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.”