Interactive Investor (II) has revealed its process for ‘switching off’ investment companies and funds from its platform in response to new Consumer Duty rules, while rival AJ Bell has said it keeps investors informed but does not disbar investment.

Under Consumer Duty regulation, which took effect at the end of July for open-ended funds, investment broking platforms have a new obligation to ensure they alert customers they think are at risk of bad financial outcomes and support them in making informed decisions.

Direct-to-consumer (D2C) platforms have undertaken this obligation in several ways. Fidelity has regularly restricted new investment into funds, with five investment companies, including RIT Capital (RCP ) on the blacklist. It has not disclosed its methodology for doing so, although a recent lift of Fidelity’s restriction on Crux European Special Situations fund, suggests Assessment of Value reports, a requirement for open-ended funds since 2019 are playing a role, while investment companies appear to be falling foul of an unofficial 2.5% charge cap among other things.

Interactive has said it will also halt investors making new investments in funds and investment companies that are deemed not to provide value, although they will be able to sell existing holdings.  

To determine value, Interactive looks at Fair Value Assessments (FOV) reports in the first instance. The reports are the same as assessment of value reports, but changed name in the Consumer Duty rule when more providers were brought into scope.

Under Consumer Duty regulation investment companies are not required to submit an FOV report, but some have chosen to provide them in order to aid distributors, such as platforms. Where this document is not available Abrdn (ABDN)-owned Interactive considers the European Mifid Template (EMT) as a primary source. This document, which is the source material for data providers, has a section on ‘value for money’ and Interactive said it had seen some trusts and other funds state within the document they had done an assessment of value.   

In the absence of either proof point, Interactive contacts fund management groups asking if they want to complete an assessment and if not they will use a third party tool which will indicate whether a fund is value for money or not. The retail broker highlighted that different platforms use different tools in this situation which can lead to varying outcomes.

Jemma Jackson, Interactive Investor’s head of public relations, said ‘this is still a fluid situation’.

‘Of funds currently restricted, the vast majority are because the manager itself has said it was not value for money, and these are overwhelmingly low-demand funds’.

She added that she was not making the list of restricted funds public as she was awaiting guidance on how it should be presented and how often it should be updated. ‘I think there needs to be a unified approach,’ Jackson commented, adding that she is ‘elevating this as an industry issue’.

Curretly, Interactive’s platform still offers investors access to the five investment companies restricted by Fidelity. In addition to RIT Capital, these include MIGO Opportunities (MIGO ), AVI Global (AGT ), CT Global Managed Portfolio Income (CMPI ) and Abrdn Private Equity Opportunities (APEO ).

Interactive said it alerts customers making regular contributions into funds it has restricted.

‘Beyond that, as the process evolves and while the consumer duty regime matures, it is difficult to know how long they may be unavailable for when we are waiting for fair value assessments,’ Jackson said.

The platform said they hope consumer duty regulation will lead to better outcomes and ‘focus fund management group minds on value even further’ which means restrictions should ideally not be long-term.

AJ Bell approach

AJ Bell takes a different approach, believing the new regulation does not require it to block investors from accessing certain funds.

Like its rival, AJ Bell monitors funds through fair value assessments and an independent third party tool, but instead of restricting access will notify holders where a fund is found not to be delivering value.

According to the Association of Investment Companies (AIC) and share registrar data collector Argus Vickers, Interactive Investor has 6% share of the investent company market, behind Hargreaves Lansdown on 7% but ahead of AJ Bell’s 2% and Fidelity’s 1%.