading on a 24.1% discount to its net asset value. Residing in the IT Flexible Investment sector, the investment company has lost 16.1% during the past 12 months, 3.9% over three years and 1.7% over five years. However, it has gained 71.9% in the past decade. Its listed ongoing charges figure – which is applied to the underlying net asset value of its portfolio – stands at 1.6%.
Since then, there have been a further 14 funds and investment trusts that Fidelity platform clients can no longer access – although a small number of these restrictions come from the investment firms themselves, for example Royal London Global Equity Select’s units are now limited issue.
Funds and trusts which Fidelity has proactively prevented investors from buying into include: MIGO Opportunities Trust, AVI Global Trust, Momentum Multi-Asset Value Trust, CT Global Managed Portfolio Income, LF Odey Opus, LF Brook Continental European, Jupiter Fund of Investment Trusts, four different share classes of VT Argonaut European Alpha, Abrdn Private Equity Opportunities investment trust, Premier Miton Worldwide Opportunities and GVQ Opportunities. It has also prevented clients from buying into any Valu-Trac Epic funds.
In October this year, Interactive Investor decided to follow in Fidelity’s footsteps and prevent investors from buying into certain products they deemed to be poor value, although the firm does not provide a published list of these products. Other platforms that are willing to restrict investments into some funds and trusts include Aviva, Barclays Smart Investor and HSBC.
To read more, visit the December edition of Portfolio Adviser Magazine
