Alongside the release of its final report on the Investment Platforms Market study on 14 March, the FCA has rolled out a consultation paper on unit class switching and a discussion on exit fees in the retail space with feedback wanted by 14 June 2019.
The consultation paper will assess how an exit fee should be defined, the scope of the intervention from the FCA, and whether the intervention should be a ban or a cap on such fees.
In the report, the financial watchdog also said it will review the industry’s progress on changes, including disclosing interest rates and charges paid on cash, in 2020/21.
Regulatory action will then be introduced, if needed.
Etoro’s Iqbal Gandham said: “It’s pretty sad that investment platforms need the FCA to step in like this.
“The UK public is already less interested in investing than most other countries. 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.
“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.”
Changing the industry
The FCA will also:
- Review the progress industry has made on improving the switching process, including customer communication, in 2019 (with a potential follow up in 2020);
- Review whether platforms have worked in the best interests of their orphan clients (those who have not been active on a platform for a long period but were paying adviser charges);
- Issue a Retail Distribution Review / Financial Advice Market Review (Famr) post-implementation review, due to begin later this year, which will explore the relationship between advice and discretionary services;
- Improve the disclosure and comparability of information on model portfolios structured as funds; and
- Follow up with firms to ensure their arrangements comply with competition law.
Mike Barrett, consulting director at financial services firm The Lang Cat, said to International Adviser: “In the immediate term, platforms will be breathing a sigh of relief that today’s final report contains little in the way of surprises or disruptive changes.
“The biggest potential impact is the possible ban on exit fees, which are currently charged in one way or another, by five advised platforms.
“Although banning these fees is a good thing, it’s important that platforms are able to compete effectively, so we’ll be interested to see how this will read across to other parts of financial services.”
Novia Global’s chief executive, Bill Vasilieff, echoed Barrett, and said to IA: “The FCA has kicked off further consultation on the topic of exit fees which is something we at Novia Global would like to see banned completely, as we see no justification for exit fees.”
The FCA found that, while competition is generally working well, “some consumers and financial advisers can find it difficult to shop around and switch” to a platform that meets their needs.
It said: “Consumers can find it difficult to switch due to the time, complexity and cost involved – driven, in part, by the exit charges they incur and difficulties switching between unit classes.”
Michael Ohanessian, Praemium chief executive, told IA: “All platform providers should respect the adviser’s right to make the best choices for clients.
“Anything that facilitates improved client outcomes is welcome. The concentration of third-party technology provision in the UK has seen substantial upheaval from re-platforming over the last few years, which amplifies the need for greater mobility.”
Hoping for measures
AJ Bell chief executive, Andy Bell, said: “We were hoping the regulator would include measures on platform fee disclosure, but it appears to have sidestepped that issue. We would like a requirement for platforms to show annual charges in pounds and pence and how they compare to the wider market.
“This would provide a simple starting point for anyone looking to compare platforms and assess value for money. Customers engage with an annual charge shown in pounds and pence far more easily than percentage charges that they then have to calculate themselves.
“Switching between platforms is definitely an area we’d like to see improved and the FCA is right to extend this beyond the boundaries of platforms to comparable services.”
He added: “Any measures to improve transfers between providers should be industry wide and include non-platform products to create a level playing field.”
The FCA also said it welcomed the industry’s progress in updating its switching processes, most recently through its Star initiative, which was introduced to improve the efficiency of transfers across the retail investment and pensions sectors.
It is encouraging firms not already involved in this initiative to consider taking part as a way of improving the switching process and achieving better outcomes for consumers.
The watchdog said that advisers already have an obligation to ensure they are not receiving advice fees from clients with whom they no longer have a relationship.
“We also expect advisers to inform platforms where their relationship with a client has ended. This should be in accordance with platforms’ terms of business,” the FCA said in the report. “We think that it is not proportionate or appropriate to introduce new requirements on platforms.
“But there is still a risk that platforms could be used as a conduit to enable adviser charges when no ongoing service is provided.
“So, we encourage platforms to consider whether they have effective and appropriate controls in place to identify orphan clients.”
But the FCA said that “platforms that are concerned that they are not receiving notifications from advisers should inform us”.
This U-turn comes after it proposed, in the initial report, for platforms to “proactively” police themselves when it comes to orphan clients.