The City watchdog may ban investment platform ‘exit fees’ as it seeks to increase competition between providers for ordinary investors’ pots.
Exit fees imposed on customers who want to move their money to another platform have long been identified as significant concern because some see them as impeding fair competition by trapping customers.
The Financial Conduct Authority announced plans for a crackdown, saying that while competition is ‘generally working well’ some consumers and financial advisers can find it ‘difficult to shop around’ and switch to another platform.
Andrew Bailey is chief executive of the Financial Conduct Authority.
The cost involved, driven in part by exit fees as well as difficulties switching between unit classes in funds were pinpointed as the main concerns.
An investor with 20 holdings in their stocks and shares Isas could end up paying £25 per investment or £500 in total in transfer fees to move their portfolio from the biggest DIY investing platform Hargreaves Lansdown.
Other investment platforms charge similar amounts, although the second largest Interactive Investor has scrapped exit fees.
To address this, the FCA said it is consulting on new rules which will allow customers to switch platforms and remain in the same funds without having to sell off their investments first or pay high exit fees.
Ultimately, it said that this could lead to them being axed altogether.
The FCA said: ‘‘In the IPMS Final Report, we state our view that a ban on platform exit fees is likely to be appropriate as a measure to reduce consumer harm. ‘
How to find the best robo-adviser to invest with – and do…
The ten shares that have delivered the best returns since…
Dividend heroes revealed: Investment trusts with at least 20…
SIMON LAMBERT: I got hit with £750 to move my Isa
Share this article
HOW THIS IS MONEY CAN HELP
How to choose the best (and cheapest) DIY investing Isa – and our pick of the platforms
The regulator will weigh up feedback it receives between now and 14 June 2019 before settling on a final ruling.
The proposed clampdown on these fees would apply to all investment platforms and other firms offering a comparable service to retail clients.
Some platforms have already seen the writing on the wall and begun to reduce or remove exit fees.
Christopher Woolard, executive director of strategy and competition at the FCA, said: ‘While the market is working well for most of its consumers, the package we’ve announced today should make it less expensive and time-consuming for investors to shop around and move to the platform that best meets their needs.
‘As part of that, we believe it is right that we restrict exit fees, so people can move their money freely.’
How have the platforms reacted?
The investment platforms seem to be unanimous in accepting the need for change. Here are reactions from an assortment of them.
Chris Hill, CEO of Hargreaves Lansdown:
‘Overall the FCA has reviewed the platform market, kicked the tyres and found them in good shape, the market is working well and helping consumers enjoy good outcomes. They recognise the good that the market is doing and how larger platforms can use their scale to negotiate discounts on funds and provide a broad range of services which clients value.’
‘The FCA acknowledges that firms bear costs when clients switch platforms as the majority are still done on a manual, per-line-of-stock basis. We are pleased the FCA’s will look to apply restrictions to exit charges across the wider retail distribution market, as singling out platforms would distort the market in favour of insurance companies and other wealth management services.’
Adrian Lowcock, head of personal investing at Willis Owen:
‘Exit fees have been an ongoing problem for investors, trapping them in services they no longer want or need. Investors are rarely told what the exit penalties are when they join a platform and are clearly put off transferring to a new platform when they find out about them.
‘We have long been a supporter of no exit fees and greater transparency, which is a fundamental principle behind the Willis Owen Platform. However, while this is a positive move in the right direction, a ban is only the first step. More work needs to be done to remove the confusing jargon and different terminology for fees and charges across the industry.’
Alistair Wilson, head of retail platform strategy at Zurich:
‘This is the end of the road for exit fees. The FCA has been flagging its concern for some time and an outright ban is now the most likely outcome. Banning exit fees would remove one of the main barriers restricting consumers from switching platforms. Whether this delivers the necessary impetus for consumers to change remains to be seen but it’s a step in the right direction.’
Nick Blake, head of personal investing, Vanguard Europe:
‘We welcome the FCA’s efforts to improve competition in the investment platforms market. A more competitive investment platform market, that drives down costs and makes it easier to shop around for the best products, will be better for investors and investor returns.
We support the FCA’s decision to look at making transfers more efficient. Our own analysis shows switching between investment providers remains too complex and time consuming. Therefore, we believe that transfer times should be shorter and we advocate a mandatory time limit for organisations to complete each of their steps during the transfer process.
Richard Wilson, chief executive, Interactive Investor:
‘We wholeheartedly agree with an outright ban on exit fees. Capping them doesn’t solve the issues because it’s a recipe for rip offs.
‘Exit fees inhibit freedom of choice and transparency. Other firms are charging excessive exit fees. Nearly all consumers are not aware they will be charged to exit at the point when they sign up.
‘We would be concerned if significant vertically integrated firms were exempted from this, which is completely unfair to consumers.’
Stuart Welch, head of Fidelity Personal Investing:
‘Good news for long-term savers and investors. The FCA has decided against the half-hearted measure of introducing a cap to exit fees and has proposed an outright ban will be more effective.
‘We don’t believe in hidden fees for the consumer and as such, we do not charge exit fees.
‘These fees have always served as a barrier for customers to exit and choosing the best investment platform for their needs and this move will go some way towards creating a more level playing field.’