UK platform wars follow MiFID II, Consumer Duty rules, as Fidelity restricts fund of ITs

Fidelity platform Fidelity International has restricted investment into the Premier Miton Worldwide Opportunities fund, a fund of investments trusts, after a change to cost disclosure guidance meant the charges exceeded 2.5%, the platform's unofficial ongoing cap, reports International Investment sister site Investment Week. 

On 30 June 2022, Fidelity International decided to restrict new investments in fund, because it was "in the best interests of our customers," according to a statement on its website. Investors are still able to redeem existing holdings in the fund either by selling to cash or by switching to other funds. 

While Fidelity did not disclose the rationale, Investment Week has learned that it is because the platform has an unofficial cap on funds' ongoing costs of 2.5%, with most funds beyond the threshold considered not suitable for its clients.

The Premier Miton fund, which is a fund of investment trusts, had not changed its charge, but its annual ongoing charges increased because of a clarification to MiFID II rule.

Recently, the UK's Investment Association (IA) clarified guidance to members that investment trusts fall under the same cost-disclosure rules as open-ended funds.

This means that a fund of funds must now include in its OCFs the charges of investment trusts it is invested in, where previously it only had to include the charges of investee open-ended products. The IA set a deadline of June 30 for managers to get their fund literature updated.

This change meant the Premier Miton fund had an ongoing charge of 2.27% to 3.27%, depending on the share class, according to Premier Miton disclosures. The total costs were 2.89% to 3.89%, a figure that includes transaction costs and "other underlying fund costs". The AMC is 0.75% on B share class, with underlying fund OCFs adding 1.41%.

Ben Yearsley, managing director of Fairview Investing, said Fidelity had "dropped the ball" and "not understood the rule change or done due diligence on the fund".

"Nothing has changed on the fund," he said, highlighting tat the investment trust version of the open-ended fund MIGO Opportunities is still available for purchase on the platform.

He added that he thought the clarification to the MiFID II disclosures made sense, but felt the cost cap that Fidelity was implementing was "arbitrary". 

"Why should they be dictating what price investors are willing to pay," he queried.

Indeed, performance on the fund has been relatively strong. In the three years to 19 July, the fund returned 21.7%, while the IA Flexible Investment sector returned 10.2%, according to FE fundinfo. 

However, other experts have flagged that the FCA's upcoming Consumer Duty regulations, the final policy statement for which is due next week, currently propose firms should conduct more formal value for money assessments. Under this, the ceiling implemented by Fidelity might seem appropriate. 

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Annabel Brodie-Smith, communications director of the Association of Investment Companies, said the organisation has been lobbying for an overhaul of consumer disclosures to ensure "a level playing field on cost disclosure between open-ended UCITS funds and closed-ended investment companies".

"The current regime, with different disclosures for different fund types, causes confusion and makes it hard to find the best value for money across the funds universe," she said. 

"It is really important that the different elements of fund costs are split out and fully disclosed to help investors assess value for money and understand the different charges which make up the OCF.

"This would include, for example, the splitting out of investment companies' gearing costs, as well as the costs of underlying funds in situations where a fund invests in other collectives. Breaking out underlying fund costs would help investors see more clearly what is charged by the funds-of-funds manager alongside the costs of the underlying investments the manager has selected."

A spokesperson from Fidelity International said: "On 30 June 2022, Fidelity International decided to restrict new investments in the Premier Miton Worldwide Opportunities fund which we believe is in the best interest of our platform clients. Customers can no longer buy shares in this fund until further notice. Customers are able to redeem existing holdings in this fund."