Interactive Investor said it has been blocked from accepting transfers of the Lindsell Train Global Equity fund D share class since the start of July. Previously, investors had been able to remain invested in the D share class even after transferring to Interactive Investor.
Lindsell Train told The Times, which first reported the issue: “If an investor via Hargreaves tries to transfer to a platform that does not qualify for D-class shares, the trade should be blocked.” Separately, a Lindsell Train spokesperson told Portfolio Adviser the D class in the £8.7bn fund was available only to investors with a minimum £200m.
Interactive Investor head of personal finance Moira O’Neill said the platform had a number of customers who were in the process of moving from Hargreaves but have now been “caught up” in the changes. Before July, transfers of the D share class in the fund had been successful, O’Neill said.
AJ Bell said it had not been affected and had always needed Hargreaves to convert D shares into B shares before a platform transfer could go ahead.
The D share class has fees of 0.5% compared to 0.65% for the B share class, which does not have a discount.
The Financial Conduct Authority has previously raised concerns about platform transfers between different share classes of a fund. Its platform market study said: “When platforms do not make ‘in-specie’ transfers available, some consumers are put off switching, in turn weakening competitive pressure on platforms.”
Unintended consequences of discounted share classes
“This is one of those unintended consequences of discounted share classes,” Lang Cat consulting director Steve Nelson said. “If the new platform doesn’t have the discounted share class there you’re just not able to transfer in specie because the fund doesn’t exist on the new platform.”
If the receiving platform does not hold the share class, a client either has to encash holdings or switch share classes on the existing platform. Both actions require instruction from the client before the process can go ahead.
Nelson questioned how reasonable it was for retail investors to understand that holding a discounted share class may prove an obstacle in future if they choose to transfer platforms. “I imagine the number of customers who have an understanding of the full range of mechanics of how this all works is probably close to zero.”
Platforms need to facilitate process
It is in the best interests of the industry for platform transfers to be as painless as possible, Nelson said. “Our house view at the Lang Cat is that the feeding platform should facilitate the transfer from the discounted share class to a standard share class from the perspective of treating the customer fairly.”
Hargreaves Lansdown confirmed it does hold the B share class for the purposes of investors wishing to transfer to rival platforms, although client instruction is needed before the transfer can proceed.
“The transfer process hasn’t changed and we can’t control what investments can or can’t be held on other platforms. HL is not blocking anything,” said head of communications Danny Cox.