Switching funds from H-L to Cavendish (Cofunds)

djantler

I'm considering switching my unit trust investments away from H-L to Cavendish on the Cofunds platform to take advantage of the better commission rebates. I understand the investments can't be transferred automatically since they are on completely different platforms so I guess I will have to sell my H-L investments and then separately buy back the unit trusts on Cofunds. I'm fine with doing this, and appreciate I will potentially lost out on bid-ask spreads as well as market timing risks etc. but am confused about the CGT implications.

Are the rules for unit trusts exactly the same as for normal shares? If I sell a unit trust on H-L and buy the same unit trust back on Cofunds can I realise the gains this tax year for CGT purposes? It seems like it would be really complicated to work out any gains and losses going forward if they need to be treated as one ongoing investment...

dunstonh

I wouldnt bother at this time. The platforms are awaiting the review of the FSA paper in June/July. Cofunds is a bundled platform and its looking like bundled platforms may be banned and have to convert to unbundled or offer some hybrid option.

It will probably be better to wait until we know what is happening.

I understand the investments can't be transferred automatically since they are on completely different platforms

That is not correct. Re-registration is possible with most platforms. It will actually be mandatory soon for those that dont allow it.

Are the rules for unit trusts exactly the same as for normal shares?

yes.

djantler

Thanks dunstonh, sounds like it's better to hold off on the hassle of switching for the moment then.

What's the difference between bundled and unbundled platforms? Even if I don't switch my existing investments is there any reason not to put future investments into cofunds rather than h-l (other than the hassle of having two different accounts)?

dunstonh

What's the difference between bundled and unbundled platforms?

Fund houses pay the fund platforms to have their funds on platform. The bigger the platform, the bigger the rebates. At the moment, you don't know what the platform is getting to market and distribute the funds. The argument is that bundled platforms may only be marketing the funds that pay them the biggest rebates. Unbundled platforms see you paying explicit charges irrespective of the investment you hold with the exception of the fund charge itself. So, the IFA bit is explicit, the fund house bit explicit and the platform bit explicit. The benefit is that the platform/IFA does not earn differently whether you hold shares, ETFs, retail funds or institutional funds. The rebates are priced into the fund charge. Not kept by the platform. Problem at the moment is that most unbundled platforms cost about 0.2% a year more on a like for like basis. However, as they start to increasingly gain business volume and get bigger rebates, their charges will drop. Plus like all economies of scale, they can gradually lower their charges, as has been happening. They can also use institutional funds more which are often 0.2-0.4% a year cheaper than retail.

The FSA and the Consumer Panel think that unbundled is best. Most bundled platforms think they are best. Most unbundled platforms think they are best. Some offer both or a hybrid.

Morally, unbundled is best. But it may end up costing more. So, the argument is that if its costs more then is it fair that the consumer pays more for something that most are not interested in knowing.

Even if I don't switch my existing investments is there any reason not to put future investments into cofunds rather than h-l (other than the hassle of having two different accounts)?

Personally, i would stick with HL and keep the platform situation under review. Getting off Cofunds is harder than getting off HL. Although, easy re-registration is going to be mandatory soon.

jamesd

For Cofunds you need to consider the cost of changing investments. If you were to switch 100% of your pot each year you'd probably pay as much in switching costs as the saving in commission. It looks better if you rarely change investments.

For CGT you need to be bed and breakfasting each year you have significant gains to prevent a big gain from accumulating. Easy to do in funds, usually: you just switch to a similar fund for thirty days. Then you can switch back. But you do incur fees on some platforms for this and that could eat up more than the commission saving.

Services with higher commission rebates but switching charges look better for ISA or pension investing where you don't have a reason to switch to reduce CGT, so you might keep the switching rate low enough to stay ahead. Just be sure you don't let the cost of a switch discourage you from moving investments when you should, or you'll lose far more than the switching cost.

Reaper

jamesd wrote: »

For Cofunds you need to consider the cost of changing investments. If you were to switch 100% of your pot each year you'd probably pay as much in switching costs as the saving in commission.

I may be a bit dim here but do you ned to pay the switching fee? Assuming you have gone via Cavendish to access CoFunds all commission is rebated. That means many funds have no initial charge. Therefore surely the way to avoid paying the 0.25% switching fee is not to switch directly, but instead sell to cash and repurchase whatever fund you want.

Of course that only works for funds which rebate the entire initial commission.

djantler

Thanks a lot dunstonh and jamesd, all very useful information.

Out of interest, in what way is getting off Cofunds harder than getting off HL?

It's a good point about the switching costs, which maybe I hadn't really considered enough. I guess it may actually be better to have two accounts and use one with higher rebates but switching costs for core investments that are likely to be held for a longer time, but stick to HL for more tactical or higher risk investments that may require more regular rebalancing. Something that I will bear in mind...

dunstonh

Out of interest, in what way is getting off Cofunds harder than getting off HL?

At the moment you cannot re-register out of cofunds. You have to convert to cash first. It is coming thought as an FSA mandatory.

talexuser

Reaper wrote: »

. Therefore surely the way to avoid paying the 0.25% switching fee is not to switch directly, but instead sell to cash and repurchase whatever fund you want.

Of course that only works for funds which rebate the entire initial commission.

This seems like a great idea and I can't see anything in the T&Cs to stop you, I did see this on the cash reserve:
quote:
"Cash held in the cash reserve must be destined for eventual investment. Your client can simply switch out of the cash reserve and into their desired funds at any time. No initial commission is payable on investments into the cash reserve, although trail commission of 0.25% is payable."
unquote
Presumably this trail commision must come from whatever interest they are getting on the cash because I've never seen any of my cash reduced in the short periods it's been there?

jamesd

Reaper, that might be a way around it for a fair number of funds.

Special_Saver2

Reaper wrote: »

I may be a bit dim here but do you ned to pay the switching fee? Assuming you have gone via Cavendish to access CoFunds all commission is rebated. That means many funds have no initial charge. Therefore surely the way to avoid paying the 0.25% switching fee is not to switch directly, but instead sell to cash and repurchase whatever fund you want.

Of course that only works for funds which rebate the entire initial commission.

I had the same idea but it does not work unless you are willing to give up part of your ISA allowance.

If you try and sell your existing investments with Cofunds then you are given two options:
- sell (free of charge but the proceeds are sent to your bank account and the Cofunds system warns you that you will lose the tax-free status on this amount)
- switch into cash in the cash reserve (costs 0.25% but your money remains in the ISA)

SS2