CITY watchdog the Financial Conduct Authority (FCA) has said it is considering banning investment platforms from charging exit fees as it launches a reform of the £500 billion sector to improve competition and better protect customers.
The FCA’s interim findings from its study of investment platforms, published yesterday, said competition was working well for most consumers using them, but it was concerned about how platforms compete for particular groups of customers.
It said it wanted to address these problems, “before they get bigger”.
Consumers had cited exit fees as one of their top three “actual or perceived barriers to switching”, although the FCA said it noted that not all platforms charged them.
“There may be some legitimate costs associated with transferring consumers, and we welcome views on the likely impact of this potential remedy on platforms’ business models and alternative ways they may seek to recover any such costs if a ban on exit fees were introduced,” said the FCA.
“Consumers may also incur product and wrapper exit fees if they switch both platform and their underlying investments.
“We welcome views on what the scope of any ban on exit fees would need to be to achieve its intended aim of reducing barriers to switching.”
Investment platforms have around £500bn of assets under management – a market that has almost doubled in size since 2013. In the same period, an extra 2.2 million customer accounts were opened.
“As consumers become increasingly dependent on investment platforms to manage their investments it is vital that competition between platforms is working well,” said the watchdog.
Christopher Woolard, FCA executive director of strategy and competition, said: “This is a market that has seen significant growth in the past five years with more customers than ever deciding to use a platform to manage their money.
“We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don’t lose out.
“We have outlined a package of measures today to address the issues we have found, but we also want to see the industry step up, making it easier for consumers to transfer from one platform to another.”
The FCA said it had found competition was not working as well as it should for some consumers and was concerned about those who may benefit from switching but find it difficult or costly to do.
It found that 7% of all consumers had tried – but failed – to switch. The watchdog found that barriers to switching were significant and could limit the pressure on platforms to provide continued value for money.
The watchdog also found it was difficult for those using direct-to-consumers platforms who wanted to choose on the basis of price and that those who wanted to did not always succeed in finding cheaper platforms – fees were “hard to understand and compare”.
Measures proposed by the FCA were aimed at helping strengthen the extent to which platforms drive competition between asset managers; making it easier for investors and advisers to switch platforms; tackling price discrimination between orphan and existing clients and at alerting customers holding large cash balances. It will publish its final conclusions early next year.
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