FCA plans to ban investment platform exit fees

ivormonee

Transferring out is very expensive work, which is why platforms charge exit fees.

For example, a portfolio of, say twenty stocks (shares), held in the platform's nominee account would involve the outgoing platform to make a change in the registration in their nominee account (an automated process), send a valuation to the new platform (printing a piece of paper off and putting it in an envelope and incurring the additional cost of a stamp - 67p I think) and then close the account (someone performing an entire one-or-two-click operation in front of their computer. To do all this work, a platform, like Hargreaves Lansdown for example (with a market share of more than all other platforms combined), would only charge a mere £530, which is extremely reasonable, I'm sure all would agree.

FCA should force platforms to at least double their exit fees to enable them to pay even more back to their owners and shareholders. Platform users serve the sole purpose of existing to make as much money as possible for the platforms.

dunstonh

Transferring out is very expensive work, which is why platforms charge exit fees.

The vast majority of platforms have no exit charge. So, whilst it may be expensive to a platform, most are not making any explicit charge covering it.

Also, for most platforms, it isnt that expensive. The vast majority of transfers are done using the cash transfer method. Inspecie is currently a pain for platforms and methods differ which doesnt help but inspecie only covers a small number of cases. Cash transfer dominates and is a routine transaction using standard methods.

a platform, like Hargreaves Lansdown for example (with a market share of more than all other platforms combined),

HL is the third biggest. The top four account for just over 44% of assets. HL is the biggest D2C platform. Aegon is the largest overall followed by Fidelity, then HL, Old Mutual Wealth and Transact. Although Standard Life may well have moved up the scale since then after it bought AXA's platform.

FCA should force platforms to at least double their exit fees to enable them to pay even more back to their owners and shareholders. Platform users serve the sole purpose of existing to make as much money as possible for the platforms.

Ok. Now I realise you were joking. bit late but never mind.

Alexland

https://portfolio-adviser.com/aj-bell-and-hargreaves-hail-dfm-inclusion-in-exit-fee-ban/

Platform giants AJ Bell and Hargreaves are on board with the Financial Conduct Authority’s proposal to ban exit fees and have hailed the regulator for extending this to DFMs and comparable retail firms that charge “more punitive” fees.

I wonder if AJ Bell now want to refund the fee I paid to transfer my SIPP away from YouInvest a few years ago? Who are they kidding? Exit fees suited them both nicely and neither of them made the fee sufficiently prominent when selling new accounts. How many thousands of customers did they catch this way?

Alex

JohnRo

Most if not all platforms don't handle the investment proper anyway, they're just middle men keeping a record of account.

I don't know what their respective custodians charge the platform itself for administering a platform switch, if anything. It would be interesting to know those numbers.

The platforms that do charge an exit fee certainly appear to be making sure it's a lucrative process though so I'm all for that getting fixed.

ivormonee

Alexland wrote: »

https://portfolio-adviser.com/aj-bell-and-hargreaves-hail-dfm-inclusion-in-exit-fee-ban/

I wonder if AJ Bell now want to refund the fee I paid to transfer my SIPP away from YouInvest a few years ago? Who are they kidding? Exit fees suited them both nicely and neither of them made the fee sufficiently prominent when selling new accounts. How many thousands of customers did they catch this way?

Alex

If A J Bell and Hargreaves Lansdown are saying they agree that exit fees should not be levied (ie. agreeing with any potential ban that may be imposed) why are they still levying these rip off charges? Putting it another way, nobody is holding a gun to their head forcing them to charge exit fees! Hardly a scrupulous stance.

londoninvestor

A more detailed article on this:
https://www.langcatfinancial.co.uk/2019/03/brexit-game-of-thrones-and-the-investment-platforms-market-study-and-you/

Note that as well as the fees, the FCA is trying to address the impediment that platform-specific share classes cause:

lang_cat wrote:

First up in the CP are proposed rules to force the ceding platform to make it easier for clients to re-register to another provider. This is especially relevant where the platform holds a discounted (“superclean”) share class that the other provider might not have access to. In these instances it will be up to the ceding platform to convert the client, free of charge into a share class that can be re-registered. The CP has a few questions about this, and there are complexities to be worked through, however the FCA are proposing draft handbook text and an implementation date of 31st July 2020, so it’s clear they are expecting this one to happen.

bowlhead99

It costs the platforms a non-zero amount of money to accept a new customer onto their platform with all the systems, people and processes and regulatory compliance involved. And most of them don't charge for that, because it would discourage prospective customers from applying to open accounts, which is not good for building up their customer numbers.

Instead when you leave, many of them give you a fee at that point instead. If there is a fee for account closure or in-specie transfer out, it will likely discourage someone from doing something like: signing up at HL, making ten fund investments for zero transaction charge, then transferring out to a rival provider which offers a lower ongoing fee and higher transaction fee. Or just generally wasting providers' time by opening accounts, never really using them, and closing or transferring away.

Opening and closing a £1000 funds account with HL in a six month period would earn HL the princely sum of about two quid, for the work done behind the scenes to handle to customer onboarding, transfer out, and the transaction work and any customer service contact in the middle. As HL want to make a given level of profit from their customers in aggregate, the other fee-paying customers are left carrying the can. If they can't charge customers for the leave process, and don't want to charge customers for the sign-up process, it will be the customers in the middle, who are not making HL incur any 'opening or closing or transferring in or out' workload, who disproportionally bear the costs of that parts of HL's operations.

HL already have a high percentage-fee based model, so certain types of customers will be heavily subsiding the smaller customers and the ones who carry out a lot of transactions. In that context, I suppose it doesn't matter then if the government bans certain explicit charges and has them be funded by the other customers. Some customers are cash cows, and if they don't realise it, they only have themselves to blame.

However - in devil's advocate mode - as everyone is talking about openness and transparency of fees being a good thing for the industry, a prohibition on charges being linked to certain activity metrics (quantity of assets transferred out, number of accounts closed, etc), may raise some eyebrows.

The larger players in the industry with a huge customer base over which to absorb their operating costs, or the ones with high ongoing percentage-based fees - HL being an example of both - might be able to come out in public and nod along with the FCA and say, "yeah we are happy to be at the forefront of cost cutting and get a better result for the investors, aren't we honourable for doing this!". They know it will disproportionately hurt the smaller players who seek to charge primarily on an activity basis, rather than an 'assets under management' basis.

ivormonee

bowlhead99 wrote: »

The larger players in the industry with a huge customer base over which to absorb their operating costs, or the ones with high ongoing percentage-based fees - HL being an example of both - might be able to come out in public and nod along with the FCA and say, "yeah we are happy to be at the forefront of cost cutting and get a better result for the investors, aren't we honourable for doing this!". They know it will disproportionately hurt the smaller players who seek to charge primarily on an activity basis, rather than an 'assets under management' basis.

Many platforms, HL being a good example, may well make public statements suggesting that they are at the forefront of cost cutting and a better deal for the customer, but they're not. They are pursuing the levying of exit fees until the very last moment that they are legally able to. If they really wanted to do the honourable thing they would have dropped these rip off fees or not even levied them in the first place. Fidelity have never charged such fees, TD Direct didn't and Interactive Investor dropped them last year. These are platforms with different charging structures and in fact Fidelity have a similar, ad valorem, fee structure just like HL (and much lower, too), so how can they do it?


Prior to RDR platforms did not levy exit, or any other, fees or charges. In fact, on the brokerage side, for those that offered it, they charged a commission fee for dealing. And on the funds side of things they received a rebate from what was then the "dirty" class of funds. These encorporated a built-in charge of 0.25% which was re-distributed from fund managers back to platforms. Sneakily and with no transparency on any front in most cases the platforms pocketed the trail commission of 0.50% which was never intended for them but for advisers. Technically then, the industry deemed that 0.25% was an adequate and appropriate level of remuneration for platforms.


Roll on to post-RDR and we now have platforms dreaming up all manner of charges. The ad valorem model, which had always been intended as an all-in charging method has not only been retained, but new charges added, exit fees being just one example. There are other fees that many charge, for things like sending you a paper statement even. If so much is being itemised, ie. specific functions incur specific charges, then why have a percentage fee? Surely the logical conclusion would be to charge a fixed fee for custodial and admin-related services too. This is having a cake, eating it and then wanting an even bigger cake for later.


I'm afraid the whole industry is a rip-off. A buy-and-hold investor with even a semi-decently-sized portfolio would be charged up to 0.45%, depending on platform, which would be totally unrelated to the cost of providing a platform service to that investor. Such an investor is being screwed and, in probably the majority of cases, doesn't even know it. And this is just one example of disproportionality; many more can be listed.


The exit fees saga, for it is a saga, is just the tip of the platform-fee-rip-off iceberg. If the FCA could actually bite and not just feebly bark, more well appropriate and long overdue changes could be part of the debate.

dunstonh

Many platforms, HL being a good example, may well make public statements suggesting that they are at the forefront of cost cutting and a better deal for the customer, but they're not.

It is a good point. HL had positioned themselves for years as a low cost provider. Today, they are getting close to twice the cost of other platforms. With larger amounts, they can be 3-4 times the cost.

The problem is that the average consumer investing with HL thinks they are low cost. two of their top-selling funds our HL own funds which are damned expensive.

If you keep telling people one thing, a good number will believe it whether it is true or not. That said, I did see a reference in the FCA paper that they were looking at claims of low cost when it isnt. They didnt mention names.

in fact Fidelity have a similar, ad valorem, fee structure just like HL (and much lower, too), so how can they do it?

Fidelity is a larger platform than HL and hasnt spent anywhere near the same on software. Its ugly, lacks features and lacks basic functionality that other platforms have. So, its cost does reflect what little it offers.

Roll on to post-RDR and we now have platforms dreaming up all manner of charges.

It is strange how platforms have diverged on the D2c and intermediary sides. Intermediary ones are mostly mono charged (percentage only). You get a couple with long lists but they are mostly niche ones handling specialist stuff. Yet on the D2C side, the platforms have introduced a long menu of charges. Someone with their head screwed on could work out which is best for them but most wont be able to. The regulatory position and FOS encouraged simplicity on the intermediary side but that hasn't followed on the D2C side.

I'm afraid the whole industry is a rip-off. A buy-and-hold investor with even a semi-decently-sized portfolio would be charged up to 0.45%, depending on platform, which would be totally unrelated to the cost of providing a platform service to that investor.

most platforms are loss making.

Terry98

They had a bit about this on Moneybox yesterday.

Apparently this is now only a consultation because the providers have complained that it is unfair to ban platform exit fees when many other financial products carry exit charges.