Ban on Isa and Sipp exit fees moves a step closer

14 March 2019

The Financial Conduct Authority (FCA) has moved a step closer to banning exit fees for investment platforms.

The City Watchdog has been probing competition issues in the platform space and has today (14 March) announced a ban on exit fees "is likely to be appropriate" for when investors switch platforms.

Previously the FCA has proposed banning exit fees, but its latest intervention shows stronger intent. 

The financial regulator is weighing either banning or capping fees. Such fees, the FCA argues, hinders the ability of investors to “shop around” for the best platform, restricting competition.

According to Christopher Woolard, executive director of strategy and competition at the FCA: "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 well as restricting exit fees, the FCA is also consulting on rules to allow investors to move all their holdings from one platform to another.

Some fund investors have trouble doing this at present, in situations when the same fund share class is not available when switching from one platform to another.

In turn, this forces investors looking to switch platforms to sell and re-buy, which among other things (such as being out the market for a small time period) could trigger a capital gains tax charge.

The FCA adds: “We aim to make it easier for consumers to move their assets to a new platform without unnecessary liquidation of investments.”

Exit fees can be end up being excessive due to the way the charges are applied per holding. Investors pay a fixed fee, typically ranging from £10 to £25, on every holding in their portfolio when switching brokers.

Therefore, someone who has 20 holdings will pay anything between £200 and £500, depending on their broker’s exit fee charge and whether charges are capped at a certain level.    

The proposed ban on exit fees has been welcomed by investment platforms that already have zero exit fees.

According to Stuart Welch, head of personal investing at Fidelity: “These fees have always served as a barrier for customers to exit and choosing the best investment platform for their needs and this move will go some way towards creating a more level playing field.”

“Hitting customers with additional charges can make a significant dent in their investment pot for the long term and we welcome this recommendation from the FCA.”

Interactive investor (Moneywise's parent company) scrapped exit fees in November of last year. Commenting on the FCA’s decision the online broker’s chief executive, Richard Wilson noted: “We wholeheartedly agree with an outright ban on exit fees. Capping them doesn’t solve the issues because it’s a recipe for rip offs.

“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.”

In the past, exit-fee charging platforms have argued that the banning of such fees would result in more costs for existing customers, amounting to a subsidy for those leaving at the expense of those staying.

This article first appeared on our sister website Money Observer


In reply to by anonymous_stub (not verified)

Why do these regulators take years to do the right thing? Should have been done years ago, including reducing management fees for safe, non-volatile investments that, by definition, don’t get moved around. So how do these managers justify charging the same amount as for the more strictly managed ones? Maybe the regulators will look at this issue after the current tranche of managers have made their kill at investors’ expense in 50 years time!

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