What stops provider retrospectively choosing a favourable transaction date when cashing-in?

SonOf

rforsixpence said:

Jim1999, that's reassuring, but do you know how I can check. I've asked my provider for the "contract notes" but they say they are unable to provide them. Is that compliant with "best execution" and the other protections you reference?

Maybe you should look for a better quality provider.   Whilst they do not need to provide contract notes they should provide the unit price and date the funds were transacted.    The decent platforms would have this information to view online yourself with the audit trails of dates/times etc.

princeofpounds

This doesn't really happen. The risk/reward would be totally disproportionate for anyone trying to do it.
But there are also a number of controls in place that help to prevent it, some of which I don't think have been mentioned before. They vary a bit from fund type to fund type, but include things like:
- most funds are actually held by a custodian who is independent of the fund manager https://www.investopedia.com/terms/c/custodian.asp. The custodian will receive copies of all instructions and price the funds daily. This will then be reconciled with the fund manager's internal calculations.
- most funds are set up as some form of legal trust or company independent of the fund manager. These companies have their own independent boards of directors, accounting and audit processes. You generally never come across them (indeed most people who work in fund managers who use them never meet these people! They are normally boring accountant types in e.g. luxembourg, jersey, cayman or dublin) but if you read the annual report of your funds they are in there, as is the audit opinion.
- internally fund managers have compliance officers (and other senior officers) who have significant personal liability if something goes wrong and they fail to flag it to the regulator. They wouldn't normally be in a position to benefit from this kind of scam, so they add another layer of semi-independent oversight.

Generally speaking, collective investment products have a really excellent track record of integrity due to structures like this. Where there have been problems in retail funds historically, they are normally either to do with inappropriate sales (often not by the fund manager themselves), mis-pricing of less mainstream assets (e.g. illiquid securities, private equity or holdings in other funds - arguable Woodford was of this nature), and/or improper risk management (i.e. the manager running the investments with more risk than communicated to clients).

rforsixpence

SonOf said:

Maybe you should look for a better quality provider.  

That's exactly what I'm doing: I'm transferring my pot from a £200-a-month provider with poor platform/admin to a £10-per-month SIPP provider which so far appears to have excellent platform/admin. 

ex-pat_scot

General comments on the controls operated at your scheme provider.

The provider aims to have a neutral position: to net off the trades in and out of each fund, each day, using the "Box" as a control mechanism to buy or sell the net number of units in each fund required at the end of each trading day. In theory, therefore, there should be no profit or loss to the provider.
In practice, this process does not always happen as quickly as it should. Delayed trades are closely monitored, with exception reporting to identify late trades and any customer detriment. Treatment is asymmetric: any losses you incur are made good, and any gains  you retain. As a result, the provider is very keen to keep a close eye on box losses and late trades, with Unit Pricing Group / Unit Pricing Committee close monitoring on breaches, losses and remediations required. The FCA is also all over the breaches process as a primary indicator of Conduct Risk.
That's not to say that these things don't happen, but there is a good deal of scrutiny (at least at the firms I have reviewed).
Any deliberate manipulation or misappropriation of "gains" would be a huge red flag to the FCA, and would be counter to the risk appetite of the firm, which would be to not hold a position in any fund (ie not to be exposed to market risk).

(I have grossly oversimplified elements of this, so please don't start getting too picky on my description of box gains / losses, Unit Pricing Governance etc).

AnotherJoe

What are the protections against the Trust using hindsight to choose the lowest date, saying that's when the sale happened, but actually providing the cash out of float, say, and pocketing the difference?

In that case there's nothing special about you transferring out, they could do the same at at any time, when you buy or sell, after all i put an order in to buy shares at time X, they tell me teh sale went through at time X+Y and the price is Z, whats to stop them looking at prices within a few seconds r even milliseconds of Y and pocketing the difference?

Its possible because almost anything is, it could happen but at all but the tiniest providers there are so many people and systems involved that a fraud of that scale would require collusion on a massive scale including interference with complex interlocking computer systems and be hugely vulnerable to just one of probably dozens of people in on the scam  letting the secret out.

jim1999

rforsixpence said:

Jim1999, that's reassuring, but do you know how I can check. I've asked my provider for the "contract notes" but they say they are unable to provide them. Is that compliant with "best execution" and the other protections you reference?

Realistically, you won't be able to - you will just have to take it as read.
These kinds of trades are complex.  It is not the case that because you bought 10 units of STOCK1 and 8 units of STOCK2 that the broker made a purchase of 10 units of STOCK1 from the LSE and 8 units of STOCK2 from BATS CHI-X.

If you wanted to buy 10 units of STOCK1 and a corporate client wanted to buy 10,000 units, it may well be that your broker bought 10,010 units from BATS CHI-X.

If on the other hand, you wanted to buy 10 units of STOCK2, and another client wanted to sell 40 units, they might have given 10 units from the other client to you and just sold the remaining 30 units through the LSE.  This may sound absurd at first glance, but the reality is that you'd be getting a much better deal - and they're actually mandated to get you the best deal as per MIFID2 so they couldn't reasonably go and source it somewhere else.

So there is nothing they could show you that would make sense.

You just have to trust the protections and the regulators here.  But you should. 

Ages ago there were problems in this area (google "front-running" if you're interested), but firstly that was a while ago, and secondly for anyone to actually bother doing this the trades need to be in the millions (since the profits are tiny fractions of a percent).  It would have been done on a big corporate account, not an individual's.