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FCA seeks platform exit fee ban

The FCA says it plans to either ban or cap platform exit fees after a review of the market.

In light of its study into competition between platforms released today, the FCA has identified exit fees as one of three main barriers to consumers changing provider, which are also likely to “reduce firm incentives to deliver better services for all customers”.

The regulator says it found exit fees also made platform charges more complex, meaning consumers found it harder to make a comparison between platforms.

While it recognises there are transactional costs involved, the watchdog notes “many firms already recover these costs via the general platform fee”.

The FCA says the ban should apply to new business going forward, since it would be the most effective policy, but has opened a consultation today to seek feedback on potential other ways to address the exit charge issue, for instance through a cap.

The regulator is also proposing that firms offering “comparable” services to platforms should also be subject to the exit fees ban – for example those that “deal,
arrange deals or manage investments for or on behalf of retail customers, where
their services include the safeguarding and administration of investments”.

FCA strategy and competition director Chris Woolard says: “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.”

The FCA notes that the cost of advice to switch would be exempt from any exit fee restriction.

Lang Cat consulting director Mike Barrett says: “Whilst there is undoubtedly a cost associated with moving from one platform to another, the research conducted through the study has confirmed that for customers exit fees represent a barrier to exit. As such we support a move to ban them, however for platforms to be able to compete effectively, which is one of the main objectives of the study, any such ban would need to be read across to other areas of financial services.

“The question of how this could, or should apply to other models, such as life companies is a complex one, and it will be interesting to see how the industry responds to this point within the consultation paper.”

Nutmeg was one of the first platforms to come out in support of the exit fee ban this morning.

Chief executive Martin Stead says: “We welcome the FCA’s decision to act on punitive and, occasionally, extortionate exit fees. At a time when the UK faces a considerable savings gap, more must be done to help consumers invest for their future. It’s simply wrong that anyone faces excessive penalty fees to transfer an investment and it is right that the regulator cracks down on those providers who effectively block investors from freely choosing where to manage their money.”

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Is this for SJP as well?

  2. Quite right. This is an illustration of the regulator getting it spot on.Don’t just consider it – do it. The sooner the better.

  3. And so begins the mission creep ….

    What starts with a couple of the more popular bans, or caps, then it will sweep across the whole of the financial services, like a Yorkshire fog across the moor, until we all have bans, caps or sanctions thrust upon us.

    So what appears to be good, is nothing more than slight of hand, with an alteria motive, I suspect being written as I type.
    I wonder if those at the FCA ever wonder what their own actions cost the consumer and if this is a barrier for them doing anything ?

  4. Sorry but also wanted to add …

    So these fees that will be banned, I wonder which ones will go up as a result ?

    Will the client get a better deal …..NO in fact like most dumb ideas from the regulator it only makes things more expensive ..

    Also some platforms build in exit fees as their overall proposition to remain competitive

    Yes yes I know, its all smoke and mirrors, but isn’t that for us to decide and work out as advisers ?

    Lets face it we don’t get inducements any more…. so has that not got rid of any bias ?

  5. Christopher Petrie 14th March 2019 at 1:43 pm

    Sorry DH, you can’t keep on defending the status quo.

    Mifid II is shining a very bright light on all sorts of hidden fees and charges, and exit penalties is one that really stops my clients wanting to move, even if it’s in their interests to do so.

    As GS asks though – will this be applied to vertically integrated companies like SJP that have cleverly played the FCA for years now.

    • Ok Christopher
      I would like to think, I am spelling out the truth, rather than defending the status quo.

      Do you really think that companies will not distribute the loss of the exit fee across its other charges or indeed make up new ones, or is it that because of the said exit fee advisers cant justify any advice charge ?

      Lets face it the loss of an exit fee makes the advice charge a bit more palatable, does it not ? will this promote churning ?

      Please don’t get me wrong, a very small minority of my clients are liable for exit fees and those I have looked at have very small funds invested, so any advice charge, exit fee or not, would make the transfer out very silly financially.

      As for Mifid 2 yes it is shining a very bright light but in the wrong direction (IMHO) now clients are so focused on fees and charges they end up doing nothing, what do you think is a better outcome, look after your future (which means charges) or do nothing ?

      Also I bet the scammers are rubbing their hands, another good excuse to move peoples hard earned cash into crap non existent funds…. you can hear the conversation now …did you know you investment is fee of exit penalties now, which means you are free to invest in a rain forest in Nigeria and get 12% per annum interest …..

  6. So, the FCA accept that there are real costs involved in transferring but where is the discussion about who is paying? If it’s wrapped up in other costs (which by definition it must be if it’s not explicit) then it’s the loyal clients, i.e. those who stay put, that subsidise those that leave. Isn’t that a form of cross-subsidisation but not in a good way?

    Perhaps it’s a case of looking good rather than doing good…

    • As an aside, is this a turning point for the FCA in terms of disclosure? Up until now it has been the mantra to disclose costs and increase transparency. However, these proposals will do the opposite by forcing firms to hide fees elsewhere.

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