Platform market would not know what hit it in the real world of competition
I went to the supermarket the other day, as I needed some cheese (I usually do) and tea. I put a rather dull cheddar and a piece of ordinary brie in my basket, but when I looked for the tea I found no loose leaf at all.
I picked up a box of teabags for emergency use when the builders come round, but then thought I would rather go somewhere with better choice and value for money. So, I put down my basket on the side and headed for the exit.
“Excuse me, sir,” said the shop assistant. “That’ll be £25 please. Plus VAT, so £30 altogether.”
“What? Why?” I exclaimed.
“That’s our exit fee,” he said.
“Well, you selected from our range of produce and then decided to get it elsewhere. So, £25. Unless you want to move that cheese and teabags to the other shop. Then it would be £25 for each item as well: £100. Plus VAT, so £125 please.”
“But I didn’t realise…”
“There are signs, Sir. Well, at least one. And when you entered the shop premises we emailed you our business rules. Did you not see them?”
I looked puzzled.
“Tut tut, Sir, always read the T&Cs.”
As I pushed past him, he shouted after me.
“Oh, and they also explain we can keep your car if you don’t pay. Para 94(b)(ii).”
It had already been clamped.Of course, no food retailer could behave like that and stay in business long. But that sort of behaviour is normal in the investment platform business.
I have been excoriated here before for saying that a platform was simply a way to insert a new layer of charges between an investor and their money. But when I read the FCA’s recent Investment Platforms Market Study Final Report, I thought it was time to say it again – adding the word “hidden” before the word “charges”.
I paraphrase, but here is the FCA’s summary of the obscurity of platform charges, which it admits is not complete:
- Complex charging structures with many fees and charges
- Words used to describe similar fees differ between platforms making comparison difficult
- Prices for individual elements spread across different parts of the website
- Prices not prominent, clear or easy to find
Platforms have even found a way to make cash confusing by using a cash fund, which is not in cash but in surrogates, such as treasury bills and short-term money market instruments.
The cost of managing these ultra-low return investments is then deducted from the tiny increases they show, often leaving nothing or less for the investor.
These issues are so serious and urgent the FCA has decided it will take firm action: it will look again in 2020 and then decide what to do. Which could include doing nothing…
But there is one area where the FCA actually promises swifter and firmer action. Those exit fees.
First, it wants platforms to scrap the artificial barrier to switching some insist on that makes customers cash in their investment with all the costs and market risks that entails when they move from one platform to another.
Instead, it wants all platforms to use in specie transfers, so the underlying investment remains in the investor’s name and just the platform it is registered with changes.
Second, the FCA wants to scrap the fees charged when an investor moves from the platform they are on to another.
These so-called exit fees can amount to hundreds of pounds – one fee for leaving and another for every investment moved.
The industry is crying “not fair! What about other firms that charge fees?” The FCA’s response is simple: OK, we’ll impose the same rules on anything similar, including supermarkets. Most importantly, it is warning it does not expect the costs of scrapping exit fees and transfer fees to be passed on to consumers.
Of course, every industry tries to get around fair competition; it is how businesses work. Just look at the pricing of electricity or broadband. But the financial services industry is the master of it.
There are no doubt teams of clever people trying to find ways around these latest small slow steps towards fair competition. After all, if they are implemented people could just leave for a better deal. And obscure, high and complex charges would have to end. Then where would we be?
The key to any market working is competition. And that means I can see what I am getting and what I am paying for it, so I can go to another supplier if it is better or cheaper.
That means prices should be marked clearly on goods or the shelf they sit on. I can then choose the quality I want to pay for and the FSA (yes, the FSA) ensures
the food I buy won’t poison me; the Consumer Rights Act 2015 means it has to be as it is described and fit for purpose; the Consumer Credit Act 1974 means I can get my money back in at least two ways if it is not; and the Advertising Standards Authority polices the way it is marketed. It is a world some financial services would struggle to survive in.
Paul Lewis is a freelance journalist and presenter of BBC Radio 4’s Money Box. You can follow him on Twitter @paullewismoney