In the UK at the moment, officials seem to have set a trend for kicking important decisions down a very steep road with a gusty wind at their backs.
Brexit aside, the latest example of can-kicking has come from the Financial Conduct Authority (FCA) with its consultation paper on banning platform exit fees.
At the moment this is just a consultation paper and will almost certainly be subject to some strongly expressed views from the industry, so it is not certain a ban will be implemented or, even if it is, when it will come into force. But the direction of travel from the regulator is clear.
The FCA has decided to expand the remit of this ban to include not just platforms, but firms offering a ‘comparable service’, which the regulator said was any firm that holds, trades or manages assets.
News the FCA was expanding this exit-fee remit (to include firms such as life companies) was of course significant for a certain three-lettered vertically integrated advice giant. However the regulator placed a caveat in its consultation: it is not ‘at this stage’ going to ban product-related exit fees, which are sometimes levied by vertically integrated firms.
This appears to be good news for St James’s Place (SJP), which classes its exit charge as a product fee and calls it an ‘early redemption’ fee for clients who leave within six years of investing. This fee reduces from 6% to 1% over the first six years after investing.
When New Model Adviser® asked SJP about the possible impact of the proposals, a spokesman said the company did not ‘apply any exit charges on the activities the FCA list as in the scope of the paper’ and noted ‘the proposals do not extend to product-related exit fees’.
Investors seem to agree as SJP's share price barely moved yesterday despite the threat of the FCA's possible ban. All good then for the UK's largest advice company.
However, there could be complications further down the road. The FCA’s consultation paper said firms that are using different names for exit fees could be impacted.
‘The scope of a ban or cap on exit fees should include all charges related to exit from the service, regardless of their description. This would ensure such a ban cannot be circumvented by applying an exit fee under a different description,’ the FCA paper said.
Speaking with New Model Adviser®, the FCA’s director of competition Sheldon Mills (pictured above) said the regulator will be looking at different firms’ product fees to see whether or not it would characterise them as exit charges.
‘We will need to distinguish between the different types of fees that are in the product and the service to see whether or not some types of activity charges could be characterised as exit fees,’ Mills said.
The FCA director said he did not want to see firms using different types of charges to disguise their exit fees.
‘What we wouldn’t want is firms end up having a range of charges, which on one analysis may be seen as exit fees and basically wrapped up as something they aren’t,’ he said.
‘We don’t want to be in the position where you would have a waterbed effect where firms replace exit fees with new product or other wrapper-related exit charges. We think [this] would just in a sense move the problem in another direction.’
Further scrutiny of different models is evident in the FCA’s consultation question: ‘If your firm is a product manufacturer as well as a distributor as defined, what exit fees are applied within the products and services you offer to clients? If such fees exist, please provide a rationale for this charging model.’
It will be interesting to discover how SJP responds to this. It may well have a good case for charging this early redemption fee, but now that reasoning will need to be made clearly to the regulator and, you would hope, the wider public.
Eventually the FCA will have to make a decision as to whether SJP’s withdrawal charges fall under its exit fee scope. Whether that is before or after we have left the EU remains unclear.