HELP NEEDED - Can't sell investments as broker is changing Custodian

davethebb

Thrugelmir, The transfer incident happened during COVID but the bad service was the previous 12 to 18mths prior and was the result of the company rapidly expanding by buying up companies and high staff turnover which resulted in me not having continuity with my advisor, etc. (in a twelve-month period I had to undertake 5 risk assessments & various form filling etc. all with different advisers) all before they would advise me on a plan (I was due to retire very soon). This plan never actually materialized and I lost total confidence in them.

Thrugelmir

davethebb said:

Thrugelmir, The transfer incident happened during COVID but the bad service was the previous 12 to 18mths prior and was the result of the company rapidly expanding by buying up companies and high staff turnover which resulted in me not having continuity with my advisor, etc. (in a twelve-month period I had to undertake 5 risk assessments & various form filling etc. all with different advisers) all before they would advise me on a plan (I was due to retire very soon). This plan never actually materialized and I lost total confidence in them.

We all suffer bad experiences. That's life. Moving on is what really matters. 

davethebb

I must admit I am happier now I have control (not so happy with the markets but that's life....). The energy and work I was putting in the with adviser/investment company were just so high and in the end, they just were not doing as expected and also paid to do. Very sad because I was with them from a small family company but they were bought out twice and the larger company where just a pain to work with.

masonic

davethebb said:

This is the full story, Sorry for the confusion.  

A couple of questions that I have are;

1) If the investment company concerned did not initiate the change of custodian who would and who would I seek recompense from?
2) Would the investment company have know that the change of custodian was going to happen within the following week e.g. should the descretionary manager have known and advised me accordingly?

Thanks for the follow-up. It makes things a lot clearer.

On your questions, I don't actually agree with the investment company or the FOS (if they've sided with the company) that a forced change of custodian would absolve the company of liability for service issues you've experienced as a result. You have a service contract with the investment firm, not with any third party they choose to use in the provision of your services (check your T&C to confirm who the agreement is between), and the manner in which the investment firm conducts its business is not your concern. Your rights in this regard are enshrined in the Consumer Rights Act 2015. If you need to apply pressure on this point, you could use the well known analogy of an online retailer who tries to point the finger of blame at their chosen courier service when there is a problem with delivery of goods. In that case it is the online retailer, not the courier, who is responsible for compensating you, just as in this case it is the investment company who you have a contract with who is responsible for compensating you. Said retailer, or investment company, can choose to take action against any third party they've sub-contracted in the provision of your contract should they wish to do so and even claim for any compensation they've had to pay out to you if appropriate, but that's their responsibility, not yours. So, if there is any case for compensating you for the impact of this change of custodian, it is from the investment company to you, and the investment company can separately seek to pursue a claim against other companies it has contracts with.

What isn't clear is whether or not you suffered any adverse impact beyond what was reasonably expected during that time. You've said that the holdings were sold and transferred piecemeal over a ~7 week period, and that the ceding manager organised these such that you were not out of the market for a prolonged period of time. As far as that is concerned, it sounds like the experience does not fall below the standards typical for those times. The in specie transfer between custodians, followed by cash transfer to II was not ideal, but no real harm done as you managed to escape the typical months of delay many people saw added to such transfers just by virtue of us being in the middle of a global pandemic. It doesn't appear that you are claiming you've suffered a financial loss, for example because of dramatic moves in markets while you were out of the market, and perhaps the piecemeal process that was used helped with that to some extent. There probably should be some compensation payable for the extra hassle you'll have experienced rebuilding your investment portfolio piece by piece as cash arrived.

You've complained separately about the admin errors at II, which are not an uncommon occurrence, and it is only fair that II should compensate you if cash did not appear in your account when it should have, and also for any loss you suffered as a result of buying investments for a higher price than they were when the cash should have been available to reinvest. It seems you are saying that any prolonged period out of the market was at the hands of II, making things simple. Presumably you were reinvesting in funds that were broadly equivalent to the ones you held with the previous provider. This should be easy to calculate, as within your transfer there will be examples sums of cash turning up without issue and other examples where it was delayed. So the FOS can do a calculation comparing unit prices on the date the cash should reasonably have been available to invest and when it was actually available to invest.

davethebb

Hi Masonic,
The transfers were not a combination of "in specie and cash" but just 100% cash. This all happened when the markets were increasing and the potential loss is calculated at around £17k** on the original adviser and estimated at £1 to 2k for II - this is yet to be calculated based on a detailed analysis of the various dates and information was given and transfers made.
**Because I made it known to the old adviser what funds I was going to invest in (detailed in emails) the FOS has requested documented evidence that I actually invested in these funds with dates when the cash was transferred - which I duly did - this is where the £17k comes from. This shows a clear plan and intent on what I wanted to do but couldn't due to the ongoing delays.

Your point about my rights are absolutely spot on and depending on how this pan out with the FOS this will be one argument I will be using along with the fact that surely they should have known about the custodian change beforehand - hence me asking about this in the previous post.

masonic

davethebb said:

Hi Masonic,
The transfers were not a combination of "in specie and cash" but just 100% cash.

The change of custodian itself necessitated an in specie transfer, which would have happened whether or not you'd separately requested a transfer to a different provider. The in specie transfer was the reason why holdings were sold one by one over a 7 week period: each holding was re-registered to the new custodian and only then could it be sold. Thus, there was an "in specie transfer between custodians, followed by cash transfer to II".

davethebb said:

This all happened when the markets were increasing and the potential loss is calculated at around £17k** on the original adviser and estimated at £1 to 2k for II - this is yet to be calculated based on a detailed analysis of the various dates and information was given and transfers made.
**Because I made it known to the old adviser what funds I was going to invest in (detailed in emails) the FOS has requested documented evidence that I actually invested in these funds with dates when the cash was transferred - which I duly did - this is where the £17k comes from. This shows a clear plan and intent on what I wanted to do but couldn't due to the ongoing delays.

It sounds like you have very strong evidence that the FOS can use to calculate your loss for compensation. Evidence of your original intentions, backed up with actions that seek to execute that plan, despite the problems encountered. That's as good as it gets, so there should be no disputing the position you would have been in if things had gone to plan.

I should comment, only to avoid others reading being misled, that the calculation of loss would not just be dependent on difference in price of the new investments. Any gain made in the old investments while they were being held hostage would naturally need to be subtracted (or any loss added on). Where the performance of old vs new investment was the same, then only the time out of the market (in cash) would be considered, and potentially not all of that time, since even an exemplary transfer would involve a few days out of the market. In your case it's probably going to be a fairly lengthy calculation given all of the different individual transactions, so the investigator or adjudicator at the FOS can have some fun!

davethebb said:

Your point about my rights are absolutely spot on and depending on how this pan out with the FOS this will be one argument I will be using along with the fact that surely they should have known about the custodian change beforehand - hence me asking about this in the previous post.

There are circumstances where the investment company might not have had foresight of the need to change custodian. I think one or two of these have already been mentioned, but would include regulatory enforcement action taken against the custodian, custodian subject to insolvency, some form of contractual dispute resulting in custodian withdrawing their services. You can be fairly sure from your experience that work was being done by the old custodian to re-register holdings to the new custodian over a 7 week period, so they didn't just vanish. It would be worth reviewing your T&Cs for relevant clauses relating to breach of contract. Not that the presence of a term means that it is necessarily enforceable, but you can at least be prepared to address anything that comes up.

It would be hard for them to invoke force majeure in circumstances where they have, through their own prior actions, put themselves in the situation, for example by merging with other companies. If it was that easy, then TSB Bank could have wriggled out of compensating people for the meltdown that followed its IT migration from Lloyds group to Banco Sabadell. However, if the custodian, without warning, ceased providing services to the investment company, then it could come down to whether the investment company exercised appropriate skill and care in selecting a custodian that would do this, and whether it took all reasonable steps to minimise disruption for its customers. One such step could have been the negotiation or attempted negotiation of some overlap period whereby holdings could be transacted at the old custodian.

davethebb

Just an update on this. The FOS started the investigation and seemed to start to indicate that the custodian was at fault and indicated that this was out of their control to investigate. Luckily the investigator actually retired from the FOS and a new one took over the case with a totally different point of view. The second FOS investigator concluded that the investment company was to blame not just for the delay in selling the investments and transferring the cash but for the issues with Interactive Investor (the new investment company that I am using). They concluded the errors at II firstly would not have happened if the investments had been sold without delay, but also they appear to have given them some incorrect information during the transfer which I was not aware of. The FOS has also upheld my complaint about the bad service I made about the original investment company/advisor and they will be settling this.

The FOS investigator concluded that if they had sold the investments when instructed and transferred the money, then I would not have suffered the loss. They have requested that the investment company calculated the loss and pay me compensation plus interest accordingly. The company has declined to do this so now this part of the complaint is being referred to the Ombudsman for a final decision. 

masonic

Sounds like a good result, and the Ombudsman is very likely to back up the investigator.

davethebb

Masonic et al, to my surprise the ombudsman has made a very quick review and issued a provisional decision (PD) which partly agrees with the other side. To summarise I was transferring my business from my old investment company to Interactive Investor and instructed my old investment company to sell and transfer as cash. However, soon after instructing them, they informed me that they were changing custodians and had to wait for each fund to be transferred to the new custodian before selling and transferring the cash. The custodian transfer had long delays and as the monies were transferred in a number of tranches to II, the proceeds were temporarily held as cash and out of the market until there was a reasonable amount of money to send over to II. This created a loss for me as the markets at the time were on their way up.

The reason the ombudsman has party agreed with the other side is they have said that I was given the option mid-way through to temporally buy a tracking ETF in the interim with the cash being held and thus still be in the market until all funds were sold and then I could sell the ETF and transfer the cash. The ombudsman has said the other side would need to back-calculate the gain the ETF would have made and offset this with any loss I have suffered.

I have a specific question regarding the tracking ETF's. Is it fair to say the ETFs would also be held by the same custodian as my funds and therefore would these have the same problems e.g. they would not be able to trade in them until they were transferred over to the new custodian?

masonic

I think this potential solution would involve the ETF being purchased by the new custodian, so it would be unaffected by the holdings being transferred from old -> new. The new custodian would be the responsible party for holding any new investments while the legacy investments were moved across to them in the background.

I think it is worth countering with an argument that this wasn't adequately explained to you, and that if you had fully understood this workaround you would have been far more likely to agree with the course of action.