Investments  

An expensive divorce

An expensive divorce

Break-ups can be messy. Saying “sayonara” to something you have spent a lot of time, money and effort investing in is not without consequence.

This is also the case when it comes to transferring a stocks and shares Isa account to another provider.

Investors seeking to move their money to a cheaper broker could face barriers in the form of exit fees by the ceding platform. In other words, they can hinder investors from getting the best deal on their savings.

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The charge varies, depending on the broker, but generally remains around the £20 mark for every fund, share, investment trust or bond moved between brokers.

Though the charge may be relatively inexpensive to those with a single holding, the cost could quickly escalate for the more seasoned investor with an expansive portfolio.

So those with 50 holdings would face the prospect of £1,000 in exit fees.

The dilemma facing these individuals is the benefits of a broker offering a better deal versus the cost of such a move.

Not all brokers levy exit charges on customers but many of the leading providers do.

Hargreaves Lansdown and Barclays Stockbrokers impose a charge of £25 and £30 per holding respectively to clients seeking to re-register their investments.

Some providers instead opt to issue a one-off charge for stocks and shares Isa closures. Alliance Trust, for example, charges a grand total of £120 (including VAT).

Mark Polson, principal and founder of investment consultancy the Lang Cat, based in Edinburgh, has been outspoken in his vehement opposition to the charge.

He said: “I don’t think taking a slice out of customers who have the temerity to leave you is a good way of working. Platforms are meant to be hotels, not prisons.”

Adding that the fee was not fair or necessary in most cases, he said: “Half the time receiving platforms end up meeting ceding platforms’ charges with special introductory offers.

“We could just lose the exit fees, stop the merry-go-round and it would all come out in the wash. I particularly don’t like seeing providers who charge percentage or ad valorem fees charging exits – it’s either all-in or it’s not.”

Echoing this view, Carl Melvin, director of Renfrewshire-based Affluent Financial Planning, said investors looking to transfer their Isa are caught between a rock and a hard place.

“Investors usually only leave their provider if they are not satisfied with the performance of the fund or the service they receive. Sometimes investors are just looking to spend the money on a car or wedding for example,” he said:

“Providers should look at themselves and ask why the investor is asking to leave. They should be open to change if it is because of issues on their part, instead of issuing the charge.”

The controversy surrounding the issue has not escaped the attention of the City’s financial watchdog.

A spokeswoman for the FCA said the body expected the levy to be “proportionate” to the cost of actually exiting and should not be a barrier preventing someone moving away from a particular product.