It’s hard to imagine a more frustrating experience for a reader who decides to follow one of our tips than to be told by their broker that they cannot do so because the investment in question is too “complex”. Questor has heard from a few readers who have had this experience, so today we’ll look into what is behind this obstacle and ways to get round it.
Although various types of investment can be deemed by brokers to be complex – such as subscription shares, derivatives and convertible securities – readers of this column are most likely to encounter problems with certain investment trusts.
Oakley Capital Investments, tipped here last week, is one example. One reader emails as follows: “I tried to invest about £10,000 (about 1pc of my total funds) in Oakley Capital. I was told the shares were too complicated for me to invest in unless I passed the broker’s test – which I then failed!”
Especially exasperating, one suspects, is that this reader is 93 and has been investing exclusively in investment trusts for the past 40 years.
Questor spoke to the broker concerned, Interactive Investor. It said Oakley Capital Investments was traded on a sub-market of the London Stock Exchange called the specialist fund market and it automatically regarded such funds as complex investments.
The exchange describes the SFM as “our dedicated segment for specialist, closed-ended investment funds [ie investment trusts] targeting institutional, professional, professionally advised and knowledgeable investors”.
Not all trusts by any means are on the SFM – many are traded just like any other share – and trusts can and do switch from the SFM to the normal market. The LSE publishes a list of funds on the SFM, which can be found here. Several trusts tipped by this column in the past are on the list: Alpha Real Trust, Doric Nimrod Air Three, Gulf Investment Fund, Supermarket Income Reit and Tetragon Financial.
All is not lost for the reader who failed Interactive Investor’s test: the broker says he can retake it after five days. It adds that it adopts a cautious approach to classifying investments as complex and that as a result even some funds that are not part of the SFM may require the test to be taken.
Other brokers handle the matter differently. AJ Bell says it outsources the classification of investments as complex to a third party, which “uses a framework that refers to Financial Conduct Authority and European Securities & Markets Authority guidelines and also MiFid II [Markets in Financial Instruments Directive] data directly from fund providers”.
It adds that it marks all trusts that trade on the SFM as complex. As with Interactive Investor, customers can complete an online questionnaire to allow them to trade in the shares and can retake it if they fail the first time. “If a customer fails once, they can retake within a few minutes; if they fail a second time they can reapply in a week’s time,” says a spokesman.
Hargreaves Lansdown has seven different questionnaires for various types of complex investment. A spokesman says: “Clients are ultimately responsible for self-certifying and can retake a questionnaire after re-reading the relevant information. As with most regulation, the onus is on us and other providers to interpret it and regulate ourselves – as a result, interpretations can, and do, occasionally vary from platform to platform.”
All told, Questor’s view is that readers who encounter problems when they try to buy a “complex” trust will probably succeed if they persevere. In extreme cases you may need to use another broker.
