FCA plans investment platform exit fee ban

The FCA has announced plans to ban or cap exit fees from investment platforms as part of a package of measures to improve competition in the market.

Related topics:  Savings & Investments
Rozi Jones
14th March 2019
FCA new
" We believe it is right that we restrict exit fees, so people can move their money freely."

Its study found that some consumers and advisers find it difficult to shop around and switch to a platform that better meets their needs, partly due to exit charges and difficulties switching between unit classes.

The FCA is now consulting on rules to allow consumers to switch platforms and remain in the same fund without having to sell their investments, and is proposing to ban or cap exit fees.

The regulator said it is seeking views from the wider market about how a restriction could work, with a consultation due to run until June, before consulting on final rules.

The FCA will also review progress made by the industry to improve the switching process later this year and into 2020 and said it could consider taking forward further regulatory action if the efficiency of the switching process does not improve.

Christopher Woolard, executive director of strategy and competition at the FCA, 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."

Steven Cameron, pensions director at Aegon, commented: "Fund managers need to continue to develop solutions to meet the challenge of customers transferring between share classes including when switching platforms.

“While speedier processing is to be welcomed, this doesn’t remove the need for advisers to give careful consideration to any recommendation to switch platforms.

“Thankfully, the FCA has dropped the most controversial proposal 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. 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 RDR. 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 Gandham, UK managing director 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.”

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