The Financial Conduct Authority (FCA) will look to ban exit fees charged by platforms but has ditched plans to force fund supermarkets to police adviser charging.
In a 60-page final report on Investment Platforms Market Study, the regulator stated while the market is generally "working well", switching takes time, is complex, and expensive, due to exit fees.
As a result the City watchdog is launching a consultation which could lead to a ban or a cap on exit fees, while also allowing investors to switch platforms without having to sell the underlying investment.
The new rules being proposed would allow consumers to switch platforms and remain in the same fund without having to sell their investments.
The FCA is also proposing to ban or cap exit fees.
The proposed restriction on exit fees would apply to platforms, and also firms offering a comparable service to retail clients.
The FCA's consultation on new rules for switching and feedback on the questions regarding exit fees runs until June 14. The FCA may then consult on final rules for exit fees.
At present, an investor will typically have to sell a fund as they leave a platform, and buy it back again on the new platform, meaning they are out of the market for a period of time.
The FCA also revealed a review of the progress being made by firms wanting to switch will happen this year and next.
The FCA dropped the most controversial proposal from the Investment Platforms Market Study, which would have required platforms to 'police' the ongoing provision of advice where a customer was paying ongoing adviser charges and there had been no platform activity for 12 months.
The FCA's final report stated: "We were concerned that orphan clients can suffer harm if they are paying for an advice service they no longer receive.
"Having considered feedback to our interim report, our final view is that to treat customers fairly, advisers are responsible for notifying platforms when a client contract ends. Platforms that are concerned that they are not receiving notifications from advisers should inform us."
Steven Cameron, pensions director at Aegon, said: "Forcing providers to switch off adviser charging unless customers confirmed ongoing advice was a highly flawed proposal, which went against the separation of roles at the heart of the Retail Distribution Review.
"Advice can cover many things, goes well beyond 'product' and doesn't and shouldn't always result in platform activity."
“We do not have any exit fees on our platforms – either at platform or product wrapper level. It will be important to define what is considered an exit fee. There are legitimate ongoing trading or transaction costs when switching funds or redeeming individual equities, which apply when staying in or exiting from a platform and these should not be considered as ‘exit fees’.
Christopher Woolard, executive director of strategy and competition at the FCA, said: "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 part of that, we believe it is right that we restrict exit fees, so people can move their money freely."
Martin Stead, chief executive of robo-adviser Nutmeg, said: "We welcome the FCA's decision to act on punitive and, occasionally, extortionate exit fees. At a time when the UK faces a considerable savings gap, more must be done to help consumers invest for their future.
"It is simply wrong that anyone faces excessive penalty fees to transfer an investment and it is right that the regulator cracks down on those providers who effectively block investors from freely choosing where to manage their money."
Aegon's Mr Cameron raised concerns about the exit fee ban.
He said: "We do not have any exit fees on our platforms – either at platform or product wrapper level. It will be important to define what is considered an exit fee.
"There are legitimate ongoing trading or transaction costs when switching funds or redeeming individual equities, which apply when staying in or exiting from a platform and these should not be considered as 'exit fees'."
Mike Barrett, a consultant at the Lang Cat, noted that the interim report by the FCA into this issue, released last year, expected the industry to have made improvements in this area by the time the final report is published.
He said: :"I don't think this has happened, certainly not at the level the FCA expect."
david.thorpe@ft.com
