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Forward pricing and a late instruction

The redemption

Justin and Nicole held investments with a managed fund, Solid Fund Management. On Monday 27 January 2014 Justin and Nicole sent an email to their financial adviser, Steve, copying in Solid Fund Management, asking for $350,000 from each of their international funds to be redeemed to their cash funds, ‘as at today’s prices’.


Justin and Nicole said they would always email instructions through to Steve prior to 10:30am on the day of their instruction, and copy in Graham, as they did on 27 January 2014.


Justin and Nicole expected that the unit price for the redemption of their units would be the amount showing on their online Solid Fund Management’s accounts as the unit price for 27 January 2014. However, the unit price applied was the price as at 28 January 2014. The price was 3 cents lower on 28 January 2014, meaning more units were required to reach $350,000 and leaving them with fewer units in their international funds than they would have had if the 27 January 2014 price had been applied. Justin and Nicole said they had suffered a financial loss as a result, of around $5,000.


Justin and Nicole complained that in previous transactions the unit price applied was always the unit price ‘as at’ the date of their instruction, and they queried why this was not the case for this transaction.


Solid Fund Management’s response

Solid Fund Management’s online account said ‘unit prices are shown as at the date specified. The price shown may therefore not apply to a later transaction’. It also said that while care was taken in producing and updating the unit price, investors should check the current unit price with another investment company, Your Investments Limited, before buying or selling units in any fund, or otherwise relying on the unit price information. It also said that unit prices are updated daily at 4:30pm.


Justin and Nicole said that if Solid Fund Management knew that the transaction was not going to be processed as at the 27 January 2014 price, they should have been told this so they could decide whether they wanted to cancel their instruction.


Solid Fund Management’s pricing method

Solid Fund Management said that it calculated Justin and Nicole’s redemption using the ‘forward pricing method’, meaning that the unit price applied to the transaction was that of 28 January 2014. Solid Fund Management said that prices for the previous day are usually struck at around 11am and when it received the instruction from Steve at 11:24am, the price applied had to be that which would be struck at 11am on 28 January 2014.


We looked at the investment statement applicable to Justin and Nicole’s investments to see what it said about the method for redemption of units. The investment statement said that withdrawal requests would be actioned using the next available forward price. The investment statement defined forward pricing. It said that using forward pricing, any investments or withdrawals received prior to 2pm will use the unit price normally released on the next business day.


There was also an email on the file between Steve and Justin and Nicole which said that the price applied would be the price received the following working day. We accepted Solid Fund Management’s view, supported by relevant literature it had provided, that the forward pricing method was standard industry practice.



From the information provided by Solid Fund Management, Steve sent through the instruction on behalf of Justin and Nicole at 11:24am on Monday 27 January 2014. It appeared in all previous transactions the instructions were received by Solid Fund Management from Steve, prior to 11am, and were always therefore processed using the unit price ‘as at’ the date of instruction.


We agreed that Solid Fund Management had complied with its terms and conditions and had no responsibility to compensate Justin and Nicole for their “loss”.


Internal complaints process

Justin and Nicole had first raised their concerns with Steve at the beginning of February 2014. After this, several emails were exchanged between Justine and Nicole and Graham from Solid Fund Management over some months. Graham did not provide a comprehensive response to Justin and Nicole about their complaint until May 2014. In that response, Graham suggested that the investment vehicle with Solid Fund Management was not appropriate for them as its purpose was for long term investments. Graham suggested that Justin and Nicole cease being Solid Fund Management’s customers and added that Justin and Nicole were using Solid Fund Management’s services improperly to engage in late trading.


In our view, Graham’s comments were unfortunate.  It was not relevant to the complaint whether or not Justin and Nicole were adhering to suggested investment periods, as they were not complaining about the performance of the fund as a whole. Rather, they were of the view they had suffered a financial loss in respect to a specific transaction. We could understand why Justin and Nicole were offended by Graham’s response to their complaint.


Also, while the complaint was going through Solid Fund Management’s internal complaints process there was a considerable amount of focus put on whether Justin and Nicole had the correct email address for Steve, and that 27 January 2014 was a public holiday in Auckland, which may have caused the issue. It transpired that these factors were ‘red herrings’ and Solid Fund Management’s focus on them contributed to the complaint remaining unresolved.


Solid Fund Management acknowledged at the time we first notified it of Justin and Nicole’s complaint that its handling of the complaint was untimely and could have been managed more effectively. Solid Fund Management therefore offered to pay Justin and Nicole an ex-gratia payment of $2,000.


We considered the offer of $2,000 to be a reasonable offer in the circumstances. Under our Terms of Reference our CEO has the power to discontinue an investigation of a complaint where it appears a reasonable settlement offer has been made by a Participant to a Complainant. Justin and Nicole did not agree with the findings on the issue regarding the unit pricing but decided to accept the offer of $2,000 in full and final settlement of their complaint.