Regulator appears to be overlooking what has been achieved in the effort to ensure smooth switching
Regulators have traditionally had a keen interest in ensuring competition – it was one of the founding objectives of the FCA when it was created in 2013. Effective competition relies, among other things, on the ability of consumers to switch suppliers. In the context of retail investments, the FCA went so far as to enshrine the obligation to do this efficiently in its handbook as COBS 6.1G. So it is not surprising that the recent Platforms Market Study highlighted inefficiencies in switching as a key area for improvement.
The FCA singled out unit class conversions, alongside exit fees, as barriers to smooth switching.
But its comments suggest some corporate amnesia regarding what has already been achieved in the field of platform transfers.
In 2010, in CP10/29, the FCA applauded the work done by Tisa on both in-specie re-registration of assets and portfolio transfers. The FCA went on to support Tisa when it established Tisa Exchange – or TeX – which acts as a contract club between members, who can safely dispense with the need for wet signatures to focus on the speedy electronic transfer of investment portfolios on behalf of consumers.
TeX launched its register of members in 2013 and has continued to grow ever since. The number of “wired-up” counterparties committed to electronic transfers recently passed 300, including the majority of investment platforms – almost 99 per cent by assets under administration. TeX already collects service level agreement data for transfers between these members, so the FCA should probably dig into a few of those figures for the next stage of its research.
While there are examples of transfers completing in minutes, the results are distinctly mixed, and there is probably much to be learned from a detailed look at the more challenging cases and the reasons for delay. Occasionally, these are technology-related, but often the result of commercial or procedural issues, and there are steps the FCA could take to speed things up.
TeX is also closely involved in the development of the data standards around transfers which already cover unit conversions.
The debates over how conversions should work rumbled on over several years, but agreement was eventually reached, and a new version of the market practice will implement the agreed process towards the end of this year.
Even more important than the fact TeX already captures transfer times and has sorted conversions is the breadth of what the electronic transfer market practice covers. In a world where the average customer will work for 11 employers and so have multiple pensions, as well as Isas, company shares and savings, it is essential that electronic transfers cover the whole gamut.
Right from the outset, TeX was committed to electronic transfers of an entire portfolio. Contrary to industry perceptions, the market practice covers more than just Isas and general investment accounts.
Pensions are firmly in scope, and not just Sipps either. The standards cover group and individual personal pensions; stakeholder, occupational defined contribution and small self-administered schemes; additional voluntary contributions; and even some of the more exotic varieties, such as Section 32 and retirement annuity contracts.
The real problem with electronic transfers, therefore, has not been a lack of agreement on standards, but putting them into practice. Instead of embracing a single customer-orientated approach, the industry has continued to operate in product-focused silos, which make no sense to consumers. That is where the FCA should be applying some heat.
No doubt the intentions of TeX and Criterion initiative Star to shine a light on transfer times are intended to bring laggards to the table, but what is needed is more pressure from the regulator to get on board with the work that has already been done.
Kevin Okell is managing director at Altus Consulting