Mis-Sold Open Ended Investments
What are Open Ended Investment Companies (OEIC)?
It’s perhaps best to explain this seemingly complex term by dividing it into its individual parts.
They are companies whose shares are listed on the London Stock Exchange and they are regulated by the UK’s Financial Conduct Authority.
What makes them investment companies is that they can be invested into, much like you might put money into investment funds. Different investors invest in the company by buying stocks, shares, bonds, or cash investments, among other securities.
The reason they’re called “open ended” is that they can create new shares if there is a demand for them or, alternatively, the fund can cancel shares of those investors that exit the fund. In this sense, they’re similar to mutual funds in the U.S.
The benefits of investing in OEICs
As with any fund, the diversification of assets lowers the risk for every individual investor.
What makes OEICs even more attractive is that the investor’s portfolio is always managed so they don’t have to worry about keeping track of how well their investments are doing or if they should put their money somewhere else.
Also, given the diversity of investment options, many investment strategies are available. This offers greater flexibility to investors as well as the ability to adapt to different people’s risk tolerance.
In the medium or long term (i.e., 5 – 10 years), they are typically seen as a solid investment that can bring good returns.
They are also very flexible – investors can purchase and sell shares of the OEIC as they wish. However, what is often overlooked is the fact that selling shares may incur additional costs.
What fees come with OEICs?
Most OEICs come with several fees. These include:
- Sales charges
- Annual management fees (of about 1 – 1.5% of the value of an investor’s shares) which, as the name implies, covers the fund manager’s services
- Initial charges (between 0 – 5% when buying new shares)
- Dealer charges
- Exit charge (for selling shares)
When it comes to taxes, it’s worth pointing out that OEICs are not tax advantaged. This means that any interest or dividends received from an OEIC are taxable and that selling shares may mean you will have to pay capital gains tax.
OEICs and financial mis-selling
Given the diversity of OEICs and all the fees included, there are many opportunities for financial mis-selling in this area. However, they are not well-suited for anyone wanting to invest in the short term.
If your financial adviser failed to ask about your financial plans and investment goals or risk tolerance, this may count as financial mis-selling. Financial advisers may also fail to mention all the fees involved, the tax implications, and especially the fact that OEICs are not a sure way to generate more income.
As is the case with any investment, their value on the market can increase or decrease, depending on the investment’s performance and currency exchange rates for funds in foreign markets.
Can I claim compensation?
Whether your financial adviser neglected to mention some key pieces of information regarding OEICs that may have impacted your decision, or they failed to take your personal financial abilities and plans into account, you may have been a victim of financial mis-selling and could therefore be able to claim compensation.
OEICs must be seen as a mid- to long-term investment, and anyone who advises you to invest in them in the short term isn’t giving you the best advice. Also, there are many risks, fees, and taxes associated with OEICs that you should have been made aware of.
If you can see yourself in any of these scenarios, feel free to fill in the Return My Money free, no-obligation assessment. Our experts will thoroughly read all the information you provide us with and advise you on how to move forward.