Consumers rail against ‘criminal’ switching fees as watchdog floats ban
The Financial Conduct Authority (FCA) said today that it would seek to reform the £500bn investment platform sector to improve competition and better protect consumers.
The City watchdog published interim findings from its study of investment platforms today and proposed a “package of measures” to protect consumers which could include the banning of exit fees which are paid when customers switch platforms.
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Although the industry largely welcomed the planned shake up, investors were more circumspect.
Shares in FTSE 100-listed investment platform Hargreaves Lansdown fell by more than three per cent today, making it one of the biggest fallers on the FTSE 100 and helping pull the index into negative territory for the day.
“We view the proposed changes as negative for Hargreaves, as they should lower… revenues from clients that ultimately leave the company,” financial research firm Keefe, Bruyette & Woods said in a note to clients.
A spokesperson for Hargreaves Lansdown said “exit fees are just one part of the puzzle”.
“The problem is switching is so difficult,” they said. Adding that Hargreaves was a “net beneficiary of switching”.
Consumers interviewed for the FCA study criticised how difficult some platforms made it to switch.
One interviewee blasted exit fees as “criminal” and complained that it “takes forever to transfer your stocks over”.
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The report found that seven per cent of consumers tried to switch platforms at one point but failed to do so, blaming how long it took, the complexity and the high exit fees.
Other reforms include measures to alert consumers holding large cash balances who are losing out on interest payments, and changes to protect “orphan clients” – customers who were previously advised but no longer have any relationship with a financial adviser but still pay the same fees.
Executive director of strategy and competition at the FCA Christopher Woolard said: "This is a market that has seen significant growth in the past five years with more customers than ever deciding to use a platform to manage their money. We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don't lose out.
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"We have outlined a package of measures today to address the issues we have found, but we also want to see the industry step up, making it easier for consumers to transfer from one platform to another."
Investment platforms have been a popular asset class recently with IntegraFin Holdings, which trades as Transact, going public in March and both AJ Bell and Nucleus Financial preparing for London floats.
A spokesperson for AJ Bell said the FCA proposals were not likely to affect the business or its planned initial public offering (IPO).
“Nobody here thinks its going to have any detrimental impact on the business,” they said.
“The IPO process is ongoing and I don't think anything that has happened today will alter that materially”, they added.
In a statement AJ Bell chief executive Andy Bell said: “As a net receiver of transfers we have been fully behind the FCA in driving improvements into switching times, but for every transfer it takes two to tango. The collaborative approach adopted by the FCA here is spot on and should ensure workable improvements to the existing framework are brought forward quickly.”
Martin Stead, chief executive of online investment manager Nutmeg, said: "We welcome the FCA's decision to take a closer look at punitive exit fees and unclear charges, both of which create barriers to entry and switching. It is simply wrong that anyone faces excessive penalty fees to transfer an investment to a different provider or is in the dark about what they are paying”
The FCA is seeking feedback on its interim report and its proposed remedies before publishing its final report in 2019.