The UK financial watchdog said it would ban or cap exit fees charged by investment platforms such as Hargreaves Lansdown and proposed extending the crackdown to insurers, life companies and financial advice firms.
The Financial Conduct Authority has been probing competition issues in the investment platform market used by investors and financial advisers and said exit fees, charged to customers switching providers, were a major barrier to competition.
In its final report on the platform market the FCA said exit fees should be restricted and it would consult on the definition of such fees, whether to ban or cap them and how widely to apply the new rules. The consultation will last until June 14.
The move will hit investment platforms like Hargreaves Lansdown, AJ Bell and Charles Stanley Direct, which charge investors up to hundreds of pounds each time they want to move portfolios to rival providers.
Hargreaves Lansdown — the UK’s largest fund supermarket — charges a fee of £25 per stock to those wanting to switch, which can add up to a cost of almost £800 for a 30-stock portfolio.
The FCA said 7 per cent of consumers tried to switch at some point but failed to do so due to hurdles like exit fees and the complexity of the process. Exit fees are one of the top three barriers stopping investors swapping platforms, it said.
Last year, Interactive Investor scrapped its own exit fees ahead of the expected ban this year.
The regulator said in its interim report published in summer 2018 it was considering banning exit fees for online investment platforms. But it subsequently came under fire for failing to extend the crackdown to traditional wealth managers, life companies and insurers, many of whom charge exit fees on old-style policies.
On Thursday the regulator said respondents had said “to achieve our aim, we need to consider the scope of any remedy, as platforms compete in a wider retail distribution market,” adding “our current view is that this remedy should apply to platforms and firms offering comparable services”.
The watchdog added: “We want to ensure that any ban or cap is applied appropriately to firms that compete with platforms, including those that do not necessarily operate via an online portal.”
However companies including FTSE 100 wealth manager St James’s Place are likely to escape unscathed due to their vertically integrated structure. St James’s Place charges an upfront fee of 6 per cent on the value of a customer’s assets for those taking their money out in the first year, falling by 1 per cent a year over six years.
However its structure means this is classed a “product-related fee” rather than an exit fee, and it is likely to be spared from a clampdown.
Life companies and old-style pension providers are likely to be caught however. Rob Yuille, head of long-term savings policy at the Association of British Insurers, said the trade body was supportive of the move.
He said: “Any fees need to be fair and reasonable and clearly explained to consumers, and the FCA is right to consider any barriers to customers shopping around.”
Meanwhile Hargreaves Lansdown chief executive Chris Hill said the company was pleased rules would apply across the market. “Singling out platforms would distort the market in favour of insurance companies and other wealth management services,” he said.
The regulator said on Thursday it wanted to see companies making it easier for customers to transfer portfolios to rival providers, a process that can take months in the worst cases.
It proposed forcing platforms to move customers’ investments to a rival without forcing them to cash in their portfolio first and said the new platform should ask customers if they would like to transfer into cheaper fund units as part of the process. The FCA plans to introduce those rules in 2020.