THE FINANCIAL Conduct Authority (FCA) is considering a ban or a cap on exit fees, as part of a new package of measures designed to make it easier for consumers to switch investment platforms.
Some of these measures include a restriction on exit fees, and allowing investors to remain in the same fund while changing to a different platform.
“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,” said Christopher Woolard (pictured), executive director of strategy and competition at the FCA.
“As part of that, we believe it is right that we restrict exit fees, so people can move their money freely.”
The FCA added that despite some progress, consumers still find it hard to find a platform that better meets their needs, and singled out high and unexpected exit fees as a key reason for this.
The regulator said that any decision on exit fees would apply not only to platforms, but to firms which offer a “comparable service to retail clients”, indicating that peer-to-peer platforms and other alternative lenders may also be subject to a ban or cap.
Investment houses welcomed the moves to make switching platforms easier for retail investors, but warned that a ban on exit fees may not go far enough.
“This is the end of the road for exit fees,” Alistair Wilson, Zurich’s head of retail platform strategy, said:
“The FCA has been flagging its concern for some time and an outright ban is now the most likely outcome.
“Banning exit fees would remove one of the main barriers restricting consumers from switching platforms. Whether this delivers the necessary impetus for consumers to change remains to be seen but it’s a step in the right direction.”
Adrian Lowcock, head of personal investing at Willis Owen said exit fees have been an ongoing problem for investors, trapping them in services they no longer want or need.
“Investors are rarely told what the exit penalties are when they join a platform and are clearly put off transferring to a new platform when they find out about them,” he said.
“However, while this is a positive move in the right direction, a ban is only the first step. More work needs to be done to remove the confusing jargon and different terminology for fees and charges across the industry.”
The regulator is inviting proposals from all members of the investment market. The consultation period will end on 14 June 2019, and any changes will be enacted by 2020/21.