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Thousands of investors who make regular contributions into their shares portfolio have been left languishing in cash and missing out on months of returns after falling foul of European rules introduced at the start of the year, Telegraph Money can reveal.
The UK’s biggest online stockbroker Hargreaves Lansdown, which has 1.1 million customers, said 3pc of its investors with regular savings plans have been affected. Investment consultancy The Lang Cat estimates that this equates to around 3,000 customers. Rival fund shops have also been affected.
Since January 3, in order to buy shares, investment trusts, exchange traded funds, corporate or government bonds via a fund platform, investors must provide identification details including their National Insurance (NI) number and nationality. This applies even to investors who already have a scheme set up to buy those investments regularly.
Investors who fail to provide this information are denied the right to buy those types of investments.
In the case of Hargreaves Lansdown, and smaller rival AJ Bell, the investment platforms continued to take investors’ money, but instead of investing it, left it in their customers’ cash accounts.
Those investors who failed to update their personal details will have unknowingly missed out on any gains made by their chosen investments for the last nine months.
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Gareth Fuller/PA Wire
David Thorpe, who invests with Hargreaves Lansdown, did not realise his error until August. His three attempts to have the issue corrected via Hargreaves’ customer call centre were unsuccessful. His investments were only reinstated after Telegraph Money became involved.
Fund shops have been informing customers about the change since last autumn, but some investors have failed to heed the warnings.
Some platforms have achieved better results than others. AJ Bell, which has 183,000 customers caught by the rules, said just 28 people had their regular investments stopped.
A spokesman for AJ Bell said: “The new rules are meant to protect investors but clearly there are unintended consequences that are not helpful to anyone.”
A spokesman for Fidelity, an investment shop, said the problem has only impacted "a small number" of its clients.
He added: "Clients with regular savings plans were written to on at least three separate occasions to confirm their NI number and nationality, and to inform them that without this confirmation future regular savings will be held in cash. Only a limited number of clients have yet to respond. In addition, clients who make additional transactions via our online or telephone service are prompted to update their nationality details before proceeding.”
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Fund investors – a much larger group – are currently not affected by the rule change, though plans are underway to bring them under its auspices, potentially leading to many more fund shop customers being shut out of the market.
The European rules are intended to make costs and practices in the notoriously opaque world of investing more transparent to the ordinary investor. Ensuring investors’ details are correct and up-to-date is designed to force financial companies to know who their customers are, what they are being charged, and what they are being sold, so products and services are designed with them, not the financial services industry, in mind.
But the rules have ruffled feathers in the investment world amid accusations that investors are no clearer about what they are paying for.
For example, a clampdown on providing “free” research under the rules, where costs were hidden amid other charges, led some financial services firms to scale back their research arms, which some have said harms rather than helps investors.
laura.miller@telegraph.co.uk
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