There is a critical question investors face when considering the transfer of existing investments to a new manager.

Should they:

1. sell the existing holdings so a clean, cash sum can be sent to the new provider?

or

2. start a process often called an ‘in-specie’ transfer of securities or, in the case of certain funds, a re-registration of these assets from the current provider to the new?

In option (b), the advantage is all the assets remain invested, so investors benefit from any market movements during the transfer process. Conversely, a transfer of cash takes the investor out of the market for the days, or perhaps weeks, it may take to complete the process.

‘In-specie’ transfers, therefore, look attractive, but there are a couple of further considerations. Is the new investment manager going to levy any charges for the work involved in arranging an ‘in-specie’ transfer? Or will the encashment of any holdings realise a capital gain, which in turn triggers a tax charge?

In the case of certain types of funds, most commonly unit trusts, the process of re-registration was a time-consuming clerical exercise which sometimes took months. The good news is, though, that it is no longer necessarily true.

With the industry regulator, the Financial Conduct Authority (FCA), putting pressure on providers to remove such barriers and the emergence of new technologies, electronic re-registration has dramatically improved fund transfer times. What used to take weeks can sometimes be reduced to hours.

Streamlining the re-registration process certainly makes the ‘in-specie’ transfer option more appealing: investors benefit from any market upside and can start working with a new investment manager sooner rather than later. As mentioned earlier, the issue of costs still needs to be factored into any decision. Included in this should be an assessment of the possible changes a new investment manager will be recommending for a new portfolio, perhaps to better align it with the investor’s risk profile. If a new investment strategy requires the sale of all or a large number of existing holdings, then encashment may still be the most efficient route.

A good investment manager will present the various options with any cost and tax implications clearly to an investor who wishes to move their portfolio. As ever, sometimes the best option is not necessarily the cheapest one. 

Church House Investment Management works with two partners, Parmenion and Multrees Investors Services, who provide us with custody, administration and technology services. Both businesses operate electronic re-registration services.

Important information

The contents of this article are for information purposes only and do not constitute advice or a personal recommendation. Investors are advised to seek professional advice before entering into any investment decisions. Please also note the value of investments and the income you get from them may fall as well as rise and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future. performance.