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FCA proposes to restrict exit fees on investment platforms

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The FCA’s Investment Platforms Market Study, published today (14 March), proposes to restrict exit fees on investment platforms. The report finds that while competition is working well generally, some consumers and financial advisers can find it difficult to shop around and switch to a platform that better meets their needs.

The report says: “We found that exit fees can act as a barrier to consumers switching to a platform that better meets their needs. Exit fees also add to the complexity consumers face when choosing between platforms. We know that firms bear costs for switching consumers but many firms already recover these costs in ways that do not create a barrier to switching.”

Commenting on the report, Martin Stead, (pictured), chief executive officer, of robo-adviser Nutmeg, says: “We welcome the FCA’s decision to act on punitive and, occasionally, extortionate exit fees. At a time when the UK faces a considerable savings gap, more must be done to help consumers invest for their future. It’s simply wrong that anyone faces excessive penalty fees to transfer an investment and it is right that the regulator cracks down on those providers who effectively block investors from freely choosing where to manage their money.”

​More support comes from Nick Blake, Head of Personal Investing, Vanguard, Europe, who says: “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.

“We are equally strong supporters of the FCA’s further consultation on exit fees. We believe a total ban would be appropriate. Fees penalise consumers and only serve to deter them from switching investment provider.

“The Platform report is a step in the right direction to help more people save for their future. More must be done to encourage people to save and ensure they have access to a fair deal.”

Iqbal V. Gandham, UK Managing Director at investment platform eToro, says: “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 GBP195 million 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.”

Investment platform Hargreaves Lansdown’s head of policy, Tom McPhail, chaired the industry working group (known as TRIG) over the past two years and is the chair of the STAR Governance Steering Committee. 

Commenting on the report, he says: “The FCA has made it very clear to the industry it has to collectively put its house in order, or face further regulatory intervention and censure. This issue presents unique challenges, given firms’ dependence on counterparties to cooperate in executing customers’ instructions.

“Through a working group of 10 trade bodies representing the whole financial services ecosystem, the industry has created a set of common standards to deliver faster transfers and better customer communication. This is the STAR project referred to in the FCA paper. Hargreaves Lansdown, along with a growing number of other leading platforms and product providers has already committed to this framework.

“Our goal is to be able to routinely execute transfers in a matter of hours, rather than the days or weeks it still too often takes at the moment. All firms that have an interest in the transfer of customer assets should join us in signing up to the STAR initiative.”

Commenting specifically on the exit fees issue, Hargreaves Lansdown’s CEO Chris Hill, says: “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. Consumers will benefit as the industry continues to work together to automate and improve the transfer process and we will continue to play a leading role in this process.”

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