Platforms need Damascene Conversion on Conversions

Platforms need Damascene Conversion on Conversions

The risks of selling and rebuying are considerable compared to a modest reduction in fees.

Each month Fidelity publishes a list of the top 10 transacted investments. At number 8 this month is Rathbone Global Opportunities Inst Acc but unlike every other entry an astonishing 100% of the trades in this fund were sells. Absolutely no-one is buying. As a holder of this fund I was rather alarmed to find that what I had previously thought was a perfectly well managed fund was being abandoned wholesale by every other investor.

However, at number 6 in the Fidelity list is Rathbone Global Opportunities S Acc, in which a similarly exceptional 98% of the trades were buys. Of course, the answer is that they are simply different share classes in the same fund. The annual charge on the S class is 0.16% less than the Inst class (after negotiated discount).

So investors still like the Rathbone Global Opportunities fund but, understandably, they would rather be paying lower fees. They are simply selling one share class to buy the other.

However, the risks of selling and rebuying are considerable compared to a modest reduction in fees. It would be easy to lose 1% or more due to adverse market or price swings which would take many years to recover from the lower charges. I know this to my cost when I was hasty enough to switch share classes in another fund for which a cheaper share class emerged.

What investors need is the option to convert fund holdings: exchange the units in one share class for another rather than selling and rebuying with a switch. But the option to convert typically isn’t offered to investors. So, as the Fidelity list illustrates, investors are forced to take their chances with a switch.

My holding in the Rathbone fund is not with Fidelity but another very well know platform. I contacted them to request a conversion, but after I had tried to explain to the first operator what a conversion was, a second told me that they don’t offer this to customers. I was told I had to switch. I have asked them to escalate but I’m not hopeful.

Strangely, the FCA who generally seem very keen on better deals for investors through cheaper share classes, haven’t addressed this issue in their platform study. They may demand that platforms convert share classes before a transfer out, and possibly after a transfer in. But they haven’t mentioned the case where a cheaper share class becomes available to an existing customer.

It looks like discounted share classes are here to stay and I hope that platforms will see the light on conversions. That, like St Paul, the scales will fall from their eyes. And soon. I’m a sucker for a discount and left for long to dwell on this I may make another rash decision to risk a switch.

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