New regulations - what benefit? #
Over a year ago, the FCA’s Market Transfer Regulations came into effect. And still, investors are waiting to see the benefit.
The goal of the FCA's new policy was to make it simpler for investors to move their investments between platforms. Which will mean that, in the end, providers will need to compete more fiercely to retain their market share.
The main goal of the regulations was to make sure that even when assets were invested in a limited fund share class, investors could transfer in-specie (that is, without having to sell and rebuy their assets) The facts, however, indicate that since the laws were implemented, the situation for investors has actually gotten worse. Investors appear to be forced to sell assets even more frequently than before, which is a dangerous course of action given how unpredictable the market is right now.
A worsening situation for investors #
We sampled 50 limited fund share classes that are offered to investors on some platforms but not others. In the three months prior to the regulations taking effect, we examined transfers involving those share classes and discovered that 70% of them were sold and 30% were reregistered (i.e. transferred in specie). It is evident that limited share classes do force many more investors to sell since we find that 35% are typically sold and 65% re-registered for the entire fund universe.
Had the FCA's new restrictions had the desired impact, we would anticipate that the proportion of restricted share class re-registrations would rise to the same level as other funds.
However, the percentage of re-registrations for our sample of restricted share classes has actually decreased from 30% to 25% over the past year, with investors having to sell their assets for 75% of transfers. The demand for in-specie transfers appears to be unchanged, as evidenced by the fact that the percentage of re-registrations for the entire fund universe has stayed relatively constant with 63% re-registered and 37% sold. (The majority of UK platforms use the Equisoft/transfer service, which was the source of our data.)
While many platforms have not, some have made considerable efforts to support the new restrictions. If the vast majority of platforms, fund managers, and advisers participate, the situation will only get better. Investors in limited share classes must make a decision now about whether to stay on their present platform or take the possibly extremely costly risk of leaving the market.