Question
This ISA question is about stocks and shares ISAs with particular reference to funds.
Should I like "amalgamation" of the separate Tax Years into one ISA or not? This amalgamation is done by both some fund managers and some fund supermarkets/discount brokers and sometimes they can both do it to the same investments to magify the effects.
I am not sure what the technical term for this "amalgamation" is but what I mean here is the practice of some funds managers (or fund supermarkets) to put all the funds from the different ISA Tax Years into one big ISA. In such a way as the boungaries between the different Tax Years and the boundaries between differerent categories of investment (eg PEPs and ISAs) are lost forever. Is this a bad thing or a welcome simplification for most people?
I first came across it several years ago with a Perpetual PEP savings plan that I had in place at the time. As it was a plan that I kept for several years it involved many different Tax Years. Later I transferred it to a discount broker/supermarket who had the same practise. All the investments from the different years were rolled into one big Tax Year investment with this plan. At the time I took the view that this was a "bad thing" but would proceed with the transfer anyway. I made a mental note that, for me, the discount broker might be best kept for "non ISA" business only in future. By this time I had noted that other fund supermarkets kept the investments in the different Tax Years separate albeit under one overiding account and, perhaps irrationally, I preferred this.
Then, much later, I tried to work out why I had taken the view that it was a "bad thing". I was "hard put" to come up with anything other than a suspicion it was cost saving which offfered no benefit to the customer. But, after thinking about it, I did think of at least one more solid reason why I did not like it and it has to do with my own "forgetfulness": when looking at my investments for 2003/4 I came across my ISA looking rather "bigger" than it should have been and I wondered whether I had exceeded my annual ISA allowance (ie made a mistake) with the discount broker by accidentally transferring funds into the ISA that were non ISA.
I decided to investigate further. I had forgotten that I had used this ISA Tax Year to transfer in PEPS from these earlier PEP investments with Perpetual which then "topped up" my ISA investment for this year: so it made it "look and feel " a bit "illegal " when it was , in fact , not so. These PEP transfers in were , at the time , allowable ,as transfers in , but the broker's system did not keep the various Tax Years and the PEP investments separate and so it had the effect of making this ISA look like I as busting the ISA limits for that year when in fact I was not . I had merely forgotten the "history" of this ISA investment as the years had gone by , until I retrieved my documentation and looked at it again in detail. The fact that they both had the same "amalgamation" strategy had also magnified the effect and the "history" of these investments had been lost.
Am I right or is a more balaced view needed?Answer
In the days of Personal Equity Plans (PEPs) it was only possible to transfer an entire holding from one PEP manager to another. And given fund supermarkets didn't exist it made sense to use a different PEP (fund) manager each year to ensure diversity. So transferring PEPs by tax years was both practical and the norm.
The introduction of ISAs allowed partial transfers, that is you didn't need to transfer your entire holding with one ISA manager to another. This allowed greater flexibility but started to become messy if you split an ISA from a single tax year between several ISA managers.
And the proliferation of fund supermarklets and platforms means it's really not practical to identify ISA holdings by tax year any more. I think the technical term for this is 'bundling', i.e. your ISA holdings from various tax years are bundled into one account and viewed as such.
I agree doing so probably saves ISA providers some money, but it also simplifies things for customers. If I own units in a fund that relate to several different tax years, I would much rather see just one entry for that fund on my valuation than multiple entries reflecting the different tax years.
I suppose there is a downside if you like tracking your ISA investments by year, but I think it's a small price to pay for the convenience and flexibility of managing your ISA portfolio on a single platform. But I think it is sensible to keep track of all your investments and subsequent switches/transfer, either on paper or on computer, e.g. using a spreadsheet.
This ISA question is about stocks and shares ISAs with particular reference to funds.
Should I like "amalgamation" of the separate Tax Years into one ISA or not? This amalgamation is done by both some fund managers and some fund supermarkets/discount brokers and sometimes they can both do it to the same investments to magify the effects.
I am not sure what the technical term for this "amalgamation" is but what I mean here is the practice of some funds managers (or fund supermarkets) to put all the funds from the different ISA Tax Years into one big ISA. In such a way as the boungaries between the different Tax Years and the boundaries between differerent categories of investment (eg PEPs and ISAs) are lost forever. Is this a bad thing or a welcome simplification for most people?
I first came across it several years ago with a Perpetual PEP savings plan that I had in place at the time. As it was a plan that I kept for several years it involved many different Tax Years. Later I transferred it to a discount broker/supermarket who had the same practise. All the investments from the different years were rolled into one big Tax Year investment with this plan. At the time I took the view that this was a "bad thing" but would proceed with the transfer anyway. I made a mental note that, for me, the discount broker might be best kept for "non ISA" business only in future. By this time I had noted that other fund supermarkets kept the investments in the different Tax Years separate albeit under one overiding account and, perhaps irrationally, I preferred this.
Then, much later, I tried to work out why I had taken the view that it was a "bad thing". I was "hard put" to come up with anything other than a suspicion it was cost saving which offfered no benefit to the customer. But, after thinking about it, I did think of at least one more solid reason why I did not like it and it has to do with my own "forgetfulness": when looking at my investments for 2003/4 I came across my ISA looking rather "bigger" than it should have been and I wondered whether I had exceeded my annual ISA allowance (ie made a mistake) with the discount broker by accidentally transferring funds into the ISA that were non ISA.
I decided to investigate further. I had forgotten that I had used this ISA Tax Year to transfer in PEPS from these earlier PEP investments with Perpetual which then "topped up" my ISA investment for this year: so it made it "look and feel " a bit "illegal " when it was , in fact , not so. These PEP transfers in were , at the time , allowable ,as transfers in , but the broker's system did not keep the various Tax Years and the PEP investments separate and so it had the effect of making this ISA look like I as busting the ISA limits for that year when in fact I was not . I had merely forgotten the "history" of this ISA investment as the years had gone by , until I retrieved my documentation and looked at it again in detail. The fact that they both had the same "amalgamation" strategy had also magnified the effect and the "history" of these investments had been lost.
Am I right or is a more balaced view needed?Answer
In the days of Personal Equity Plans (PEPs) it was only possible to transfer an entire holding from one PEP manager to another. And given fund supermarkets didn't exist it made sense to use a different PEP (fund) manager each year to ensure diversity. So transferring PEPs by tax years was both practical and the norm.
The introduction of ISAs allowed partial transfers, that is you didn't need to transfer your entire holding with one ISA manager to another. This allowed greater flexibility but started to become messy if you split an ISA from a single tax year between several ISA managers.
And the proliferation of fund supermarklets and platforms means it's really not practical to identify ISA holdings by tax year any more. I think the technical term for this is 'bundling', i.e. your ISA holdings from various tax years are bundled into one account and viewed as such.
I agree doing so probably saves ISA providers some money, but it also simplifies things for customers. If I own units in a fund that relate to several different tax years, I would much rather see just one entry for that fund on my valuation than multiple entries reflecting the different tax years.
I suppose there is a downside if you like tracking your ISA investments by year, but I think it's a small price to pay for the convenience and flexibility of managing your ISA portfolio on a single platform. But I think it is sensible to keep track of all your investments and subsequent switches/transfer, either on paper or on computer, e.g. using a spreadsheet.
Read this Q and A at http://www.candidmoney.com/questions/question404.aspx
No comments:
Post a Comment