I apologise but I am going to start this article focusing on football.
Competition has led to a number of new teams striving for success like never before in this year’s Premier League. It has led to further investment and new strategies being developed. I hasten to add that as a Tottenham fan, I have already written off this season to focus on the next.
Competition in the market is a good thing and something we should all welcome. It makes companies think about customer outcomes, increases innovation, improves efficiencies and sees prices fall. Regulation and the government, therefore, does all it can to increase competition within the market place and restricts practices that reduce competition.
Within our industry, a number of the regulatory changes have been done with competition at their heart. The ban on commissions, the unbundling of fees, the mandating of re-registration have all been done with competition in mind. The old market practices were seen as creating not only bias and conflict, but actually reducing the levels of competition in the marketplace. Since its creation, the FCA now carries competition powers within its statutory objectives.
There is one area of the market currently standing out as being anti-competitive and creating poor consumer outcomes – exit fees. There are still policies in existence that carry fees that can be as high as 10 per cent.
These fees are increasingly being set at a fixed fee or a charge per line of stock. The levels may be lower than they were historically but they are becoming a material barrier to customers moving assets.
We see plenty of evidence to support this, a good example being re-registration. Companies that don’t carry exit fees and use the automated standards (in place under the Tax Incentivised Savings Association (Tisa)) take roughly eight days to fully complete a transfer.
With companies that do charge exit fees, but are still automated, that process can take 15 days, but for those that charge exit fees and have not adopted automation, on average it can take 32 days. Clearly, the level of automation has an impact, but fundamentally the companies that charge exit fees take longer with re-registration.
I am all in favour of a free market and I don’t think that the regulator should intervene too often. However, I feel the current market practice is leading to poor consumer outcomes. I also understand that firms need to recover their costs for certain services but this does not feel right with the current implementation.
There are costs incurred in taking on a new client but few, if any, firms are now charging up-front fees for these services. The transaction costs are also reducing. The Tisa standards have introduced automation which should reduce the costs significantly to a few pounds rather than the current levels seen in the market.
To promote open market competition we would like to see exit fees removed from the marketplace. We would like to see, at a very minimum, a review of exit fees and possibly a complete ban. We would also like to see the market act before the regulator needs to.
We believe that removing exit fees would be seen as a mechanism for helping customers to move their assets as they see fit and reduce barriers to exit. It’s time for the industry to act.
Ed Dymott is head of business development at Fidelity Worldwide Investment
