In its final report on the platform markets study published on Thursday, the regulator said that “while competition is generally working well” exit charges continue to be a burden on consumers and advisers, making switching between platforms a more costly, lengthy and complicated process.
To address this problem the FCA has proposed a ban or a tight cap on platform providers charging exit fees.
However, the regulator said the restriction would also apply to firms “offering a comparable service to retail clients”.
Christopher Woolard, executive director of strategy and competition at the FCA, said: “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.”
Platform fees are ‘reasonable’
Hargreaves Lansdown CEO Chris Hill praised the regulator’s decision to cast a wider net on exit fees, arguing that “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,” he added.
AJ Bell chief executive Andy Bell (pictured) similarly applauded the FCA’s initiative noting that exits fees in other parts of the market are “punitive” when compared with “reasonable” platform exit charges.
“Platform exit fees are generally intended to cover the reasonable costs involved in switching customers to a different platform. Exit fees in other parts of the market look to recoup acquisition expenses and are far more punitive than platform exit fees and hence more of a barrier to switching products.”
Bell said a restriction in platform exit fees “would not have a material impact” on AJ Bell. “As a a net receiver of assets, we would expect to benefit from greater transferability of assets in the market,” he said.
AJ Bell ’s advised platform, Investcentre, currently charges advisers and D2C customers exit fees of £75 + VAT for Sipp transfers and £25 per stock for stock transfers, according to data from the lang cat.
Hargreaves which is frequently criticised for its fees only charges £25 + VAT for Sipp and Isa transfers and £25 per stock for stock transfers.
|SIPP Transfer-Out||ISA Transfer-Out||Stock transfer|
|The Aegon Platform||None Listed||None Listed||None Listed|
|Aegon Retirement Choices (ARC)||None Listed||None Listed||None Listed|
|AJ Bell Investcentre||£75 + VAT||None Listed||£25 per stock|
|Alliance Trust Savings||1% of the value up to maximum of £150 + VAT. Free if over 55 and opened account after 31st March 2017||£100 + VAT||None Listed|
|Ascentric||None Listed||None Listed||None Listed|
|Aviva||None Listed||None Listed||None Listed|
|Elevate||None Listed||None Listed||None Listed|
|Embark||None Listed||None Listed||None Listed|
|FundsNetwork||None Listed||None Listed||None Listed|
|Hubwise||“The fee for transfers out will not exceed the previous year’s admin fee”|
The pension admin fee is 10 basis points capped at £50 + VAT
|None Listed||£10 per stock|
|James Hay Modular iPlan||£150||£50 + VAT||None Listed|
|Novia||None Listed||None Listed||£15 per stock|
|Nucleus||None Listed||None Listed||None Listed|
|Old Mutual Wealth/Quilter||None Listed||None Listed||None Listed|
|Parmenion||None Listed||None Listed||None Listed|
|Standard Life Wrap||None Listed||None Listed||None Listed|
|Transact||None Listed||None Listed||None Listed|
|True Potential||None Listed||None Listed||None Listed|
|Zurich Intermediary Platform||None Listed||None Listed||None Listed|
For SIPP transfers, assumed transfer to UK registered scheme. Other charges may apply.
Source: The Lang Cat
Capping fees a ‘recipe for rip offs’
The UK regulator’s proposal to ban exit fees outright as opposed to introducing a cap was generally supported by platform providers on the day despite the measure only receiving “mixed support” from respondents at the time of the interim study.
Interactive Investor chief executive Richard Wilson agreed that capping fees will not solve the issues identified by the FCA and is simply “a recipe for rip offs”.
“Exit fees inhibit freedom of choice and transparency,” he explained, and there are firms with “excessive charges”. “Nearly all consumers are not aware they will be charged to exit at the point when they sign up.”
Interactive Investor announced it was permanently removing exit fees last November and has not charged exit fees since December 2107.
Fidelity-owned platform Funds Network, which also doesn’t charge exit fees, agreed that a ban was the most appropriate course of action.
“There’s no mediocre measures from the FCA today with a proposed ban on exit fees, rather than a cap,” said Jackie Boylan head of Fidelity FundsNetwork. “We do not charge exit fees, so we welcome the FCA’s focus on ensuring that consumers are charged reasonably without penalties for transferring their assets.”
Ban does not include SJP exit fees
While the FCA was willing to look further afield to exit charges imposed by DFMs, it stopped short of extending the ban to product-related exit fees like those charged by St James’s Place.
“We are aware that some firms (including vertically-integrated firms) have the ability to apply exit charges within their products and/or wrappers as opposed to the distribution service itself,” the City watchdog said. “In the context of the IPMS, and as outlined in the final Report, we are not at this stage intending to extend the proposal of a ban to product-related exit fees. This is because competition between retail investment product providers was not the focus of this project and we did not seek information on product-related exit fees and their effects on competition.”
Platform providers have expressed concerns that this would give vertically integrated firms a way to game the system and would be detrimental to the end consumer.
Interactive Investor’s Wilson said: “We would be concerned if significant vertically integrated firms were exempted from this, which is completely unfair to consumers.”
However, the regulator said it would ensure that a ban on service-related exit fees does not lead to a ‘waterbed effect’ wherein new exit fees are imposed in their place as product or wrapper fees, which it said would “reintroduce the barriers to switching that we are trying to remove”.