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ombudsman news

issue 5

May 2001

managed portfolios and tax issues

Over the years we have seen a small but significant number of cases relating to the management of tax issues in the context of managed portfolios. These cases usually involve discretionary managed portfolios where, as part of the customer agreement, the manager is given the right to buy and sell assets on the customer's account without consultation.

Where complaints arise, there has generally been a misunderstanding between the investor and the manager about exactly who is responsible for what. Some investors believe, mistakenly, that the manager is responsible for the investor's tax affairs. Managers do sometimes offer this facility, but their responsibility is normally limited to providing the investor's accountant with relevant details about the portfolio.

Other misunderstandings revolve around capital gains tax issues. Portfolio management agreements may refer to the fact that the manager will monitor the portfolio's capital gains tax situation, with a view to making sure the annual allowances are used. What may be less clear, however, is whether it is down to the investor or the manager to obtain information which could affect the investor's overall capital gains position, such as historic information about holdings in existence when a portfolio was originally set up and details of investments held outside the portfolio.

Complaints based on such misunderstandings illustrate the importance both of clear communication between investor and firm and of good record keeping.

Walter Merricks, chief ombudsman

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.