IFA mistake. What do I need to be aware of?

milleniumaire

Yesterday, while checking my ISA portfolio online, I came across a contract note dated 12th July selling ALL the assets in my stocks and shares ISA, which have a value of around £200K.  This was a bit of a shock, to say the least!  I then noticed a contract note in which the same value of assets had been repurchased on 22nd July.  Although the value purchased was the same as the value sold, the number of units in each asset was less due to the asset prices increasing during the 10 day period.

I contacted my IFA and they confirmed they had made a mistake while performing my instructed bed to ISA and had accidentally sold all the assets in my ISA.  They confirmed they would make it right by purchasing additional units so that each asset has the same number of units as prior to the sale.  Fare enough, however, by my estimates, it looks like a costly mistake as the assets have increased in value by around £5K over that 10 days!

The purchase contract note shows an Ongoing Charges Figure (OCF) percentage against each asset.  I'm wondering if this may have changed due to the sale and repurchase as I'm not exactly sure how this is calculated.  This got me wondering if there may be other ways I may have been affected by this mistake that I'm not aware of.

Should I be asking my IFA any specific questions in order to ensure I do not loose out due to their mistake?

Thanks.

masonic

The OCF is claimed within the fund, so it is recouped by decreasing the value of each unit over time. You just need to make sure you end up with the same number of units as you had originally and you'll be put back to the position you would have been in if the mistake had not occurred.

eskbanker

There shouldn't be any change in OCFs that would specifically be a result of selling and repurchasing, but you can presumably (get them to) validate that the assets before and after are exactly the same ones, in terms of identical descriptions, classes, ISINs, etc?  You could also press them on whether you missed out on any dividends as a result of being out of the market for the ten days too....

dunstonh

The purchase contract note shows an Ongoing Charges Figure (OCF) percentage against each asset.  I'm wondering if this may have changed due to the sale and repurchase as I'm not exactly sure how this is calculated.  

The OCF would have nothing to do with it.

Should I be asking my IFA any specific questions in order to ensure I do not loose out due to their mistake?

It is a fairly straightforward thing to calculate as they will compare the unit prices between the two dates, which will give them the difference in value.  Then factor in the £20k sale that should have been, and you are due any difference that is in your favour.   They may need to pay the money to directly for you to then send back to the platform as a personal contribution.

You should be able to verify it by looking at the unit prices on both dates.

masonic

Another issue worth considering is the impact of the effective loss of ~£5k of your ISA allowance this year. If you have significant unwrapped assets that you've been moving into the ISA, then this will now take longer to do. There may not be any financial loss associated with this, but it is an inconvenience.

milleniumaire

Thanks everyone for your comments.  I feel more confident I haven't missed anything that I may regret later.

masonic said:

Another issue worth considering is the impact of the effective loss of ~£5k of your ISA allowance this year. If you have significant unwrapped assets that you've been moving into the ISA, then this will now take longer to do. There may not be any financial loss associated with this, but it is an inconvenience.

So, to confirm I understand you, the £5K you refer to is the increase in value of the assets within the ISA over the 10 days.  You are saying an "additional" £5K will need to be placed in the ISA in order to purchase the "missing" units and this £5K will reduce my ISA allowance for this tax year.

If I understand you correctly, that is a very good point as I have essentially lost £5k of this years ISA allowance through no fault of my own.  How does an IFA recompense for this loss of allowance?

milleniumaire

masonic said:

..... There may not be any financial loss associated with this, but it is an inconvenience.

There will be a financial loss as any CIA funds I can't move into the ISA will result in additional tax, which I have to pay through self assessment!

masonic

milleniumaire said:

Thanks everyone for your comments.  I feel more confident I haven't missed anything that I may regret later.

masonic said:

Another issue worth considering is the impact of the effective loss of ~£5k of your ISA allowance this year. If you have significant unwrapped assets that you've been moving into the ISA, then this will now take longer to do. There may not be any financial loss associated with this, but it is an inconvenience.

So, to confirm I understand you, the £5K you refer to is the increase in value of the assets within the ISA over the 10 days.  You are saying an "additional" £5K will need to be placed in the ISA in order to purchase the "missing" units and this £5K will reduce my ISA allowance for this tax year.

If I understand you correctly, that is a very good point as I have essentially lost £5k of this years ISA allowance through no fault of my own.  How does an IFA recompense for this loss of allowance?

Yes, and I suspect the bed & ISA you mention has used up this year's allowance, meaning they will have to buy the replacement units unwrapped and they'd need to be added to the queue of things you want to stuff into your ISA in future tax years. As for the IFA compensating you for this...

milleniumaire said:

masonic said:

..... There may not be any financial loss associated with this, but it is an inconvenience.

There will be a financial loss as any CIA funds I can't move into the ISA will result in additional tax, which I have to pay through self assessment!

If I am correct that your ISA allowance is now used, and £5k of assets will be purchased outside of the ISA to replace those lost from the trading, then if you take these assets and put them to the back of the bed&ISA queue, roughly how much more tax will you have to pay on any income they generate up to the point they can be bed&ISA'd?

milleniumaire

masonic said:

If I am correct that your ISA allowance is now used, and £5k of assets will be purchased outside of the ISA to replace those lost from the trading, then if you take these assets and put them to the back of the bed&ISA queue, roughly how much more tax will you have to pay on any income they generate up to the point they can be bed&ISA'd?

That is a figure I can't estimate, but obviously I can have the conversation with my IFA and I will raise the potential loss of ISA allowance this year as even if they haven't used it up yet, it means I will be unable to use it for other investments I may have wanted to move into an ISA.

masonic

milleniumaire said:

masonic said:

If I am correct that your ISA allowance is now used, and £5k of assets will be purchased outside of the ISA to replace those lost from the trading, then if you take these assets and put them to the back of the bed&ISA queue, roughly how much more tax will you have to pay on any income they generate up to the point they can be bed&ISA'd?

That is a figure I can't estimate, but obviously I can have the conversation with my IFA and I will raise the potential loss of ISA allowance this year as even if they haven't used it up yet, it means I will be unable to use it for other investments I may have wanted to move into an ISA.

Yes, the IFA should have a handle on your dividend income and how much extra you'll be earning on this £5k of assets. Let them propose something and take you through their workings.

dunstonh

So, to confirm I understand you, the £5K you refer to is the increase in value of the assets within the ISA over the 10 days.  You are saying an "additional" £5K will need to be placed in the ISA in order to purchase the "missing" units and this £5K will reduce my ISA allowance for this tax year.

If I understand you correctly, that is a very good point as I have essentially lost £5k of this years ISA allowance through no fault of my own.  How does an IFA recompense for this loss of allowance?

Can you clarify.... 
Did the sale of units happen in the GIA or the ISA?

If you are doing bed & ISA, you sell down in the GIA.  You don't sell down in the ISA.    Just checking this in case its a typo.

If you are not using £2000 of dividends allowance each year, then you are no worse off by having that £5k in the GIA.  It can also depend on your interest paying investments as they go towards the PSA and you have £1000 (or potentially £500).