Transferring between investment funds during market volatility

In mid-March 2020, Tom requested to transfer his investment of around $97,000 in his workplace savings scheme from a growth fund to a combination of cash and conservative funds. His investment was falling in value due to market volatility caused by the outbreak of COVID-19.

Tom read the scheme’s information booklet before he requested the transfer. It explained that investments can be transferred between funds, but it did not explain how long transfers take to be processed. The scheme’s website, through which Tom submitted his transfer request, said transfers will be completed within seven working days.

Six working days later, the scheme manager processed Tom’s transfer request. By that time, the value of his investment had fallen to around $88,000. In error, the scheme manager sent Tom a letter saying his investment balance was around $93,000. They had accidentally used the wrong week’s crediting rates to calculate his investment balance. The scheme manager wrote to Tom two days later with the correct investment balance, but they did not explain the discrepancy.

Tom complained to the scheme manager about the time it had taken them to process his transfer request and wanted them to reimburse his investment loss. The scheme manager understood Tom’s disappointment with the fall in his investment, but they were not prepared to compensate him. Tom was not satisfied with their response and complained to FSCL.

 

Dispute

The scheme manager explained to us that Tom’s transfer request had been processed in accordance with their usual process. They process transfers once a week. This is because the scheme is not unitised (like most KiwiSaver schemes). Instead, the scheme has monthly crediting rates, and weekly interim crediting rates which are used for transfers. Transfers are actioned on Fridays when the weekly crediting rates for the Wednesday are known. The transfers are effective from the Wednesday.  

Tom did not accept the scheme manager’s explanation: he believed his transfer should have been completed the day he submitted it.

Tom also believed that the scheme members’ processes were not transparent. He said he would have waited until closer to the scheme manager’s weekly cut off time to decide whether he would submit a transfer request, given market conditions, if he had known more about the transfer process.

Tom also complained that he was not informed about the reason for the discrepancy in the investment balances the scheme manager gave in their two letters until he raised it when he complained. The scheme manager had apologised for the error, but Tom believed they should honour the higher investment balance they had given. Ideally, Tom wanted the scheme manager to reimburse the fall in his investment, which was around $9,000, and pay him interest.

 

Review

We were satisfied with the scheme manager’s explanation for why transfers are processed on a weekly basis. We were also satisfied that Tom’s transfer request was processed in accordance with the scheme manager’s usual practice.

However, we considered that the information that was available to Tom about the timing of the transfer process was not sufficient to allow him to make an informed decision. As a result, Tom had lost the opportunity to make a more informed decision about transferring his investment. But we did not accept that the scheme manager had caused Tom’s financial loss. This was caused by market conditions. Further, the transfer was implemented within the period (seven working days) Tom had implicitly accepted as a possible maximum when he asked to switch funds. There was always the risk Tom’s investment would decline in value between when he requested the transfer and when it was actioned.

We also found that the reason for the discrepancy with Tom’s investment balance should have been brought to his attention in a timely manner.

 

Resolution

We recommended that the scheme manager pay Tom $1,000 to recognise the inconvenience he had experienced as a result of losing the opportunity to make a more informed decision about requesting a transfer, and the stress caused by the error in the scheme manager’s letter about his investment balance. Both parties accepted our recommendation.

 

Insights for participants

We were pleased to hear that the scheme manager improved its website to better explain its transfer process when Tom complained. Complaints can allow financial service providers to gain insight into their clients’ needs and wants and improve the quality of their service.

 

Insights for consumers

Decisions about whether to transfer between funds when there is market volatility should be carefully made and the investor may want to consider obtaining advice from a financial adviser. Investors may crystallise an investment loss if they transfer to a different fund. 

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