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.
