UK watchdog proposes ban on platform exit fees
The Financial Conduct Authority (FCA) has proposed a ban on exit fees within the platform market, following a long-running review of the market.
The £500bn platforms market is dominated in the UK by companies such as Hargreaves Lansdown, Cofunds and Fidelity FundsNetwork, which large asset manager use to sell funds to retail investors.
But the FCA has been reviewing the market amid concerns that end users are not getting the best deal.
We believe it is right that we restrict exit fees, so people can move their money freely"
The Financial Conduct Authority (FCA) said exit fees are one of the three "main barriers" that prevent clients switching platforms. It said not only to exit fees reduce incentives for firms to deliver better services for all their customers but they also add complexity to the fees people are charged.
Under the FCA's proposals, consumers would be allowed to switch platforms and remain in the same fund without having to sell their investments. The FCA is therefore proposing a ban or a cap on exit fees, which would apply to platforms and firms offering a comparable service to retail clients.
Executive director of strategy and competition at the FCA Christopher Woolard 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."
The five types of customers flagged in the FCA's initial report were those who want to switch platforms, users of platforms that are not linked to a financial adviser, those who use model portfolios, customers with large cash balances, and "orphan" clients who no longer have any relationship with a financial adviser.
The FCA dropped the most controversial proposal from the Investment Platforms Market Study, which would have required platforms to 'police' the ongoing provision of advice where a customer was paying ongoing adviser charges and there had been no platform activity for 12 months.
The FCA's final report stated: "We were concerned that orphan clients can suffer harm if they are paying for an advice service they no longer receive.
"Having considered feedback to our interim report, our final view is that to treat customers fairly, advisers are responsible for notifying platforms when a client contract ends. Platforms that are concerned that they are not receiving notifications from advisers should inform us."
Steven Cameron, pensions director at Aegon, said: "Forcing providers to switch off adviser charging unless customers confirmed ongoing advice was a highly flawed proposal, which went against the separation of roles at the heart of the Retail Distribution Review.
"Advice can cover many things, goes well beyond 'product' and doesn't and shouldn't always result in platform activity."
"We do not have any exit fees on our platforms - either at platform or product wrapper level. It will be important to define what is considered an exit fee. There are legitimate ongoing trading or transaction costs when switching funds or redeeming individual equities, which apply when staying in or exiting from a platform and these should not be considered as ‘exit fees'.
Iqbal V. Gandham, UK managing sirector at investment platform eToro added: "It's pretty sad that investment platforms need the FCA to step in like this. The UK public is already less interested in investing than most other countries. We need investment platforms that actually want the country to get excited by investing, instead of just getting shafted by poor execution, opaque funds and sneaky fees.
"The review highlights that fund platforms often have poor execution on individual stocks trades for investors, costing investors up to £195m a year. This is before you even look at fees. Where investors use these platforms to buy stocks, rather than just buying into a fund, they are often being charged unjustifiably high fees. This is hardly looked at in the review.
"Platforms should not be penalising individuals for wanting to take charge of their investments by purchasing stocks instead of funds. The best chance we have of getting people investing is to encourage them to invest in companies they care about. Opaque funds make this very difficult. Stock trading could be the answer to getting more people investing, but poor execution and high fees risk holding people back."
