Watchdog mulls ban on exit fees as it plans overhaul of £500bn investment platform market

The market has grown rapidly in recent years, adding 2.2 million customers since 2013

The watchdog said customers may need more help in finding the best platform to suit their needs (Reuters)

Britain’s financial watchdog has unveiled plans to reform the £500bn investment-platform market, potentially restricting fees and making it easier for consumers to switch providers.

Companies such as Hargreaves Lansdown, Interactive Investor, Fidelity and AJ Bell are currently under review by the regulator. The market for investment platforms, used by consumers to invest in shares, funds and various other financial products, has grown rapidly in recent years.

With £500bn of assets currently under management, the market has almost doubled in size since 2013, according to the Financial Conduct Authority, with 2.2 million customer accounts having opened.

The FCA said on Monday that the first stage of its review identified five groups of customers who are not currently well served by the investment platforms. It added, however, that “the market appears to be working well in many respects”.

The watchdog said customers who require assistance are:

• consumers who would benefit from switching but find it difficult to do so

• price-sensitive consumers who find it difficult to shop around and choose a lower-cost platform

• those who may have the wrong idea about the risk-return levels they face

• consumers who may be missing out on investment returns by holding too much cash

• so-called “orphan clients” who were previously advised but no longer have a relationship with any adviser.

The regulator said it plans to explore remedies in seven areas – as well as directly addressing the customer groups outlined above. The FCA added it would look at “strengthening the extent to which platforms drive competition between asset managers”, and address potential non-compliance with its rules.

As well as making it easier for consumers to switch provider, the regulator also said it is considering a ban on exit fees, which more than a quarter of consumers said were “difficult to understand” in an FCA survey.

Christopher Woolard, the FCA’s executive director, said: “This is a market that has seen significant growth in the past five years with more customers than ever deciding to use a platform to manage their money.

“We know that competition is working well for many but it is important that the problems we have identified are addressed so that consumers don’t lose out.”

Shares in Hargreaves Lansdown dropped 4 per cent in early trading. Analyst Artjom Hatsaturjants at Accendo Markets noted that HL is “far from the only company affected” but added that because it is the largest of the platforms available, it is also “the biggest target for potential new rules, and thus hurting the most on the FTSE 100 this morning”.

Chris Hill, chief executive at Hargreaves Lansdown, said: “We welcome the FCA’s focus on switching between providers and hope this accelerates the adoption of technology across the industry enabling people to switch more easily. We look forward to working with the FCA and contributing further to this study.”