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…)
“We estimate that around 10,000 orphan clients are currently paying extra fees amounting to over 1.2 million pounds every year,” the report added.
The markets watchdog also said customers could be missing out by holding too much cash in their investment accounts and not be aware they were losing out on interest on those balances or paying too much in charges.
The Financial Conduct Authority said the sector has almost doubled in size since 2013, attracting an extra 2.2 million accounts as customers increasingly rely on platforms to manage their money. The investment funds platforms sector is now valued at 500 billion pounds.
Industry welcomes report
Steven Cameron, pensions director at Aegon said: “It’s important that individual customers, whether or not advised, don’t face undue barriers if wishing to switch between platforms and we’re pleased the FCA is awaiting improvements which should emerge from the Transfers and Re-registration Industry Group before considering if any further remedies are needed here.”