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FCA considers banning ‘criminal’ platform exit fees

(update) Financial Conduct Authority may stop fund supermarkets and online stock brokers imposing exit fees on customers switching to rivals, having discovered how unpopular they are with investors.

 
FCA considers banning ‘criminal’ platform exit fees
 

(Update) The City watchdog is considering banning exit fees on fund supermarkets in a bid to make it easier for investors to switch platforms.

In a year long study into the use of online platforms, the Financial Conduct Authority (FCA) took the views of 800 customers, both advised and non-advised 'DIY' investors.

It found that exit fees were high on the list of reasons that people do not switch investment platforms, with more than a quarter (26%) finding them difficult or quite difficult to understand. Those who found them difficult to understand were one step ahead of the 1% of advised and 10% of non-advised customers who were unaware of a switching charge when they first joined the platform.

Almost one in three investors, 28%, said exit fees were stopping them from moving providers, 29% stated the process was too complex, and 38% said it took too long.

A total of 7% of investors had attempted, and failed, to switch providers.

The FCA said that those ‘who may benefit from switching but find it difficult or costly to do [so]’, although one consumer interviewed for the study put it more bluntly, describing exit charges as ‘criminal’.

Unfortunately for consumers, the regulator said the ‘significant’ barriers to switching could ‘limit the pressure on platforms to provide continued value for money’.

Keeping hold of investors’ money is a profitable business in an sector with £500 billion under administration - a number that has almost doubled in size since 2013.

The FCA’s report said platforms earn between 0.22% and 0.54% on every pound investors house with them and noted that as investors become more reliant on them to manage their money, increased transparency of charges - and increased competition - was more important than ever.

In order to speed up competition in the platform space, the FCA has proposed a ban on exit fees from 2019 if providers don't do better.

Although it acknowledges there ‘may be some legitimate costs associated with transferring consumers’, it called for platforms’ ‘views on the likely impact of this potential remedy on platforms’ business models and alternative ways they may seek to recover any such costs if a ban on exit fees were introduced’.

The paper added: ‘Consumers may also incur product and wrapper exit fees if they switch both platform and their underlying investments. We welcome views on what the scope of any ban on exit fees would need to be to achieve its intended aim of reducing barriers to switching.’

The FCA’s competition director Christopher Woolard said ‘we also want to see the industry step up, making it easier for consumers to transfer from one platform to another’.

Anthony Morrow, chief executive of evestor, an online financial adviser, said a ban on exit fees was ‘unlikely to bring an end to rip-off fees’ because value-for-money is hard to specify.

‘The FCA found that over a quarter do not know whether they pay platform charges or what they pay, and the majority cannot estimate charges, so how can customers possibly know they’re getting a good deal?’ he said.

Nutmeg chief executive Martin Stead said in some cases charges were ‘unclear’ and exit fees ‘punitive’.

‘At the moment it’s too difficult to compare the costs you face from different providers - particularly if you want an idea of what you could be paying over the life of your investment,’ he said.

He said it had been ‘disappointing’ that some platforms failed to comply with new European rules and were ‘not going as far as they should to make costs and charges clear and easy for investors to understand’.

A ban on exit fees may well be beneficial for consumers but it will have a significant impact on platform business models, and the market was already factoring this in as Hargreaves Lansdown (HRGV) shares fell 4%.

Accendo Markets analyst Artjom Hatsaturjants said as the biggest player in the market, the platform will be the ‘biggest target’ for the new rules.

‘The FCA’s latest proposals are far from final, with the regulator itself noting that there could be legitimate costs associated with transferring consumers...Nonetheless, the tone of the FCA’s [paper] appears to be tilted in favour of consumer protection.’

James Hamilton, analyst at Numis Securities, said platforms employ commercial practises ‘which may restrict fund managers’ incentives or ability to offer fund discounts to competitor platforms’ and this could reduce competition between the fund discounts platforms pass to investors.

‘Hargreaves Lansdown has done the best in negotiating discounts for customers and we struggle to see how the FCA could look to get their discounts passed to all providers,’ he said. ‘If that were to happen there would be no competition between platforms.’

Hamilton said in order to encourage competition, charging should ‘move towards utilisation as opposed to an annual fee based on portfolio value’.

13 comments so far. Why not have your say?

AJW

Jul 16, 2018 at 12:27

Great for the consumer, will have to see impact on the platforms.

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Philip Pound

Jul 16, 2018 at 18:03

It is wonderful news for the consumer but when will the FCA act on proof of AEGON compliance crimes selling insurance in the UK and parts of the EU using passporting rules - I,e, in France, Italy and Spain?

When will the FCA act on proof of AEGON Management bullying staff who made it aware that AEGON was breaking FSA and FCA rules as well as local laws in France, Italy and Spain?

The FCA does not tell us why proof of crimes by AEGON executives have been ignored and the FCA has allowed AEGON executives who committed crimes to keep crime rewards.

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citymoke

Jul 16, 2018 at 18:12

It's not just the exit fees that were the problem when I moved platforms, it was also the fact that incompetence existed mainly from the recipient platform's staff

which appeared to be where the main hold ups emanated from causing an ultimate more than 3 month delay for the completion of all the transfers!

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Andrew Vincenti

Jul 16, 2018 at 19:50

May stop - always study, more taxpayers’ money and no decisions. Well, to be expected from this Foolish Cretinous Agency. Load of oxygen thieves.

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Philip Pound

Jul 16, 2018 at 22:01

Not sure what you mean, Andrew Vincent.

You seem to be suggesting that the FCA is not as good as SOME people think that it should be.

There appears to be NO dispute that the FCA has PROOF of AEGON compliance crimes and bullying of AEGON staff who made AEGON aware that it was breaking the law.

Inexplicably the FCA ignored that proof. Could it have something to do with the fact that the FCA approved the persons involved in the crimes as Approved Persons to run those companies.

It is NOT disputed that AEGON has admitted £71 million financial crimes.

So why did the FCA and HM Treasury approved AEGON UK CEO Adrian Grace as FCA Practitioner Panel Member to "advise" the FCA?

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Duncan jones

Jul 17, 2018 at 13:15

Not all platforms are in a happy place. Profitability is a real issue .It seems the biggest players are the worst affected. Further attempts to purge costs may come at a price. Either service levels deteriorate (in some cases worsen) or platforms will cease to participate or operationally merge. Lets not forget that without platforms RDR could have all but destroyed the advice sector through lack of facilitation. So lower charges could have consequences however they are implemented. As a platform is a service an entry fee looks more realistic than an exit fee. The high initial and ongoing capital investment required in platform technology does not look to be a particularly rewarding proposition right now based on ROI.

So maintaining market confidence and security of client assets must surely be more important than shaving a bip here or there?. I never though the financial advice sector would be reduced to people knowing the price of everything but the value of nothing! We are a high value added sector surely?!!

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Owen

Jul 17, 2018 at 20:25

Unless you value your time doing extremely boring admin at nothing, fees don't seem the major issue about moving to me. The money laundering regulations and the identity-proof demands of most providers, usually interpreted by box-tickers against data you can't see and they can't or won't tell you about, combine to make moving an exercise which makes you lose the will to live - my experience from moving someone's assets from nine direct providers to one platform. "You need to..." [or we won't release your money] is a phrase I've had more than enough of for one lifetime. Oh, so just another trip with my elderly relative to "your local branch" which of course isn't local since they shut all those down, to stand in a queue of at least ten people.......two or three hours per trip - four or six including her time as well.

And moving holdings does clearly cost the platform providers money (admin expense), so who should pay ? I don't want my holding fees to be upped to cover my platform's costs of helping the "rate tarts" to move to the latest loss-leader offer. Of course I'm not supporting deliberate punitive exit fee levels, but just talking about "exit fees" doesn't fill me with confidence. That way points towards what we saw with Building Societies - where the "passive" investors got fleeced on legacy rates to finance the latest offer to the rate tarts. Anyone want to see that model on their platform ?

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citymoke

Jul 18, 2018 at 02:50

As it turned out, moving platforms was beneficial to me. Despite the slight hassle of the actual move and the 3 month wait, I'm saving approximately £350 per year in platform fees, so well worth it as it turned out.

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Andrew Vincenti

Jul 21, 2018 at 09:44

Philip Pound - perhaps my comment was too mild. You ask I seem to be suggesting the FCA is not as good as some people think it should be. Well I personally think by their actions and decisions or rather lack of them that they are in league with the money funds they are supposed to be policing. At best they are the Foolish Cretinous Agency, at worst they the Fraudulent Corrupt Agency.

Take your pick - either way, they will continue to never protect consumers and small-time investors.

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mc2

Jul 21, 2018 at 13:08

"Almost one in three investors, 28%, said exit fees were stopping them from moving providers, 29% stated the process was too complex, and 38% said it took too long."...

These are bad enough with 3 months not being unusual to complete a switch of platform... The FCA is forgetting another issue: Switching funds between platform should be done freely, ei just like you move money between banks. Unless the customer chooses himself to close his account with a platform and open a new one with another platform, PARTIAL switching of funds should be allowed within platforms without need of closing accounts. Like you switch money between your banking accounts with different banks. Many customers should be able to retain their accounts and open and close them at will.

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FrankFrank

Jul 21, 2018 at 13:08

My experience with Henderson (fund managers), checking my ID when I wanted to move my funds out of their custody, was much worse than I had with any platform. They kept changing their demands as soon as I satisfied what they asked before. Then asked the same thing again. You also have to prove your solicitor's ID. And you cannot speak directly to the person who writes to you, you have to speak to their customer service who will then relay your message duly garbled.

But I persevered and succeeded after 3 months of torture. Now I would not touch them, or their funds, with the longest barge pole.

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mc2

Jul 21, 2018 at 13:12

CORRECTING LAST SENTENCE ;Many customers would be happy to retain their account with a platform while moving funds into another... OBVIOUSLY I AM TALKING ABOUT ISA ACCOUNTS

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richard tomkin

Jul 21, 2018 at 13:28

My provider seems to have me in something of an arm lock : probably cheaper to die than transfer

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