Leaving HL without transfer charges

masonic

Stochasticity wrote: »

2) It is disingenuous to argue when there is no overall price increase that the changes (or the term giving rise to the changes) cause a significant imbalance to the consumer's detriment.

I would agree with you as far as anyone's complaint relates to the new platform fee and they would not end up paying more as a result of that fee. However, as naedanger has pointed out, the charges coming into effect in June may put customers at a significant imbalance to their detriment. These changes do not relate to a regulatory change and are separate from the changes coming into effect in March. One person got HL to allow them free exit without even needing to lodge a formal complaint because their argument was made based solely on new changes that didn't relate to the 0.45% platform fee. I'm not aware of any other outcomes of that nature and the situation for people who will end up paying more under the new platform charge is clearer.

The changes being introduced in June are not good for anyone (except perhaps the change for SIPP in specie transfers if you have only one or two holdings). The key is that people need to present a convincing argument as to why they believe the changes they are complaining about are bad for them.

lejog2003

Stochasticity wrote: »

In terms of active funds which pay full fat commissions, the changes that HL are making (alongside the rest of the platform universe) are plainly because they are required to do so for regulatory reasons (and their terms and conditions include provision for making changes for regulatory reasons): that is, they will no longer be able to retain commissions.

I disagree with Stochasticity's argument because it appears to me that despite using the plural "changes", he seems to be referring to a singular change - the end to commission.

But also note his response refers to active funds only, not passive funds.

malfesto

I won’t add to the discussion with regards to the guidance publications by the regulators as this has been extensively covered by others (hat tip on the analysis). The following is my tuppence worth.

The in-specie transfer and/or any other account closure/exit charges are akin to default charges. These charges only occur when the customer fails to fulfil the obligations under the contract (e.g. by discretionarily dissolving the contract and seeking to maintain ownership of the investments). The House of Lords ([2001] UKHL 52) and the Supreme Court ([2009] UKSC 6) have ruled that default charges are not the main subject matter of a contract. These charges (or anything that resembles it) are therefore subject to the fairness test in UTCCR. Variation or alteration terms in a contract which allows a supplier to change T&Cs are also subject to the test.

Any price increase in the contract (management charge, dealing charge, etc) is likely to alter the balance of the contract to the consumer’s disadvantage. Because there’s is an imbalance in bargaining power (no variation/alteration term in standard form consumer contracts allows for negotiation to occur when the term is exercised), the only option for the unhappy customer is to walk-away from the existing contract. UTCCR has indicated that variation terms may be considered fair if consumers have the freedom to dissolve the contract in response to a unilateral change in the contract. Below is the text from the Regulations (Paragraph 2b in Schedule 2) which outlines the scope of unilateral variation terms (bold emphasis mine).

• Paragraph 1(j) is without hindrance to terms under which a supplier of financial services reserves the right to alter the rate of interest payable by the consumer or due to the latter, or the amount of other charges for financial services without notice where there is a valid reason, provided that the supplier is required to inform the other contracting party or parties thereof at the earliest opportunity and that the latter are free to dissolve the contract immediately.

• Paragraph 1(j) is also without hindrance to terms under which a seller or supplier reserves the right to alter unilaterally the conditions of a contract of indeterminate duration, provided that he is required to inform the consumer with reasonable notice and that the consumer is free to dissolve the contract.

The two cases that will guide the courts are Director General of Fair Trading v. First National Bank plc [2001] UKHL 52 and RWE Vertrieb AG. v. Verbraucherzentrale Nordrhein-Westfalen e.V. (Case C-92/11). The courts will also be aided by guidance publications from the regulators (but ultimately the courts are not bound by it).

Lord Bingham wrote the leading opinion in the First National Bank plc case. In particular, the interpretation of the fairness test in Paragraph 17 quoted at length below (bold emphasis mine) and added to in Paragraph 36 by Lord Steyn (a search on the British and Irish Legal Information Institute website will give the full judgement text for those who are interested).

“... A term falling within the scope of the regulations is unfair if it causes a significant imbalance in the parties' rights and obligations under the contract to the detriment of the consumer in a manner or to an extent which is contrary to the requirement of good faith. The requirement of significant imbalance is met if a term is so weighted in favour of the supplier as to tilt the parties' rights and obligations under the contract significantly in his favour. This may be by the granting to the supplier of a beneficial option or discretion or power, or by the imposing on the consumer of a disadvantageous burden or risk or duty. The illustrative terms set out in Schedule 3 to the regulations provide very good examples of terms which may be regarded as unfair; whether a given term is or is not to be so regarded depends on whether it causes a significant imbalance in the parties' rights and obligations under the contract. This involves looking at the contract as a whole. But the imbalance must be to the detriment of the consumer; a significant imbalance to the detriment of the supplier, assumed to be the stronger party, is not a mischief which the regulations seek to address. The requirement of good faith in this context is one of fair and open dealing. Openness requires that the terms should be expressed fully, clearly and legibly, containing no concealed pitfalls or traps. Appropriate prominence should be given to terms which might operate disadvantageously to the customer. Fair dealing requires that a supplier should not, whether deliberately or unconsciously, take advantage of the consumer's necessity, indigence, lack of experience, unfamiliarity with the subject matter of the contract, weak bargaining position or any other factor listed in or analogous to those listed in Schedule 2 of the regulations. Good faith in this context is not an artificial or technical concept; nor, since Lord Mansfield was its champion, is it a concept wholly unfamiliar to British lawyers. It looks to good standards of commercial morality and practice. Regulation 4(1) lays down a composite test, covering both the making and the substance of the contract, and must be applied bearing clearly in mind the objective which the regulations are designed to promote.”

As UTCCR is the implementation of a European Directive, the ECJ has issued a more relevant judgement (Case C 92/11) which states that:

“...complies with the requirements of good faith, balance and transparency laid down by those directives, it is of fundamental importance[FONT=&quot]:[/FONT]

• whether the contract sets out in transparent fashion the reason for and method of the variation of those charges, so that the consumer can foresee, on the basis of clear, intelligible criteria, the alterations that may be made to those charges. The lack of information on the point before the contract is concluded cannot, in principle, be compensated for by the mere fact that consumers will, during the performance of the contract, be informed in good time of a variation of the charges and of their right to terminate the contract if they do not wish to accept the variation; and

• whether the right of termination conferred on the consumer can actually be exercised in the specific circumstances.”

I would speculate that given the above, any court action against the business is probably going to be successful. Note that this is merely an opinion and NOT legal advice. The business recent Damascene conversion on exit charges is likely to have been made under duress by the folk at 25 The North Colonnade.

With FOS as a backstop (its fair and reasonable remit which is much wider than used in courts), the adjudicator opined in my case against F&C that “freely would entail waiving any financial or practical barriers to exiting the contract”. This includes waiving “incidental expenses incurred in any event upon exit of the agreement, whether in the form of closure fees, ‘in specie’ or ‘cash’ transfer fees are not excluded”. I have difficulty in seeing how the Ombudsman would have overturned the adjudicator’s findings. The fact that F&C (with its head of legal involved) declined to appeal after mulling about it for a month (before the deadline) speaks volumes.

Finally, those who want to complain regarding the firm’s complaint handling (as a previous poster indicated, a serious breach) should email their concerns (along with copies of correspondence) directly to the FCA via

consumer . queries @ fca . org . uk

This almost certainly will be forwarded to Supervision.

Regards,

malfesto.

dave875933

Because there’s is an imbalance in bargaining power (no variation/alteration term in standard form consumer contracts allows for negotiation to occur when the term is exercised), the only option for the unhappy customer is to walk-away from the existing contract.

I presume the introduction of a negotiation clause wouldn't alter significantly the view of the imbalance in bargaining power . . .

Stochasticity

naedanger wrote: »

I drafted the following before reading Stochasticity's earlier posts. It explains why I believe customers who have seen a price increase have a right to a free exit under FCA/OFT guidance. However I now think that Stochsticity's disagreement may just be in respect of customers who have not seen a price increase. The reason I think they too have a right to a charge free exit is given in my next post.

I was indeed making a clear distinction between investors invested in non-commission-paying funds (who were already being explicitly charged on a fixed fee basis, will now be charged on a percentage basis, and are likely to have seen significant price increases which can in no way be related to regulatory requirements) and investors invested in commission-paying funds (who have had one percentage-based charge which couldn't be continued due to regulatory reasons replaced by another at a lower level, with a couple of extra event-driven charges, but are very unlikely to have seen the overall cost to them increase).

For the former the case for the waiving of exit fees is in my view watertight (without needing to rely on "not a route to fairness" OFT footnotes) and for the latter I think HL would be within their rights to insist upon imposing an exit charge.

Obviously there will be some who invest in both and that's a greyer area.

However, for what it's worth, on a strict reading of the FSA/OFT guidance, and to clarify, I also do not think it is clear that the case for a free exit would be watertight at all if, purely and directly in response to regulatory changes, a provider increased their overall charges to an investor. But that's not a scenario we're talking about here.

Stochasticity

masonic wrote: »

the charges coming into effect in June may put customers at a significant imbalance to their detriment. These changes do not relate to a regulatory change and are separate from the changes coming into effect in March.

Agreed, although having announced all the changes together, I suspect the significant imbalance to a consumer's detriment would be assessed on the basis of a comparison between charging model A (the charges pre-1 March 2014) and charging model B (the proposed charges post-1 June 2014), and whether the overall cost is higher or lower (i.e. without allowance for a complaint on the basis of a comparison between the charges 1 March 2014-1 June 2014 and post-1 June 2014). So if you're aggrieved, complain and move now rather than later.

naedanger

Stochasticity wrote: »

I was indeed making a clear distinction between investors invested in non-commission-paying funds (who were already being explicitly charged on a fixed fee basis, will now be charged on a percentage basis, and are likely to have seen significant price increases which can in no way be related to regulatory requirements) and investors invested in commission-paying funds (who have had one percentage-based charge which couldn't be continued due to regulatory reasons replaced by another at a lower level, with a couple of extra event-driven charges, but are very unlikely to have seen the overall cost to them increase).

For the former the case for the waiving of exit fees is in my view watertight (without needing to rely on "not a route to fairness" OFT footnotes) and for the latter I think HL would be within their rights to insist upon imposing an exit charge.

On my reading of the OFT and FCA guidance it is clear that they recognise the clear scope for changes to be implemented to customers' detriment where the supplier has discretion e.g. “any term of this kind which confers an unnecessary broad discretion on the firm or could be used to the advantage of the firm, rather than the consumer, is likely to be unfair” (FSA Good Practice 3.5).

“If a contract is to be balanced, each party should be sure of getting what they were promised in exchange for providing the 'consideration' they agreed to provide” (OFT 12.1)

“A price variation clause is NOT necessarily fair just because it is not discretionary – for example, a right to increase prices to cover increased costs experienced by a supplier” (OFT 12.2)

If the regulatory change had been implemented in a narrow way e.g. by just having a new fund charge that exactly equally the commission that would previously have been paid then that might possibly have been fair as it would be clear to customers that they were still getting what they were promised, just with the charges split in a different manner because of regulatory change.

However that did not happen, a broad range of changes were implemented to offset the loss of commission. This broad change is not in my view consistent with the type of change that can be made without giving customers the opportunity to exit free of charge.

I would argue HL have used a great deal of discretion to their commercial advantage and to the detriment of their customers - a clear example being the increase in future exit charges. This is not required by regulation and increases barriers to future exit which acts solely to HL's advantage.

HL's variation has also changed the contract very materially away from the original contract, which acts to the detriment of all customers. For example a customer in active funds had the option to move to passive funds in the future to reduce their charges. Under the new charging structure they will not have that option. Therefore they will suffer detriment. And that is before considering all the other new charges.

Now you might argue how could they implement the changes in a fair manner since they cannot differentiate their charges between active and passive funds. And there is a very easy answer – make the changes they are proposing but give their customers the opportunity to exit freely.

If HL are to have freedom in how they change the terms (which they have had) then surely customers should have equal freedom to reject them. To unilaterally change the contract in a broad, unverifiable way, and then expect to force customers to continue as though nothing has happened is just, plain unreasonable in my view. And there is nothing I can see in the OFT or FCA guidance that gives suppliers scope to force broad variations of terms without giving customers the opportunity to exit freely.

So I believe even customers entirely invested in active funds have a very strong case, made stronger by some of HL's actions (though nothing is ever absolutely guaranteed).

Obviously there will be some who invest in both and that's a greyer area.

However, for what it's worth, on a strict reading of the FSA/OFT guidance, and to clarify, I also do not think it is clear that the case for a free exit would be watertight at all if, purely and directly in response to regulatory changes, a provider increased their overall charges to an investor. But that's not a scenario we're talking about here.

I agree that's not the scenario here.

gadgetmind

Stochasticity wrote: »

investors invested in non-commission-paying funds (who were already being explicitly charged on a fixed fee basis, will now be charged on a percentage basis, and are likely to have seen significant price increases which can in no way be related to regulatory requirements

Yup. My wife's fees to HL would go up SIX FOLD if she didn't move elsewhere.

What's inflation? 2.5%? 3%? It sure isn't 600%!

Increases like this cannot be seen as reasonable, and not offering a customer a way to leave without fees when you unilaterally impose such massive fee hikes is similarly unreasonable.

armageden

Just recieved second e-mail from FOS in response to my e-mailed complaint regarding HL's inconsistantly applied new charging regime & exit fees as well as many of the other issues covered in this thread.
The FOS said my initial detailed e-mail did warrant an initial complaint letter issued by them on my behalf, but some more personal details were required first, (presumably due to my non-use of the complaints form).
I was informed that HL will need more time to take any remedial action & that at this stage the FOS must remain nuetral incase the complaint progresses to a formal decision stage.
Whilst the last FOS e-mail was very carefully worded , it gave me reason to believe this issue is firmly on their Radar.I have since been given the fee free exit option so I need to decide the nature of my response.
Just thought this may be helpful to those of you who are considering a complaint.

Stochasticity

naedanger wrote: »

If the regulatory change had been implemented in a narrow way e.g. by just having a new fund charge that exactly equally the commission that would previously have been paid then that might possibly have been fair as it would be clear to customers that they were still getting what they were promised, just with the charges split in a different manner because of regulatory change.

However that did not happen, a broad range of changes were implemented to offset the loss of commission. This broad change is not in my view consistent with the type of change that can be made without giving customers the opportunity to exit free of charge.

I would argue HL have used a great deal of discretion to their commercial advantage and to the detriment of their customers - a clear example being the increase in future exit charges. This is not required by regulation and increases barriers to future exit which acts solely to HL's advantage.

HL's variation has also changed the contract very materially away from the original contract, which acts to the detriment of all customers.

HL's overall charges on full fat commission-paying funds were north of 75bps. So if they'd replaced them with a 75bps platform charge, that'd be fair, and then you wouldn't be arguing that they need to provide investors in such funds a free exit?

But because they've used their discretion (in making a commercial decision that a platform charge at 75bps isn't viable), and have instead implemented an overall platform charge (partially percentage-based and partially time/cost-based) which is cheaper for an investor into commission-paying funds, you believe they do, just because the structure of the lower overall charges is different?