Windfall Isa investors forced to sell bank shares

by Steve Lodge

Tens of thousands of investors with Fidelity, one of the biggest individual savings account (Isa) managers, are being forced to sell their shares in a number of widely held banks and insurers after the fund manager announced the closure of its Windfall Isa.

The US-owned company has written to the Isa’s 34,000 investors giving them the choice of switching the cash value of their shares into Fidelity funds or taking the proceeds to another Isa manager.

But financial advisers said many investors may want to hold on to their bank shares for further recovery, as financial share prices remain low after the credit crisis.

The holdings affected by the move are Lloyds Banking Group, Santander, Barclays and Aviva.

Windfall Isas – formerly tax-free Peps – were offered by a range of fund managers in the late 1990s to shelter free shares received by investors from demutualised building societies and insurers. Most converted societies were taken over, with investors often becoming shareholders in the acquiring bank.

Fidelity’s Windfall Isa was particularly popular because it levied no management charges and offered commission-free reinvestment of dividends.

The manager said it was closing the Isa for “the small number of remaining customers” after most of its 200,000 original investors had sold their free shares, often to reinvest in funds.

But financial advisers criticised the company for not offering the option of transferring the shares to a new Isa manager – a so-called “in specie” or stock transfer. Ben Yearsley of Hargreaves Lansdown, a rival Isa provider, called the sale requirement “harsh”.

Investors who opt to repurchase their shares after transferring the Isa cash will also incur buying costs and be exposed to timing risks. Cash-based switches to new managers could mean being out of the market for a few weeks.

Justin Modray of CandidMoney.com, the financial website, said that delays “could be particularly dangerous in currently volatile markets”, and in some cases investors who were repurchasing might end up hundreds of pounds worse off.

He said the failure to offer stock-based transfers could be in breach of regulatory “treating customers fairly” (TCF) principles, by forcing customers to incur expense and risk to keep their existing shareholdings.

The company said that technical issues prevented it from offering share transfers to another Isa manager.

A spokeswoman added that the Isa closure decision “has been reviewed in line with the TCF directive, the current terms of the service and ensuring we can give customers consistency in choice . . . The fact that we are not offering an ‘in specie’ transfer does not mean that we are not treating our customers fairly”.

The Financial Services Authority said that a potential TCF issue was whether customers had been previously informed of the possibility that holdings would have to be sold.