Making Transfers Simpler 1st February 2021

Dear Client

As you may be aware, the Financial Conduct Authority (FCA) consulted on, and subsequently published, Policy Statement “PS19/29: Making Transfers Simpler”. 

The FCA have issued a package of rules for platforms which aim to make it easier for consumers to move from one platform to another without having to liquidate their assets. These new rules are intended to complement existing rules on transfers and re-registration. In preparation for this, Hubwise has ensured that the necessary steps have been taken for our platform to comply by the 01 February 2021 go-live date for the new rules. 

This communication is designed to highlight the key changes surrounding the transfer process and, as it may impact you and your business, we appreciate your time in reviewing it. 

The new requirements

From 01 February 2021, all platforms are required to:

1. Offer consumers the choice to transfer units in-specie for investment funds that are common to both platforms,

2. Request a conversion of unit classes, where this is necessary to facilitate an in-specie transfer, and

3. Provide consumers moving onto a new platform with the option to convert to discounted units, where these are available on the platform, for them to invest in.

What does this mean for you, and your clients?

The FCA found that some firms do not routinely provide the option of an in-specie transfer or conversion, preferring to require that the consumer liquidate their holdings to enable them to switch platforms, even where this may not be the best way for them to do so.

Requirement 1: Giving consumers the option of an in-specie transfer

Platforms are required to offer retail clients the option of an in-specie transfer of units in investment funds which are available and offered for investment on both the ceding and receiving platforms.

The latest iteration of our terms and conditions documentation (T&Cs) already reflect this upcoming requirement. If the investment funds currently held by the ceding party and being transferred are included on our approved list of assets (“Buy List”) then the option is available for the holding to be transferred onto the Platform in-specie, provided there are no circumstances outside of our control which would prevent us from carrying out this request.

This is available across all account types - GIA/ISA/JISA/SIPP - provided the transfer request is consistent with the transfer rules applicable to the account type, and an in-specie transfer is permissible in line with these rules. 

There are a couple of limited circumstances where we will not accept an instruction to transfer in-specie, and these are clearly outlined in the “In-Specie Fund Transfers – Limits and Restrictions” section of our T&Cs. These are as follows:

• if a fund to be transferred onto the Platform is not included on our Buy List, the holding will need to be sold and the cash transferred onto the platform; or

• if any individual holding is for less than one unit, and/or is worth less than £100, this will always need to be sold and the cash transferred onto the platform.

It is important to note that any investments which cannot be transferred onto the Platform or cannot be transferred to another provider and are required to be sold on transfer, as set out in the T&Cs, may incur a personal capital gains tax liability where they do not benefit from tax concessions within ISA or SIPP Accounts.  

It is also important to be aware that these new rules do not mean that it is always better for the client’s investments to be transferred in-specie, but rather that this now needs to be an option for consideration - either by the client, the Adviser/DFM, or both.  Depending on the market conditions at the time, the wrapper under which a holding is invested, and the individual circumstances of the investor, it may well be that a transfer effected by a sale and cash transfer, is more efficient and represents less risk.  This is, of course, for the Adviser/DFM or client themselves, to decide based on the above considerations.

Requirement 2: Unit class conversions

The FCA believes that the need to undertake a unit class conversion should not be a reason to prevent an in-specie transfer where one has been requested. Under the new rules, platforms must offer the option of unit class conversion to avoid the need to disinvest. The ceding party, as current legal owner, will be responsible for actioning any requests to convert units and take reasonable steps to bring it about. 

Our T&Cs already support this approach - should an investment fund be held that is available on our Buy List but the Share Class Units currently held do not match those we offer, then a conversion to a Share Class that is available on our Platform can be instructed. As highlighted above, any conversions will need to be arranged by the ceding party, prior to the in-specie transfer taking place.

The onus is on you, as the adviser firm, to inform us whether a conversion to another share class within the same fund is required. This is the most appropriate course of action as you know best each individual client and whether such action would be suitable. Details of all available share classes can be found within your Buy List, located within the IFA Portal (under company reports).

Requirement 3: Converting to a discounted unit class on the receiving platform

As part of the transfer process, receiving Platforms should offer consumers the opportunity to convert units into a discounted unit class, where that unit class is available for investment by the consumer.

The FCA has confirmed that the rules do not require that units are automatically converted as they recognise it may not be appropriate in all circumstances. They highlight that Firms are already required to act in their clients’ best interests and this should underpin the options provided.

Hubwise Securities Limited is able to support, request and action such unit class conversions on the instruction from the adviser firm. Hubwise will not take any action unless instructed to do so. As the adviser firm, and holder of the underlying client relationship, it is appropriate that any such decisions are instructed by yourselves. 

Why are we writing to you?

As the implementation date is fast approaching (the new rules come into effect Monday 1 February 2021), we feel it is important to highlight and outline the upcoming requirements, and any impact this may have on the client, or you as the adviser firm. 

As we’ve detailed above, while it is mandatory that we offer in-specie transfers as an option, this does not mean that this is the sole, or indeed best, option for any particular client or circumstance.  Instructions to transfer across in cash are still available and do often ensure a quicker transfer with less time effectively ‘out of the market’ than an in-specie transfer which is likely to take longer to be processed, during which period the client is unable to sell the holdings being transferred.

Certainly if the ceding party is not a TeX member (TISA Exchange Limited), it may be quicker and more efficient for ISA and SIPP Account holdings to be sold and transferred onto the platform as cash, as these Accounts benefit from tax concessions and are not subject to CGT.  

In-specie transfers usually take at least four weeks and sometimes as many as eight weeks, depending on the ceding party and the Fund Manager’s ability to process requests in a timely and automated fashion.  Transfers in cash (i.e. selling the holding on the ceding party’s platform and re-purchasing on our Platform) do expose you to a level of market risk but typically complete in a much more timely fashion. As the adviser firm, you will be able to recommend the method that is the most suitable for each client. 

If you have any questions relating to any of the information outlined within this communication then please contact us using your Freshdesk Account selecting Transfers as the Ticket Type or email us at Customer.Services@hubwise.co.uk

Kind regards

Douglas Boyce

Managing Director