If I rang up for a valuation on my Isa and was told it was worth £5,000, then went on to encash it, why should I receive less than that?
It reminds me of those dreaded ‘market value adjusters’ that were levied in the days of the heavily front-end loaded products from life companies. Having exit penalties seems to suggest you are doing something out of the norm – something that the platforms did not anticipate, something so unusual and outlandish that you had to pay for the privilege to get your own money back. Of course, at some stage you are going to en cash your investment, so why are you penalised for so doing?
The levying of exit fees is a retrograde step and will only serve to lose the trust of the client, and damage the reputation of the industry and, more specifically, platforms.. Platforms are there to provide a service to the adviser and the investor. But when it comes down to it, the money on these platforms belongs to the investor. It is not the property of the platforms, which, for want of a better description, only have temporary custody. Investors are, of course, going to want to exit and have their money back at some stage, and should not be penalised for doing so.
Recently, the FCA in its thematic review said that an increasingly important feature of the retail investment market is to encourage competition (both between platforms and between fund groups). The body also highlighted transparency as key component of this, saying: “We do not want exit charges to get to a level where they might present a barrier to exit, thereby inhibiting competition in the market.”
However, this does not seem to have percolated through. Bristol-based Hargreaves Lansdown has recently been in the press for its price adjustment announcement: a £25 exit fee introduced for investors wanting to close their platform account and a £25 per line of stock fee for those wishing to re-register. They are not alone, some platforms charge a one-off fee for Isa closures, for example, and many others levy fees on encashment.
Some platforms promise a ‘waiving’of fees for certain products over certain time frames, or highlight ‘special offers’ for entrance fees over given time frames. Other platforms have said they will scrap just the Isa exit charges if the investor leaves for a competitor, and others have pledged to go further and pay the exit fees for those moving into their Sipp or Isa wrappers.
All of this again can point to extremely complex charging structures with ‘cost of ownership’ quite tricky to define. Talking to advisers there is little doubt that exit penalties form a significant part of their due diligence process and a ‘no exit fee’ policy is an important requirement for many. Advisers are savvy enough to look beyond headline-grabbing platform fees, and to look instead at what it will cost them to transfer out, to trade, or to utilise various wrappers. Misleading pricing announcements such as the ‘Trips to the US for less than a tenner’ press release by Ryainair, as we all know are very unlikely to actually reflect the true charge.
So if accurate pricing is important to advisers, why have these exit fees in the first place? If the adviser, having done his due diligence, is inclined to re-reg their client over to another platform, surely in the spirit of transparency, flexibility and increasing competition in the market, this should be an easy and penalty-free process.
The reality facing the adviser in this position is a myriad of complex exit fees, some charged as a flat rate ‘account closure fe’” and some a specific charge per fund for in-specie transfers, (ensuring that clients would be charged considerably more if they had smaller amounts invested in a variety of funds). Surely if a platform can manage to accept the money on to the platform (via re-reg) it must be able to allow the assets to leave the platform (via re-reg) or so you would think. The actual process of moving assets over from one platform to another is not yet totally automated or uniform across all platforms and does vary slightly from money coming in and money going out. However, the principle remains the same.
Last year, the Tax Incentivised Savings Association put in place service levels designed to help move towards a faster and more efficient system of re-registration between platforms. There was a target set of six days for platform transfers, and it was reported that the take up of those who had joined or were committed to these changes was good.
Issues facing platforms accepting re-registration business can include complications over share classes. If the ceding platform offers a share class not offered by the accepting platform, or varying exotic investments that are not offered across platforms, not all platforms are as yet geared up for ETFs, or investment trusts, or even investments in models, so complications can arise when trying to bring money across. However, none of these should be a barrier to re-registration or exit, and if it is looking like they might be, then this should be made very clear at the outset to both the adviser and the client.
I have heard some arguments for maintaining exit fees for encashment and re-regs: the customer has benefited from the charges at the outset which were lower so they are redressed on encashment; or the exit fees are always made clear. I do not agree with either of these. Buying an investment is not like locking into a fixed-rate mortgage, where you know that your fixed two-year rate can be set at significantly lower than the base rate and you ‘gamble’ on that remaining the case throughout the term of your rate. If you encash before the time is up, then it might seem logical that you might be subjected to a penalty fee. Nor are exit fees always made clear or highlighted in any meaningful sense in all the industry chatter about ’platform price comparisons’.
Exit fees are a barrier to competition and are a hangover from the old school way of investing where, with smoke and mirrors and opaque charging, clients and advisers could be so bamboozled with information there was no way of knowing exactly how much it would cost to invest with a platform.
Advisers, of course, do not always want a completely ‘all inclusive’ style of charging structure from a platform, as you may be paying for knobs and whistles that you have no intention of using. An exit charge, though, is a stealth tax. You are being charged ‘extra’ for something that it is highly likely you are going to use, as at some stage your clients will be wanting to en-cash. Exit fees are a backwards step and have no place in an industry where transparency and flexibility are the goal posts.
Bill Vasilieff is chief executive of Novia
Key points
The levying of exit fees is a retrograde step and will only serve to lose the trust of the client, and damage the reputation of the industry and platforms more specifically.
Some platforms promise a “waiving”of fees for certain products over certain time frames, or highlight “special offers” for entrance fees over given time frames.
Issues facing platforms accepting re-registration business can include complications over share classes.
