Will transferring investments to a new provider ever happen at the push of a button? It’s far from it at present: some investors are forced to wait months to see the transfer of investments.
In fact, many are put off transferring their Isas, pensions and general investment accounts between investment platforms just by the thought of the administration involved. Others worry about spending time out of the stock market while their investments are moved, meaning they miss opportunities to buy cheaply or stay invested through a market rally.
There are some indications that transferring is getting a little smoother, with “very gradual” improvements over five years, according to consumer website Boring Money.
“For those transferring it is still luck of the draw — sometimes we hear of great outcomes, but more often it’s frustrating and slow,” says Holly Mackay, Boring Money chief executive.
Knowing this, it’s easy to let the years drift by and to continue to pay too much for your platform. And this hurts your investment performance and retirement prospects.
We know that cutting the cost of the funds that we invest in is one thing we can control — the power of compounding means even small reductions over many years can boost investments significantly. But cost reductions on our investments can easily be wiped out if we hold those investments with a provider or an investment platform that doesn’t offer best value.
Investment platforms are operated either by big brokers or wealth managers large enough to have their own. Their charging structures vary by investment type or wrapper, and there may be differences on trading fees. It’s often complicated to do the comparison by yourself, but there’s a good tool at website compareandinvest.co.uk that can help. It shows that if you get the right platform for your circumstances, the cost savings can run into hundreds of pounds a year and many thousands over a lifetime of investing.
Naturally, many people want to transfer but are put off by the horror stories — typically administrative errors or delays at platforms involved in the transfer. If you’re unhappy, then you can ask the Financial Ombudsman Service (FOS) to mediate. This is what happened to Simon Carne, 67, a retired policy adviser to regulators, who wanted to transfer his investments from Quilter to another platform.
He thought he needn’t worry about his money being out of the stock market during the transfer because there were rules in place to allow investments to pass directly between platforms.
In 2019, the Financial Conduct Authority decided that the transfer process entailed unnecessary “complexity and cost” for consumers. It changed the regulations to require platforms to offer consumers the chance to transfer their investments directly (called an in specie transfer) without having to realise them in cash and then reinvest. This removes the risk that the market moves sharply against the consumer during the days when their investment would otherwise have been sold for cash before being converted back into an investment.
So you can imagine Carne’s surprise when, while moving from Quilter’s platform (strapline: “We’re here to help you prosper”), it said one of his investments couldn’t be moved directly so had to be converted to £105,000 in cash. It then sat on it — as cash — for two months.
Then, although most of his other investments moved smoothly and quickly, one got stuck for two months because of an administrative problem at a third-party intermediary. Quilter said its standard process was to transfer any cash last so held on to the £105,000.
By the time the cash reached the new platform, the market had moved against him. “For every 100 units I had previously owned, my cash was now able to buy just 94 units,” he said. He reckons he lost out on £6,000 but accepted the £400 compensation prescribed by the FOS because “it’s clearly not worth taking to court,” he said.
Carne challenged the “absurdity of the FOS saying it’s fair and reasonable”. “I find it utterly infuriating, knowing that I’m not unique and other people are being treated in the same way for which the loss could be very significant.”
Quilter apologised for the transfer delays in a statement. “Transferring ‘in-specie’ by re-registering funds can take longer when third party fund managers have not invested in digital re-registration. We are always seeking to improve our practices on transfers.”
Another recent case at the FOS relates to a transfer to AJ Bell that took three months. The complainant claimed he had suffered a £90,000 financial loss as a result of being unable to trade while the transfer was being processed. However, the FOS decided: “I haven’t seen anything that shows or suggests that AJ Bell provided any guarantee that a transfer of either cash or stock would be completed within a specific timescale. Nor would I expect a business to provide any such guarantee.”
I disagree. Guarantees are exactly what investors need when transferring their life savings.
It’s welcome that some platforms now publish expected timescales on their websites. For example, AJ Bell sets out a timescale of 2-4 weeks for cash transfers, 4-6 weeks for shares, 6-8 weeks for funds, and 10-12 weeks for international shares.
Origo, a tech firm used by most of the market to handle defined contribution pension transfers, publishes their transfer times, shining a light on some of the outliers. But while technology can make transfers more efficient, it comes at a cost, so some providers, particularly smaller firms, are still using paperwork that needs to be posted.
Enter Star, an industry initiative aiming to bring all transfers within a 14-day window. It has begun awarding gold, silver and bronze accreditations relating to member firms’ performance on transfers. By the end of 2024 it expects to have all 80 of its members, at different stages of readiness, established on the accreditation scheme. But it says it’s “not realistic to expect every firm to sign up to the standards”.
Some major platforms are not yet accredited, with Interactive Investor saying “we judge ourselves by our own outcomes and high standards”. Across all wrappers, transfers out are quicker than transfers in, it says.
Interactive Investor said: “We are reliant on other counterparties to play their part. Barriers to a quick transfer in include exclusive share classes, as these have to be converted.”
Other barriers are exit fees, now a rarity, but still charged in pockets of the industry because the regulator failed to ban them in 2019. And some providers suspect “sludge tactics” on transfers out. PensionBee has seen correspondence warning a customer against transfers on the unsubstantiated basis that they might potentially get worse performance.
However much the industry nudges forwards, regulation can pull it back. New rules from the Department for Work and Pensions designed to protect consumers from transfer scams are an important step in stopping bogus pension transfers. But they have introduced some unnecessary barriers to a number of perfectly legitimate pension transfers.
Investors deserve better. In light of the new Consumer Duty, I would expect the regulator to take a dim view of delays. Fourteen days needs to be a requirement, not a voluntary goal. And there are indications that even 14 days is too long, with PensionBee calling for an industry-wide 10-day switch guarantee. It’s time for the regulator to act.
Moira O’Neill is a freelance money and investment writer. X: @MoiraONeill, Instagram @MoiraOnMoney, email: moira.o’neill@ft.com
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