What defines a disturbance on your existing assets on Cofunds?
Under the new Retail Distribution Review rules, Fair Investment Company and Cofunds are permitted to receive on-going commission on existing funds purchased before 6th April 2014, provided that your portfolio remains ‘undisturbed’.
However any new fund purchases or 'disturbances' to your portfolio will instigate the purchase of 'new' commission-excluded share classes for the affected funds.
To help you prepare for the 'new world', we’ve explained in simple terms what ‘disturbance’ means and how it affects you.
What constitutes a disturbance?
The guidelines on disturbance may be interpreted in different ways. Generally, disturbance rules don't apply to existing units held within a fund - only to additional units being created.
Disturbance events include:
- Any monetary increase to your existing investment – including one-off lump sums, increases to regular savings amounts and top-ups.
- Switching fund units
- Reinvestment of previously paid-out income
Disturbance events are NOT:
- Sales/redemptions of shares/units in a fund
- Regular investment instructions where the amount is unchanged, decreased or cancelled
- A unit conversion from income (INC) to accumulation (ACC) or vice versa
- The paying out of previously reinvested income.
What happens after a disturbance?
Once a disturbance event takes place:
- Any new money must be invested in commission-excluded share classes
- Disturbed units/shares within commission-included share class funds must be moved to commission-excluded units/shares where available
What are the on-going affects to my portfolio?
At some point it is most likely that you will have a portfolio that contains both commission-included share class funds and commission-excluded share class funds. You can at any time, choose to convert your entire portfolio to commission-excluded share class funds. But it is important you do this in the right way.
Converting share classes
Later in 2014, you'll be able to exchange commission-included shares for the equivalent monetary value of commission-excluded shares in the same fund, where available. A Share Class Conversion Forn will need to be completed rather than a fund switch, to avoid being out of the market or a Capital Gains Tax event (if investing outside of an ISA). There is no fee for share class conversions.
Holding disturbed and undisturbed funds on Cofunds
When can assets continue in commission-included share class funds - and when must commission-excluded class funds be used?
|Intended Action||Disturbance?||What happens next?|
|A top-up into commission-included share classes
||Top-ups can only be invested in commission-excluded share classes. The legacy holdings can remain in commission-included share funds-only the topped-up amount is subject to disturbance|
|A top-up into commission-excluded share classes
||Top-up can go ahead|
|Regular savings investment is increased
||Only the increase in regular savings amount is to be invested in commission-excluded share class funds. The previous regular savings can continue to invest within the commission-included share class funds|
|Regular savings investment is decreased
||The reduced regular savings amount can continue to be invested in commission-included share classes|
|Regular savings investment is switched to a new fund
||The redirected regular savings amount must be invested in commission-excluded share class funds. Remaining units within an affected fund can continue to be invested into commission-included share class funds|
|A fund is removed from the regular savings investment
||The regular savings amount will decrease proportionally – the removed fund cannot be replaced by a different commission-included share class|
|Switch from a commission-included fund to a difference commission-included fund
||Switches can ONLY be made into commission-excluded share class funds|
|Switch from a commission-excluded share class fund to a different commission-excluded share class fund
||The switch can go ahead|
|Convert from ACC to INC share classes in a legacy commission-included fund or vice versa
||Conversion can go ahead using commission-included share classes|