In the latest move by the FCA to tackle the often opaque fees charged by the UK’s retail-facing investment industry, platform exit fees are to be targeted. Brits investing online have recently seen the financial services regulator ramp up its efforts to offer them better consumer protection. Funds have been ordered to make their charges much more transparent and now the FCA is to take aim at the online investment platforms investors use to buy them.
Investment platforms such as Hargreaves Lansdown, AJ Bell and Interactive Investor are used by investors to buy investments such as company shares, funds and bonds. They also offer tax efficient wrappers such as ISAs and SIPPs. These platforms not only act as brokers, facilitating the buying and sale of investments and wrappers. They also act as custodians to millions of UK investment portfolios and their online platforms help retail investors view and manage them through convenient dashboards. Some also offer additional resources such as research on particular investment vehicles, fund ratings or recommendations and market news.
These investment platforms are of course businesses and they charge account holders fees for the service they provide. As well as charging a commission when investments are bought and sold, investment platforms also charge annual management or administration fees for the provision of ISA or SIPP wrappers and the electronic custodianship of investment portfolios. These fees vary from platform to platform and also on the same platform depending on wrappers held, total value of investments in them and a number of other potential factors.
Like any service where several providers offer a comparable service, it makes sense for users to shop around. One platform may offer better prices for one kind of portfolio and another platform be optimal for another investment portfolio. And that may change over the years. Some investors may also want and be willing to pay for what they consider value-added services offered by one platform while others may prefer a cheaper, ‘no-frills’ options.
And, of course, at some point an investor’s priorities may change or the services and prices offered by their or other platforms change. At this point they may wish to switch provider. A recent FCA investigation found that around 7% of consumers who use investment platforms do, in fact, want to switch provider. Many, however, responded that they were being put off doing so by the exit fees they would be charged to do so.
The FCA has already instructed investment platforms to make it easy for customers to switch providers in terms of the paperwork and how quickly a change is processed. Now it is said to be ready to either cap or completely ban exit fees.
FCA executive director of strategy and competition Christopher Woolard commented:
“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.”
Investment platform provider Hargreaves Lansdown have already responded to the news with cautious approval with the caveat that the FCA allows the company to cover its costs. Interactive Investor has already ceased to charge any exit fees.
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