FCA threatens ban on exit fees for online investment platforms
The UK’s financial watchdog has issued a warning towards financial planners saying that the additional services offered by their platform may be in breach of its inducement rules and could ban online investment platforms from charging exit fees .
An interim report by the FCA raises concerns that some platforms make it too difficult for customers to switch away from their services.
“The FCA has found that competition is not working as well as it should do for some consumers” and proposed measures to defend the consumers, including banning exit fees to leave platforms and publishing data on transfer times.
The regulator said it expected the industry to implement changes by the time it publishes its final platform market study report – in the first quarter of 2019 – and threatened to take action if the sector did not make suitable changes to switching before then.
“It is important that the problems we have identified are addressed so that consumers don’t lose out,” said Christopher Woolard, the FCA’s executive director of strategy and competition, in a statement.
The report looks at five types of consumers: those who want to switch platforms, those who use model portfolios, users of platforms that are not linked to a financial adviser, customers with large cash balances, and “orphan” clients who no long have a relationship with a financial adviser.
About 7% of consumers have tried switching platforms but failed to do so, the FCA said.
The regulator said 36 advisers offered estimates of switching costs, which it noted ranged from £150 to £1,835 with a median of £700. In terms of time, it said the median adviser and administration time between 22 advisers for switching was six hours, with some quoting as little as two hours and some as much as 15 hours.
“Many advisers in our sample charge an extra fee for switching on top of their ongoing advice fee, which can cancel out the potential benefit of lower platform fees and act as an additional barrier,” the FCA’s report said. (Continues on next page…)