The UK financial regulator is to consider banning fees charged by investment platforms to make it easier for investors to switch providers.
The decision by the Financial Conduct Authority (FCA) to restrict exit fees by either banning or capping them follows a review by the regulator of the investment platform industry.
Asset manager Vanguard called for exit fees to be banned. The FCA has called for opinions.
Christopher Woolard, executive director of strategy and competition at the FCA, said the platform market is generally working well for most of its consumers, but that it needed to be 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," Woolard said.
The FCA’s ‘Investment platforms market study’ found that some consumers and financial advisers find it difficult to shop around and switch platforms due to the time, complexity and cost involved - driven in part by the exit charges they incur and difficulties switching between unit classes.
Views are sought from the wider market about how an exit fee restriction could work before consultation on any final rules. Interested parties have until June 14 to respond.
The proposed restriction on exit fees could apply to platforms and firms offering a comparable service to retail clients.
Nick Blake, head of personal investing at Vanguard, Europe, said: “We believe a total ban would be appropriate. Fees penalise consumers and only serve to deter them from switching investment provider.”
Jackie Boylan, head of Fidelity FundsNetwork, said: “There’s no mediocre measures from the FCA today, with a proposed ban on exit fees, rather than a cap. We do not charge exit fees so we welcome the FCA’s focus on ensuring that consumers are charged reasonably without penalties for transferring their assets”.
Boylan said that, overall, platform switching happens “relatively seamlessly” and that the focus on this issue needed to apply to all firms offering retail distribution services.
Andrew Strange, a director at PwC, said asset managers needed to be mindful of the FCA’s action.
“Of most interest is the FCA's discussion on exit fees. As is often the case, the FCA's findings have expanded way beyond the original scope of firms. Now, wealth managers, insurers and asset managers all need to pay immediate attention to the findings,” he said.
He added: “Other advisory firms, including companies manufacturing and distributing their own products, should also heed the FCA's upcoming assessment of the Retail Distribution Review and Financial Advice Market Review initiatives, noting the direction of travel in this paper. The FCA clearly has exit fees in its sights, so ensuring that a fair playing field which works for all should remain the key priority."
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