The Financial Conduct Authority’s (FCA) proposals to make it easier for advisers to switch platforms could have unintended consequences, according to senior platform industry figures.
The regulator stated in its interim platform market study in March it was keen for advisers to switch platforms if it is in the client's best interest.
In particular it wants the platform that the client is transferring away from to create a new share class to match the share classes available on the platform that is receiving the client's assets.
The regulator had opened a consultation on this topic, which closed on 14 June. The final report will be published later this year.
The problem the rule is intended to solve is that of clients having to sell all of their assets on the platform they are exiting, before buying them back again once ensconced on the new platform.
This costs money and also means the client is not invested in the market for a period of time, and so could be missing out on investment returns.
But several big platforms have responded to the consultation, warning the regulator of the unintended consequences of such a rule.
Steven Cameron, pensions director at Aegon, said: "Requiring the ceding platform ahead of transferring to arrange conversion into a share class available on the new platform could result in thousands of extra share classes having to be added, creating significant initial and ongoing costs and potential delays.
"While it’s only right that platforms don’t put barriers in front of customers leaving, the proposed approach places too much onus on the ceding platform."
Instead Mr Cameron believes the platforms should work together to come up with a better solution to solve the problem.
Mr Cameron said: "We are urging the FCA to work with the platform industry and fund managers on a radical new solution under which fund managers would undertake the share class conversion as part of the re-registration of the client’s assets between platforms.
"This alternative approach could lead to a more streamlined, cost-effective, customer friendly and forward looking solution."
He added: "While we agree in specie transfers should be offered to all customers, the benefits over cash transfers are less for pensions or Isas as here encashing the underlying assets does not create a capital gains tax liability."
Steven Levin, chief executive of Old Mutual Wealth, the platform owned by Quilter, said the proposals were flawed because platforms would be required to hold "thousands of new share classes, increasing the risk of customers inadvertently selecting an unintended share class and/or not the cheapest available".
He added: "There may be an additional cost for platforms holding thousands of new share classes, which may be passed on to customers in higher platform fees.
"Increased operational complexity for platforms holding additional share classes potentially increases the likelihood of error."
But Mr Levin agreed that there is an issue with clients being out of the market.