AJ Bell reclassifies property after fund suspensions

AJ Bell reclassifies property after fund suspensions

AJ Bell has confirmed to FTAdviser that it has reclassified property funds that have been suspended as a non-standard asset under the Financial Conduct Authority self-invested personal pensions capital adequacy rules.

This follows a number of temporary suspensions of property funds in the UK in the wake of the UK’s decision to leave the European Union.

AJ Bell will not, however, increase Sipp charges for customers holding these property investments in their Sipps.

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Speaking to FTAdviser, Mike Morrison, head of platform technical at AJ Bell, said:“We believe the decision by a number of investment firms to close the doors of their property funds means that, under the upcoming Sipp capital adequacy rules, they would need to be treated as non-standard assets.

“However, AJ Bell is in a strong financial position and so this would not lead to an increase in fees for customers holding these investments.”

Abraham Okusanya, principal at FinalytiQ, said the question as to whether to designate property funds as non-standard asset comes down to the individual Sipp provider.

He said: “My sense is that, as most providers don’t consider most UK based commercial property non-standard, it will be a bit strange to consider property funds non-standard.

“Also, the liquidity issue with property fund(s) is largely temporary. Designating the funds as non-standard asset right now suggest that you’ll then need to change it back to standard when liquidity resumes.”

However, he said it was a possibility that in the event of the recent fund suspensions Sipp providers would now opt to class it as non-standard, meaning they would have to hold more regulatory capital to meet capital adequacy requirements.

FTAdviser asked a number of Sipp providers if the spate of property fund suspensions, which included Henderson, Threadneedle, Standard Life Investments, M&G and Aviva Investors temporarily closing the gate on retail investors, whether they had plans to reclassify property.

Rupert Curtis, chief executive officer at Curtis Banks, said he was considering reclassifying the funds.

A spokesperson for James Hay Partnership said they would assess the circumstances for any fund suspensions on a case by case basis.

The spokesperson said: “Realistically, we could imagine a scenario whereby a property fund that is suspended could end up being classified as a non-standard investment if there is little chance of redemption within 30 days, however in such cases we would not envisage a non-standard investment charge being applied.”

Martin Tilley, director of technical services at Dentons Pensions, said: “This is a very interesting point as regulated funds are ordinarily standard assets and the imposition of the suspension of trade on them does call into question their liquidity.”

He said at present Dentons is monitoring the situation.

Mr Tilley said: “I think we would need some guidance by the regulator as under their guidance, regulated funds are standard assets and Sipp providers are most likely to continue to treat them as such.”