LONDON (ShareCast) - (Sharecast News) - The UK financial watchdog has set out new measures to reduce costs from switching between investment platforms, but felt competition in the industry was generally healthy.
Following a market study that found some of the 2.2m consumers using platforms, and some financial advisers, found it difficult to shop around and switch to a different platform, the Financial Conduct Authority said it was proposing to ban or cap exit fees and was launching a consultation on rules to allow consumers to switch platforms and remain in the same fund without having to sell their investments.

The proposed restriction on exit fees would apply to platforms, and also firms offering a comparable service to retail clients. The FCA is seeking views from the wider market about how a restriction could work, before consulting on any final rules.

Further research into platforms' trading execution found sub-optimal execution of share sales could cost retail investors an estimated £195m a year, with the quality of execution varying "considerably" across investment platforms.

Research by consultancy The Lang Cat found most platforms do not charge for transferring individual shares, but among those that do, including Hargreaves Lansdown, the maximum charge was £25, with the cheapest being Selftrade's £15.

The Lang Cat research found the largest exit fee for an ISA was levied by Alliance Trust Savings, at £100, while IFG Group's James Hay had the highest SIPP transfer fee, at £150 plus VAT, and the second highest ISA exit fee charge, of £50.

MUST TRY HARDER

This, the FCA said in its final report, reinforced its earlier view that investment platforms "should do more" to improve, as well as providing more clarity to consumers on how their orders are handled.

The consultation on new rules for switching and feedback will run until 14 June and the FCA said it will review progress made by the industry later in the year and again in 2020, if needed, and will consider taking further regulatory action if the efficiency of the switching process does not improve.

FCA strategy and competition director Christopher Woolard said: "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."

Analyst Paul McGinnis at Shore Capital said his initial scan of the final report "looks to be benign for the industry".

"The only area where there appears to be any incremental attention is around the ease of switching platforms and the potential for capping/restricting exit fees. Basically the FCA continues to see a market operating well and appears just to want to reduce frictional costs."

As such, he did not expect any material share price reaction in the various listed platforms, Hargreaves Lansdown, Nucleus, AJ Bell, IntegraFin or IFG.

INDUSTRY VIEWS

Tom McPhail, head of policy at market leader Hargreaves Lansdown, said: "The FCA has made it very clear to the industry it has to collectively put its house in order, or face further regulatory intervention and censure. This issue presents unique challenges, given firms' dependence on counterparties to cooperate in executing customers' instructions."

Hargreaves Lansdown charges £25 to transfer from ISAs, SIPPs and individual shares, the Lang Cat research found.

McPhail, who has chaired the industry working group of ten trade bodies over the past two years, said the industry has created a set of common standards to deliver faster transfers and better customer communication, known as the STAR project.

He said Hargreaves Lansdown and a growing number of other platforms and product providers has already committed to this framework. "Our goal is to be able to routinely execute transfers in a matter of hours, rather than the days or weeks it still too often takes at the moment. All firms that have an interest in the transfer of customer assets should join us in signing up to the STAR initiative."

Nutmeg's chief executive, Martin Stead, welcomed the decision to act on exit fees. "At a time when the UK faces a considerable savings gap, more must be done to help consumers invest for their future," he said. "It's simply wrong that anyone faces excessive penalty fees to transfer an investment and it is right that the regulator cracks down on those providers who effectively block investors from freely choosing where to manage their money."

Some others, such as Iqbal Gandham, UK Managing Director at investment platform eToro, which is not listed, said it was "sad" that the FCA had to step in.

"The UK public is already less interested in investing than most other countries," Gandham said. "We need investment platforms that actually want the country to get excited by investing, instead of just getting shafted by poor execution, opaque funds and sneaky fees.

"The review highlights that fund platforms often have poor execution on individual stocks trades for investors, costing investors up to £195m a year. This is before you even look at fees. Where investors use these platforms to buy stocks, rather than just buying into a fund, they are often being charged unjustifiably high fees. This is hardly looked at in the review.

"Platforms should not be penalising individuals for wanting to take charge of their investments by purchasing stocks instead of funds. The best chance we have of getting people investing is to encourage them to invest in companies they care about. Opaque funds make this very difficult. Stock trading could be the answer to getting more people investing, but poor execution and high fees risk holding people back."

Richard Wilson, chief executive of Interactive Investor, agreed with an outright ban on exit fees. "Capping them doesn't solve the issues because it's a recipe for rip offs," he said.

"Exit fees inhibit freedom of choice and transparency. Other firms are charging excessive exit fees. Nearly all consumers are not aware they will be charged to exit at the point when they sign up. We would be concerned if significant vertically integrated firms were exempted from this, which is completely unfair to consumers."

Interactive Investor was also supportive of asset class conversion, saying discounts on certain share classes "often mask much higher platform fees".

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