This month’s news that Fidelity International has restricted new investments into the Jupiter UK Mid Cap Fund (GB00B1XG9482) fund prompts questions on the role that platforms should play in their users’ investment decisions.
The fund is admittedly not in a great place. Run by the same managers as the struggling Chrysalis Investments (CHRY), it lost in the region of 37 per cent in the past year, around twice as much as its benchmark. The poor performance of its listed assets also means exposure to unquoted assets has been on the rise. Most prominently, the fund owns a stake in Starling Bank (5.2 per cent as at December 2022), which it is in the process of offloading. The IC understands that the sale is under way.
Fidelity did not explain the reason for its decision, saying only it “is in the best interest of our clients”. Customers of its retail platform and execution-only customers of its advised platform can redeem existing holdings but cannot buy shares in the fund “until further notice”, although advisers continue to have full access.
This is an unusual move, and other platforms do not appear to be following suit. AJ Bell tells us it has no plans to do so. The fund is also still available on Hargreaves Lansdown, albeit with a link to a note, dated to July 2022, explaining why the platform’s analysts are not big on the Jupiter UK small and mid-cap companies team. The note spends quite a few paragraphs on the fund’s liquidity risk.
The mid-cap fund’s poor performance has led to asset outflows, and redemptions are typically funded via the sale of publicly traded positions. That puts further pressure on managers to make sure unquoted holdings account for no more than 10 per cent of the fund – the regulatory limit.
Fidelity, meanwhile, made similarly proactive calls last summer when it suspended access to the Premier Miton Worldwide Opportunities Fund (GB0031831133) and other two Jupiter funds, but for different reasons. Reports unconfirmed by the platform linked the move to the funds breaching an unofficial 2.5 per cent charges threshold.
Interactive Investor’s Jemma Jackson articulated how the platform’s approach differs from Fidelity’s. She said it “provides the data points to customers to allow them to make their own decisions”, adding “we are strong believers in consumer education, but also choice”.
It would be disingenuous to suggest that platforms have no influence on the funds picked by their users, given that most of them employ “recommended” funds lists. But there is a difference between gently nudging investors towards certain funds, and bluntly stopping them from investing in others.
Contrarian investors won’t be pleased for a start. Secondly, the lack of transparency is slightly jarring – if I’m going to be stopped from doing what I want with my money, I’d like to know why, who makes the decision and based on what criteria. Thirdly, to what degree is it a platform’s job to intervene in its users’ investment decisions?
But in Fidelity’s defence, the FCA seems to think that platforms do need to take a more active role. Its new Consumer Duty rules, say they need to make sure that a product ultimately provides “fair value” to customers. The rules also say providers should “take action to address any risks to good customer outcomes.”
So where do you draw the line between choice and protection? It is a difficult call for platforms to make, and we can expect more such dilemmas in the months and years ahead.
